<PAGE>
PIMCO Funds
PROSPECTUS
Multi-Manager STOCK FUNDS
Series Equity Income Fund Capital Appreciation Fund
January 17, 1997 Renaissance Fund Growth Fund
Value Fund
AGGRESSIVE STOCK FUNDS
Mid Cap Growth Fund Small Cap Value Fund
Target Fund Opportunity Fund
INTERNATIONAL STOCK FUNDS
International Developed Fund Emerging Markets Fund
International Fund
SPECIALIZED STOCK FUNDS
Innovation Fund Precious Metals Fund
STOCK & BOND FUNDS
Balanced Fund
BOND FUNDS
Tax Exempt Fund
PIMCO
<PAGE>
PIMCO Funds: Multi-Manager Series
Prospectus
January 17, 1997
PIMCO Funds: Multi-Manager Series (the "Trust") is an open-end se-
ries management investment company offering sixteen separate di-
versified investment portfolios (each a "Fund") in this Prospec-
tus, each with different investment objectives and strategies. The
address of PIMCO Funds: Multi-Manager Series is 840 Newport Center
Drive, Suite 360, Newport Beach, CA 92660.
Each Fund (except the Opportunity Fund) offers three classes of
shares in this Prospectus: Class A shares (generally sold subject
to an initial sales charge), Class B shares (sold subject to a
contingent deferred sales charge) and Class C shares (sold subject
to an asset based sales charge). The Opportunity Fund does not of-
fer Class B shares. Through a separate prospectus, certain Funds
offer up to two additional classes of shares, Institutional Class
shares and Administrative Class shares. See "Alternative Purchase
Arrangements."
This Prospectus concisely describes the information investors
should know before investing in Class A, Class B and Class C
shares of the Funds. Please read this Prospectus carefully and
keep it for further reference.
Information about the investment objective of each Fund, along
with a detailed description of the types of securities in which
each Fund may invest, and of investment policies and restrictions
applicable to each Fund, are set forth in this Prospectus. There
can be no assurance that the investment objective of any Fund will
be achieved. Because the market value of each Fund's investments
will change, the investment returns and net asset value per share
of each Fund will vary.
A Statement of Additional Information, dated January 14, 1997, as
amended or supplemented from time to time, is available free of
charge by writing to PIMCO Funds Distribution Company (the "Dis-
tributor"), 2187 Atlantic Street, Stamford, Connecticut 06902, or
by telephoning 800-426-0107. The Statement of Additional Informa-
tion, which contains more detailed information about the Trust,
has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SE-
CURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OF-
FENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, AND THE SHARES ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORA-
TION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
TABLE OF CONTENTS
PIMCO Funds Overview..............................................3
Schedule of Fees..................................................4
Financial Highlights..............................................7
Investment Objectives and Policies...............................15
Characteristics and Risks of Securities and Investment
Techniques.....................................................24
Performance Information..........................................35
How to Buy Shares................................................37
Alternative Purchase Arrangements................................41
Exchange Privilege...............................................49
How to Redeem....................................................50
Distributor and Distribution and Servicing Plans.................54
How Net Asset Value Is Determined................................56
Distributions....................................................57
Taxes............................................................58
Management of the Trust..........................................59
Description of the Trust.........................................65
Mailings to Shareholders.........................................66
2 PIMCO Funds: Multi-Manager Series
<PAGE>
PIMCO Funds Overview
PIMCO Advisors L.P. ("PIMCO Advisors" or the "Advisor") is the in-
vestment adviser of all the Funds. PIMCO Advisors is one of the
largest investment management firms in the U.S. As of November 30,
1996, PIMCO Advisors and its subsidiary partnerships had over $111
billion in assets under management. Each of the Funds also has a
sub-adviser (each a "Portfolio Manager") responsible for portfolio
investment decisions. All of the Funds' Portfolio Managers are af-
filiates of PIMCO Advisors except for Van Eck Associates Corpora-
tion ("Van Eck"), an independent Portfolio Manager that advises
the Precious Metals Fund. The affiliated Portfolio Managers are
listed below.
<TABLE>
<CAPTION>
INVESTMENT SPECIALTY
---------------------------------------------------------------------------
<S> <C>
COLUMBUS CIRCLE Stocks, using its "Positive Momentum & Positive
INVESTORS ("Columbus Surprise" discipline
Circle")
---------------------------------------------------
CADENCE CAPITAL Stocks of growth companies that the Portfolio Manager
MANAGEMENT ("Cadence") believes are trading at a reasonable price
---------------------------------------------------
NFJ INVESTMENT GROUP Value stocks that the Portfolio Manager believes are
("NFJ") undervalued and/or offer above-average dividend yields
---------------------------------------------------
BLAIRLOGIE CAPITAL International stocks
MANAGEMENT
("Blairlogie")
---------------------------------------------------
PACIFIC INVESTMENT All sectors of the bond market using its total return
MANAGEMENT COMPANY philosophy--seeking both yield and capital
("Pacific Investment appreciation
Management")
</TABLE>
<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE PRIMARY INVESTMENTS (/1/) PORTFOLIO MANAGER
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STOCK FUNDS Equity Current income as a Common stocks with below- NFJ
Income primary objective; long- average price to earnings
term growth of capital ratios and higher dividend
as a secondary objective yields relative to their
industry groups
-------------------------------------------------------------------------------------------
Renaissance Long-term growth of Income-producing stocks Columbus Circle
capital and income and convertible securities
of companies with small,
medium and large market
capitalizations
-------------------------------------------------------------------------------------------
Value Long-term growth of Common stocks with below- NFJ
capital and income average price to earnings
ratios relative to their
industry groups
-------------------------------------------------------------------------------------------
Capital Growth of capital Common stocks of companies Cadence
Appreciation with market
capitalizations of at
least $100 million that
have improving
fundamentals and whose
stock is reasonably valued
by the market
-------------------------------------------------------------------------------------------
Growth Long-term growth of Common stocks of companies Columbus Circle
capital; income is with medium to large
incidental market capitalizations
---------------------------------------------------------------------------------------------------------
AGGRESSIVE Mid Cap Growth of capital Common stocks of companies Cadence
STOCK FUNDS Growth with market
capitalizations in excess
of $500 million that have
improving fundamentals and
whose stock is reasonably
valued by the market
-------------------------------------------------------------------------------------------
Target Capital appreciation; no Common stocks of companies Columbus Circle
consideration given to with medium market
income capitalizations
-------------------------------------------------------------------------------------------
Small Cap Long-term growth of Common stocks of companies NFJ
Value capital and income with market
capitalizations between
$50 million and $1 billion
and below-average price to
earnings ratios relative
to their industry groups
-------------------------------------------------------------------------------------------
Opportunity (/2/) Capital appreciation; no Common stocks of companies Columbus Circle
consideration given to with small market
income capitalizations (less than
$1 billion)
---------------------------------------------------------------------------------------------------------
INTERNATIONAL International Long-term growth of Diversified portfolio of Blairlogie
STOCK FUNDS Developed capital international equity
securities (developed
markets)
-------------------------------------------------------------------------------------------
International Capital appreciation; Non-U.S. stocks of Blairlogie
income is companies with small,
incidental medium and large market
capitalizations (developed
and emerging markets)
-------------------------------------------------------------------------------------------
Emerging Long-term growth of Common stocks of companies Blairlogie
Markets capital located in emerging market
countries
---------------------------------------------------------------------------------------------------------
SPECIALIZED Innovation Capital appreciation; no Common stocks of companies Columbus Circle
STOCK FUNDS consideration given to with small, medium and
income large market
capitalizations
(technology-related
stocks)
-------------------------------------------------------------------------------------------
Precious Capital appreciation; no U.S. and non-U.S. stocks Van Eck
Metals consideration given to of companies with medium
income and large market
capitalizations (precious
metals-related stocks)
---------------------------------------------------------------------------------------------------------
STOCK & Balanced Total return consistent Common stocks, fixed Cadence, NFJ and Pacific
BOND FUNDS with prudent investment income securities and Investment Management
management money market instruments
---------------------------------------------------------------------------------------------------------
BOND FUNDS Tax Exempt High current income Investment grade municipal Columbus Circle
exempt from federal securities (tax-exempt
income tax, consistent bonds)
with preservation of
capital
</TABLE>
FUND
PROFILES
1. For specific information concerning the market capitalizations
of companies in which each Fund may invest and each Fund's invest-
ment style, see "Investment Objectives and Policies" in this Pro-
spectus.
2. Except to the extent described under "How to Buy Shares--Lim-
ited Offering of Shares of the Opportunity Fund to New Investors,"
the Opportunity Fund is closed to new investors. See "How to Buy
Shares--Restrictions on Sales of and Exchanges for Shares of the
Opportunity Fund."
January 17, 1997 Prospectus 3
<PAGE>
Schedule of Fees
<TABLE>
<CAPTION>
Shareholder CLASS A CLASS B CLASS C
Transaction SHARES SHARES(/1/) SHARES
Expenses
------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM INITIAL SALES CHARGE
IMPOSED ON PURCHASES
(as a percentage of offering
price at time of purchase)
ALL FUNDS EXCEPT THE TAX EX-
EMPT FUND 5.50% None None
TAX EXEMPT FUND 4.50% None None
------------------------------------------------------------------
MAXIMUM SALES CHARGE IMPOSED
ON REINVESTED DIVIDENDS
(as a percentage of net asset
value at time of purchase) None None None
------------------------------------------------------------------
MAXIMUM CONTINGENT DEFERRED
SALES CHARGE ("CDSC")
(as a percentage of original
purchase price) 1%(/2/) 5%(/3/) 1%(/4/)
------------------------------------------------------------------
EXCHANGE FEE None None None
</TABLE>
1. The Opportunity Fund does not offer Class B shares.
2. Imposed only in certain circumstances where Class A shares are
purchased without a front-end sales charge at the time of pur-
chase. See "Alternative Purchase Arrangements" in this Prospectus.
3. The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines ac-
cording to the schedule set forth under "Alternative Purchase Ar-
rangements -- Deferred Sales Charge Alternative -- Class B Shares"
in this Prospectus.
4. The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
<TABLE>
<CAPTION>
EXAMPLE: You would pay the
following expenses on a $1,000
investment assuming (1) 5%
annual return and (2)
ANNUAL FUND OPERATING EXPENSES redemption at the end
(As a percentage of average net assets): of each time period:
Class A TOTAL
Shares ADMINI- FUND
ADVISORY STRATIVE 12B-1 OPERATING YEAR
FUND FEES FEES(/1/) FEES(/2/) EXPENSES 1 3 5 10
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY INCOME .45% .40% .25% 1.10% $ 66 $ 88 $ 112 $ 182
-----------------------------------------------------------------------------------------
RENAISSANCE .60 .40 .25 1.25 67 92 120 198
-----------------------------------------------------------------------------------------
VALUE .45 .40 .25 1.10 66 88 112 182
-----------------------------------------------------------------------------------------
CAPITAL
APPRECIATION .45 .40 .25 1.10 66 88 112 182
-----------------------------------------------------------------------------------------
GROWTH .50 .40 .25 1.15 66 90 115 187
-----------------------------------------------------------------------------------------
MID CAP GROWTH .45 .40 .25 1.10 66 88 112 182
-----------------------------------------------------------------------------------------
TARGET .55 .40 .25 1.20 67 91 117 192
-----------------------------------------------------------------------------------------
SMALL CAP VALUE .60 .40 .25 1.25 67 92 120 198
-----------------------------------------------------------------------------------------
OPPORTUNITY .65 .40 .25 1.30 68 94 122 203
-----------------------------------------------------------------------------------------
INTERNATIONAL DEVELOPED .60 .65 .25 1.50 69 100 132 224
-----------------------------------------------------------------------------------------
INTERNATIONAL .55 .65 .25 1.45 69 98 130 219
-----------------------------------------------------------------------------------------
EMERGING MARKETS .85 .65 .25 1.75 72 107 145 250
-----------------------------------------------------------------------------------------
INNOVATION .65 .40 .25 1.30 68 94 122 203
-----------------------------------------------------------------------------------------
PRECIOUS METALS .60 .45 .25 1.30 68 94 122 203
-----------------------------------------------------------------------------------------
BALANCED .45 .40 .25 1.10 66 88 112 182
-----------------------------------------------------------------------------------------
TAX EXEMPT .30 .40 .25 .95 54 74 95 156
<CAPTION>
EXAMPLE: You would pay the
following expenses on a $1,000
investment assuming (1) 5%
annual return and (2) no
redemption:
YEAR
FUND 1 3 5 10
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY INCOME $ 66 $ 88 $ 112 $ 182
-----------------------------------------------------------------------------------------
RENAISSANCE 67 92 120 198
-----------------------------------------------------------------------------------------
VALUE 66 88 112 182
-----------------------------------------------------------------------------------------
CAPITAL
APPRECIATION 66 88 112 182
-----------------------------------------------------------------------------------------
GROWTH 66 90 115 187
-----------------------------------------------------------------------------------------
MID CAP GROWTH 66 88 112 182
-----------------------------------------------------------------------------------------
TARGET 67 91 117 192
-----------------------------------------------------------------------------------------
SMALL CAP VALUE 67 92 120 198
-----------------------------------------------------------------------------------------
OPPORTUNITY 68 94 122 203
-----------------------------------------------------------------------------------------
INTERNATIONAL DEVELOPED 69 100 132 224
-----------------------------------------------------------------------------------------
INTERNATIONAL 69 98 130 219
-----------------------------------------------------------------------------------------
EMERGING MARKETS 72 107 145 250
-----------------------------------------------------------------------------------------
INNOVATION 68 94 122 203
-----------------------------------------------------------------------------------------
PRECIOUS METALS 68 94 122 203
-----------------------------------------------------------------------------------------
BALANCED 66 88 112 182
-----------------------------------------------------------------------------------------
TAX EXEMPT 54 74 95 156
</TABLE>
1. The Administrative Fees for each Fund are subject to reduction to the extent
that the average net assets attributable in the aggregate to the Fund's Class A,
Class B and Class C shares exceed $2.5 billion. See "Management of the
Trust--Advisory and Administrative Fees."
2. 12b-1 fees represent servicing fees which are paid annually to the
Distributor and repaid to participating brokers, certain banks and other
financial intermediaries. See "Distributor and Distribution and Servicing
Plans."
4
PIMCO Funds: Multi-Manager Series
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: You would pay the
following expenses on a $1,000
investment assuming (1) 5%
Class B Shares ANNUAL FUND OPERATING EXPENSES annual return and (2) redemption
(As a percentage of average net assets): at the end of each time period:
TOTAL
ADMINI- FUND
ADVISORY STRATIVE 12B-1 OPERATING YEAR
FUND FEES FEES(/1/) FEES(/2/) EXPENSES 1 3 5 10
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY INCOME .45% .40% 1.00% 1.85% $ 69 $ 88 $ 120 $ 188
-------------------------------------------------------------------------------------------
RENAISSANCE .60 .40 1.00 2.00 70 93 128 204
-------------------------------------------------------------------------------------------
VALUE .45 .40 1.00 1.85 69 88 120 188
-------------------------------------------------------------------------------------------
CAPITAL APPRECIATION .45 .40 1.00 1.85 69 88 120 188
-------------------------------------------------------------------------------------------
GROWTH .50 .40 1.00 1.90 69 90 123 193
-------------------------------------------------------------------------------------------
MID CAP GROWTH .45 .40 1.00 1.85 69 88 120 188
-------------------------------------------------------------------------------------------
TARGET .55 .40 1.00 1.95 70 91 125 198
-------------------------------------------------------------------------------------------
SMALL CAP VALUE .60 .40 1.00 2.00 70 93 128 204
-------------------------------------------------------------------------------------------
INTERNATIONAL DEVELOPED .60 .65 1.00 2.25 73 100 140 230
-------------------------------------------------------------------------------------------
INTERNATIONAL .55 .65 1.00 2.20 72 99 138 225
-------------------------------------------------------------------------------------------
EMERGING MARKETS .85 .65 1.00 2.50 75 108 153 256
-------------------------------------------------------------------------------------------
INNOVATION .65 .40 1.00 2.05 71 94 130 209
-------------------------------------------------------------------------------------------
PRECIOUS METALS .60 .45 1.00 2.05 71 94 130 209
-------------------------------------------------------------------------------------------
BALANCED .45 .40 1.00 1.85 69 88 120 188
-------------------------------------------------------------------------------------------
TAX EXEMPT .30 .40 1.00 1.70 67 84 112 171
<CAPTION>
EXAMPLE: You would pay the
following expenses on a $1,000
investment assuming (1) 5%
annual return and (2) no
redemption:
YEAR
FUND 1 3 5 10
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY INCOME $ 19 $ 58 $ 100 $ 188
-------------------------------------------------------------------------------------------
RENAISSANCE 20 63 108 204
-------------------------------------------------------------------------------------------
VALUE 19 58 100 188
-------------------------------------------------------------------------------------------
CAPITAL APPRECIATION 19 58 100 188
-------------------------------------------------------------------------------------------
GROWTH 19 60 103 193
-------------------------------------------------------------------------------------------
MID CAP GROWTH 19 58 100 188
-------------------------------------------------------------------------------------------
TARGET 20 61 105 198
-------------------------------------------------------------------------------------------
SMALL CAP VALUE 20 63 108 204
-------------------------------------------------------------------------------------------
INTERNATIONAL DEVELOPED 23 70 120 230
-------------------------------------------------------------------------------------------
INTERNATIONAL 22 69 118 225
-------------------------------------------------------------------------------------------
EMERGING MARKETS 25 78 133 256
-------------------------------------------------------------------------------------------
INNOVATION 21 64 110 209
-------------------------------------------------------------------------------------------
PRECIOUS METALS 21 64 110 209
-------------------------------------------------------------------------------------------
BALANCED 19 58 100 188
-------------------------------------------------------------------------------------------
TAX EXEMPT 17 54 92 171
</TABLE>
1. The Administrative Fees for each Fund are subject to reduction to the extent
that the average net assets attributable in the aggregate to the Fund's Class A,
Class B and Class C shares exceed $2.5 billion. See "Management of the
Trust--Advisory and Administrative Fees."
2. 12b-1 fees which are equal to .25% represent servicing fees which are paid
annually to the Distributor and repaid to participating brokers, certain banks
and other financial intermediaries. 12b-1 fees which exceed .25% represent
aggregate distribution and servicing fees. See "Distributior and Distribution
and Servicing Plans."
January 17, 1997 Prospectus
5
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: You would pay the
following expenses on a $1,000
investment assuming (1) 5%
ANNUAL FUND OPERATING EXPENSES annual return and (2) redemption
(As a percentage of average net assets): at the end of each time period:
Class C Shares TOTAL
ADMINI- FUND
ADVISORY STRATIVE 12B-1 OPERATING YEAR
FUND FEES FEES(/1/) FEES(/2/) EXPENSES 1 3 5 10
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY INCOME .45% .40% 1.00% 1.85% $ 29 $ 58 $ 100 $ 217
----------------------------------------------------------------------------------------
RENAISSANCE .60 .40 1.00 2.00 30 63 108 233
----------------------------------------------------------------------------------------
VALUE .45 .40 1.00 1.85 29 58 100 217
----------------------------------------------------------------------------------------
CAPITAL APPRECIATION .45 .40 1.00 1.85 29 58 100 217
----------------------------------------------------------------------------------------
GROWTH .50 .40 1.00 1.90 29 60 103 222
----------------------------------------------------------------------------------------
MID CAP GROWTH .45 .40 1.00 1.85 29 58 100 217
----------------------------------------------------------------------------------------
TARGET .55 .40 1.00 1.95 30 61 105 227
----------------------------------------------------------------------------------------
SMALL CAP VALUE .60 .40 1.00 2.00 30 63 108 233
----------------------------------------------------------------------------------------
OPPORTUNITY .65 .40 1.00 2.05 31 64 110 238
----------------------------------------------------------------------------------------
INTERNATIONAL DEVELOPED .60 .65 1.00 2.25 33 70 120 258
----------------------------------------------------------------------------------------
INTERNATIONAL .55 .65 1.00 2.20 32 69 118 253
----------------------------------------------------------------------------------------
EMERGING MARKETS .85 .65 1.00 2.50 35 78 133 284
----------------------------------------------------------------------------------------
INNOVATION .65 .40 1.00 2.05 31 64 110 238
----------------------------------------------------------------------------------------
PRECIOUS METALS .60 .45 1.00 2.05 31 64 110 238
----------------------------------------------------------------------------------------
BALANCED .45 .40 1.00 1.85 29 58 100 217
----------------------------------------------------------------------------------------
TAX EXEMPT .30 .40 1.00 1.70 27 54 92 201
<CAPTION>
EXAMPLE: You would pay the
following expenses on a $1,000
investment assuming (1) 5% annual
return and (2) no redemption:
YEAR
FUND 1 3 5 10
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY INCOME $ 19 $ 58 $ 100 $ 217
----------------------------------------------------------------------------------------
RENAISSANCE 20 63 108 233
----------------------------------------------------------------------------------------
VALUE 19 58 100 217
----------------------------------------------------------------------------------------
CAPITAL APPRECIATION 19 58 100 217
----------------------------------------------------------------------------------------
GROWTH 19 60 103 222
----------------------------------------------------------------------------------------
MID CAP GROWTH 19 58 100 217
----------------------------------------------------------------------------------------
TARGET 20 61 105 227
----------------------------------------------------------------------------------------
SMALL CAP VALUE 20 63 108 233
----------------------------------------------------------------------------------------
OPPORTUNITY 21 64 110 238
----------------------------------------------------------------------------------------
INTERNATIONAL DEVELOPED 23 70 120 258
----------------------------------------------------------------------------------------
INTERNATIONAL 22 69 118 253
----------------------------------------------------------------------------------------
EMERGING MARKETS 25 78 133 284
----------------------------------------------------------------------------------------
INNOVATION 21 64 110 238
----------------------------------------------------------------------------------------
PRECIOUS METALS 21 64 110 238
----------------------------------------------------------------------------------------
BALANCED 19 58 100 217
----------------------------------------------------------------------------------------
TAX EXEMPT 17 54 92 201
</TABLE>
1. The Administrative Fees for each Fund are subject to reduction to the extent
that the average net assets attributable in the aggregate to the Fund's Class A,
Class B and Class C shares exceed $2.5 billion. See "Management of the
Trust--Advisory and Administration Fees."
2. 12b-1 fees which are equal to .25% represent servicing fees which are paid
annually to the Distributor and repaid to participating brokers, certain banks
and other financial intermediaries. 12b-1 fees which exceed .25% represent
aggregate distribution and servicing fees. See "Distributor and Distribution and
Servicing Plans."
The purpose of the foregoing tables is to assist investors in understanding the
various costs and expenses of the Trust that are borne directly or indirectly by
Class A, Class B and Class C shareholders of the Funds. Class A, Class B and
Class C shares of the Funds were not offered prior to the date of this
Prospectus, although Class A, Class B (except for the Opportunity Fund) and
Class C shares were previously offered by the predecessor of each of the
Renaissance, Growth, Target, Opportunity, International, Innovation, Precious
Metals and Tax Exempt Funds, each of which was a series of PIMCO Advisors Funds
that reorganized as a Fund of the Trust on January 17, 1997. The information
provided above for each of these Funds reflects the Fund's current fees and
expenses and not the fees and expenses of its predecessor. The Examples for
Class A shares assume payment of the current maximum applicable sales load. Due
to the 12b-1 distribution fee imposed on Class B and Class C shares, a Class C
shareholder of the Trust may, depending on the length of time the shares are
held, pay more than the economic equivalent of the maximum front-end sales
charges permitted by relevant rules of the National Association of Securities
Dealers, Inc.
Note: The figures shown in the Examples are entirely hypothetical. They are not
representations of past or future performance or expenses; actual performance
and/or expenses may be more be more or less than shown.
6
PIMCO Funds: Multi-Manager Series
<PAGE>
Financial Highlights
The financial highlights set forth on the following pages present
certain information and ratios as well as performance information
for Funds whose predecessors offered Class A, Class B, or Class C
shares prior to the date of this Prospectus as series of PIMCO Ad-
visors Funds, each of which reorganized as a series of the Trust
on January 17, 1997. The expense ratios provided in the financial
highlights for these Funds reflect fee arrangements in effect for
PIMCO Advisors Funds which differ from the fee arrangements appli-
cable to the Funds of the Trust. The information provided below,
which is included in the PIMCO Advisors Funds' Annual Report dated
September 30, 1996, has been audited by the former independent ac-
countants for the predecessors to such Funds for the periods list-
ed, whose report thereon is also included in such Annual Report.
The PIMCO Advisors Funds' Annual Report is incorporated by refer-
ence in the Statement of Additional Information and may be ob-
tained without charge from the Distributor. Financial Statements
and related Notes are also incorporated by reference in the State-
ment of Additional Information. The remaining Funds did not offer
Class A, Class B or Class C shares prior to the date of this Pro-
spectus.
The following schedule of financial highlights for the Renais-
sance Fund is for shares outstanding throughout the periods list-
ed. The information provided reflects results of operations under
the Fund's former investment objective and policies through Janu-
ary 31, 1992; such results would not necessarily have been
achieved had the Fund's current objective and policies then been
in effect.
RENAISSANCE FUND(/1/)
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------- ----------------
2/1/91- 5/22/95-
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------- ---------------
Net Asset
Value,
Beginning of
Period $14.14 $12.50 $12.88 $10.57 $9.92 $8.38 $14.13 $12.55
------------------------------------------------- ---------------
Income From
Investment
Operations:
Net Investment
Income 0.23 0.36 0.34 0.33 0.34 0.28 0.09 0.11
Net Gains or
Losses on
Securities
(both realized
and
unrealized) 2.79 1.61 (0.17) 2.30 0.71 1.54 2.83 1.55
------------------------------------------------- ---------------
Total From
Investment
Operations 3.02 1.97 0.17 2.63 1.05 1.82 2.92 1.66
------------------------------------------------- ---------------
Less
Distributions:
Dividends (from
net investment
income)
(0.23) (0.33) (0.33) (0.32) (0.40) (0.28) (0.11) (0.08)
Dividends (in
excess of net
investment
income) (0.07) 0.00 0.00 0.00 0.00 0.00 (0.04) 0.00
Distributions
(from
capital gain) (0.78) 0.00 (0.22) 0.00 0.00 0.00 (0.78) 0.00
------------------------------------------------- ---------------
Total
Distributions (1.08) (0.33) (0.55) (0.32) (0.40) (0.28) (0.93) (0.08)
------------------------------------------------- ---------------
Net Asset
Value,
End of Period $16.08 $14.14 $12.50 $12.88 $10.57 $9.92 $16.12 $14.13
================================================= ===============
TOTAL RETURN
(without
sales charge) 22.37% 16.1% 1.4% 25.3% 10.7% 34.8% 21.54% 13.3%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of Period (in
000s) $20,631 $12,933 $14,942 $6,328 $2,593 $15 $15,693 $1,760
Ratio of
Expenses to
Average Net
Assets 1.25% 1.3% 1.3% 1.3% 1.4% 1.6%* 2.00% 2.1%*
Ratio of Net
Investment
Income to
Average
Net Assets 1.60% 2.9% 2.7% 2.9% 3.3% 4.4%* 0.85% 2.2%*
Portfolio
Turnover Rate 203.07% 176.9% 174.9% 167.9% 149.0% 142.7% 203.07% 176.9%
Average
Commission
Rate $0.06 $0.06
<CAPTION>
Class C
-----------------------------------------------------------------------------------
4/18/88-
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/89 9/30/88
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
Net Asset
Value,
Beginning of
Period $14.09 $12.47 $12.85 $10.56 $9.91 $8.16 $11.17 $10.05 $10.00
-----------------------------------------------------------------------------------
Income From
Investment
Operations:
Net Investment
Income 0.12 0.27 0.24 0.25 0.29 0.36 0.49 0.55 0.24
Net Gains or
Losses on
Securities
(both realized
and
unrealized) 2.78 1.59 (0.16) 2.29 0.68 1.75 (2.32) 1.19 (0.05)
-----------------------------------------------------------------------------------
Total From
Investment
Operations 2.90 1.86 0.08 2.54 0.97 2.11 (1.83) 1.74 0.19
-----------------------------------------------------------------------------------
Less
Distributions:
Dividends (from
net investment
income) (0.13) (0.24) (0.24) (0.25) (0.32) (0.36) (0.49) (0.62) (0.14)
Dividends (in
excess of net
investment
income) (0.03) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions
(from
capital gain) (0.78) 0.00 (0.22) 0.00 0.00 0.00 (0.69) 0.00 0.00
-----------------------------------------------------------------------------------
Total
Distributions (0.94) (0.24) (0.46) (0.25) (0.32) (0.36) (1.18) (0.62) (0.14)
-----------------------------------------------------------------------------------
Net Asset
Value,
End of Period $16.05 $14.09 $12.47 $12.85 $10.56 $9.91 $8.16 $11.17 $10.05
===================================================================================
TOTAL RETURN
(without
sales charge) 21.52% 15.2% 0.7% 24.4% 9.9% 26.5% (18.0%) 17.9% 4.3%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of Period (in
000s) $230,058 $174,316 $178,892 $94,247 $45,101 $22,651 $25,758 $45,168 $47,118
Ratio of
Expenses to
Average Net
Assets 2.00% 2.1% 2.0% 2.1% 2.1% 2.2% 2.0% 1.9% 2.0%*
Ratio of Net
Investment
Income to
Average
Net Assets 0.85% 2.1% 2.0% 2.2% 2.7% 4.2% 5.1% 5.2% 5.4%*
Portfolio
Turnover Rate 203.07% 176.9% 174.9% 167.9% 149.0% 142.7% 70.2% 84.8% 22.9%
Average
Commission
Rate $0.06
</TABLE>
1. Formerly, the PIMCO Advisors Equity Income Fund.
*Annualized
January 17, 1997 Prospectus 7
<PAGE>
Financial Highlights
The following schedule of financial highlights for the Growth Fund
is for shares outstanding throughout the periods listed.
GROWTH FUND
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------------- ----------------
10/26/90- 5/23/95-
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------- ---------------
Net Asset Value,
Beginning of
Period
$25.73 $22.01 $23.64 $20.76 $20.63 $16.99 $24.94 $22.63
------------------------------------------------------- ---------------
Income From
Investment
Operations:
Net Investment
Income (Loss) 0.06 0.12 0.12 0.09 0.14 0.21 (0.07) (0.03)
Net Gains or
Losses on
Securities
(both realized
and unrealized)
3.72 4.79 0.12 3.53 1.38 5.28 3.52 2.34
------------------------------------------------------- ---------------
Total From
Investment
Operations 3.78 4.91 0.24 3.62 1.52 5.49 3.45 2.31
------------------------------------------------------- ---------------
Less
Distributions:
Dividends (from
net investment
income) 0.00 0.00 0.00 0.00 (0.14) (0.19) 0.00 0.00
Distributions
(from
capital gain) (2.93) (1.19) (1.87) (0.74) (1.25) (1.66) (2.93) 0.00
------------------------------------------------------- ---------------
Total
Distributions (2.93) (1.19) (1.87) (0.74) (1.39) (1.85) (2.93) 0.00
------------------------------------------------------- ---------------
Net Asset Value,
End of Period
$26.58 $25.73 $22.01 $23.64 $20.76 $20.63 $25.46 $24.94
======================================================= ===============
TOTAL RETURN
(without
sales charge) 16.11% 23.7% 1.3% 17.7% 7.7% 38.6% 15.22% 10.2%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of
Period (in 000s) $151,103 $134,819 $107,269 $97,509 $71,209 $17,064 $37,256 $7,671
Ratio of
Expenses to
Average Net
Assets 1.11% 1.1% 1.1% 1.1% 1.1% 1.2%* 1.86% 1.9%*
Ratio of Net
Investment
Income to
Average
Net Assets 0.24% 0.5% 0.6% 0.4% 0.7% 0.9%* (0.51)% (0.4)%*
Portfolio
Turnover Rate 104.07% 110.6% 115.3% 109.9% 92.3% 95.3% 104.07% 110.6%
Average
Commission Rate $0.07 $0.07
<CAPTION>
Class C
-----------------------------------------------------------------------------------------------------------------
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/89 9/30/88 99/30/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of
Period $24.94 $21.52 $23.32 $20.64 $20.54 $16.93 $19.71 $13.93 $18.04 $14.76
-----------------------------------------------------------------------------------------------------------------
Income From
Investment
Operations:
Net Investment
Income (Loss) (0.12) (0.04) (0.04) (0.07) (0.01) 0.12 0.19 0.11 0.09 0.14
Net Gains or
Losses on
Securities
(both realized
and unrealized) 3.57 4.65 0.11 3.49 1.37 5.32 (1.67) 5.77 (2.96) 5.24
-----------------------------------------------------------------------------------------------------------------
Total From
Investment
Operations 3.45 4.61 0.07 3.42 1.36 5.44 (1.48) 5.88 (2.87) 5.38
-----------------------------------------------------------------------------------------------------------------
Less
Distributions:
Dividends (from
net investment
income) 0.00 0.00 0.00 0.00 (0.01) (0.17) (0.18) (0.10) (0.11) (0.18)
Distributions
(from
capital gain) (2.93) (1.19) (1.87) (0.74) (1.25) (1.66) (1.12) 0.00 (1.13) (1.92)
-----------------------------------------------------------------------------------------------------------------
Total
Distributions (2.93) (1.19) (1.87) (0.74) (1.26) (1.83) (1.30) (0.10) (1.24) (2.10)
-----------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $25.46 $24.94 $21.52 $23.32 $20.64 $20.54 $16.93 $19.71 $13.93 $18.04
=================================================================================================================
TOTAL RETURN
(without
sales charge) 15.22% 22.8% 0.5% 16.9% 6.9% 35.1% (8.0)% 42.4% (14.8)% 41.5%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of
Period (in 000s) $1,450,216 $1,290,152 $1,085,427 $1,077,490 $853,121 $564,398 $314,075 $373,490 $338,493 $509,348
Ratio of
Expenses to
Average Net
Assets 1.86% 1.9% 1.9% 1.9% 1.9% 1.8% 1.7% 1.7% 1.8% 1.6%
Ratio of Net
Investment
Income to
Average
Net Assets (0.51)% (0.2)% (0.2)% (0.3)% (0.1)% 0.6% 1.0% 0.7% 0.6% 0.8%
Portfolio
Turnover Rate 104.07% 110.6% 115.3% 109.9% 92.3% 95.3% 88.7% 82.5% 103.6% 128.1%
Average
Commission Rate $0.07
</TABLE>
*Annualized
8 PIMCO Funds: Multi-Manager Series
<PAGE>
Financial Highlights
The following schedule of financial highlights for the Target Fund
is for shares outstanding throughout the periods listed.
<TABLE>
<CAPTION>
TARGET FUND
Class A Class B Class C
-------------------------------------- --------------- --------------------------------------
12/17/92- 5/22/95- 12/17/92-
9/30/96 9/30/95 9/30/94 9/30/93 9/30/96 9/30/95 9/30/96 9/30/95 9/30/94 9/30/93
-------------------------------------- --------------- --------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $16.40 $13.13 $12.72 $10.00 $16.06 $13.93 $16.05 $12.95 $12.65 $10.00
-------------------------------------- --------------- --------------------------------------
Income From
Investment
Operations:
Net Investment
Loss (0.05) (0.02) (0.04) (0.02) (0.09) (0.05) (0.16) (0.12) (0.14) (0.09)
Net Gains or
Losses on
Securities
(both realized
and unrealized) 2.54 3.45 0.57 2.74 2.39 2.18 2.47 3.38 0.56 2.74
-------------------------------------- --------------- --------------------------------------
Total From
Investment
Operations 2.49 3.43 0.53 2.72 2.30 2.13 2.31 3.26 0.42 2.65
-------------------------------------- --------------- --------------------------------------
Less
Distributions:
Distributions
(from
capital gain) (1.78) (0.16) (0.12) 0.00 (1.78) 0.00 (1.78) (0.16) (0.12) 0.00
-------------------------------------- --------------- --------------------------------------
Net Asset Value,
End of Period $17.11 $16.40 $13.13 $12.72 $16.58 $16.06 $16.58 $16.05 $12.95 $12.65
====================================== =============== ======================================
TOTAL RETURN
(without
sales charge) 16.50% 26.5% 4.2% 27.2% 15.58% 15.3% 15.66% 25.6% 3.4% 26.5%
RATIOS /
SUPPLEMENTAL
DATA
Net Assets, End
of
Period (in 000s)$156,027 $121,915 $90,527 $48,787 $49,851 $7,554 $974,948 $780,355 $556,043 $298,238
Ratio of
Expenses to
Average Net
Assets 1.18% 1.2% 1.2% 1.3%* 1.93% 2.0%* 1.93% 2.0% 2.0% 2.0%*
Ratio of Net
Investment
Income to
Average
Net Assets (0.34)% (0.1)% (0.3)% (0.3)%* (1.09)% (0.9)%* (1.09)% (0.9)% (1.1)% (1.0)%*
Portfolio
Turnover Rate 140.51% 128.3% 103.5% 76.0% 140.51% 128.3% 140.51% 128.3% 103.5% 76.0%
Average
Commission Rate $0.06 $0.06 $0.06
</TABLE>
*Annualized
January 17, 1997 Prospectus 9
<PAGE>
Financial Highlights
The following schedule of financial highlights for the Opportunity
Fund is for shares outstanding throughout the periods listed.
OPPORTUNITY FUND
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
12/17/90-
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------
Net Asset
Value,
Beginning of Period $39.08 $28.87 $33.43 $19.84 $17.95 $11.78
------------------------------------------------------
Income From
Investment Operations:
Net Investment
Loss (0.11) (0.11) (0.17) (0.15) (0.04) (0.03)
Net Gains or
Losses on
Securities
(both realized
and
unrealized) 6.12 11.19 (2.02) 14.00 3.61 6.20
------------------------------------------------------
Total From
Investment
Operations 6.01 11.08 (2.19) 13.85 3.57 6.17
------------------------------------------------------
Less
Distributions:
Dividends (from
net investment
income)
0.00 0.00 0.00 0.00 0.00 0.00
Distributions
(from
capital gain) (7.73) (0.87) (2.26) (0.26) (1.68) 0.00
Return of
capital
distribution 0.00 0.00 (0.11) 0.00 0.00 0.00
------------------------------------------------------
Total
Distributions (7.73) (0.87) (2.37) (0.26) (1.68) 0.00
------------------------------------------------------
Net Asset
Value,
End of Period $37.36 $39.08 $28.87 $33.43 $19.84 $17.95
======================================================
TOTAL RETURN
(without
sales charge) 18.35% 39.7% (6.7)% 70.4% 21.6% 70.9%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of
Period (in 000s) $134,859 $120,830 $95,261 $106,666 $22,454 $1,623
Ratio of
Expenses to
Average Net
Assets 1.13% 1.2% 1.1% 1.2% 1.3% 1.4%*
Ratio of Net
Investment
Income to
Average
Net Assets (0.32)% (0.4)% (0.6)% (0.6)% (0.2)% (0.5)%*
Portfolio
Turnover Rate 91.23% 101.6% 78.4% 105.4% 93.8% 144.6%
Average
Commission
Rate $0.07
<CAPTION>
Class C
----------------------------------------------------------------------------------------------
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/89 9/30/88 9/30/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
Net Asset
Value,
Beginning of Period $37.64 $28.04 $32.77 $19.60 $17.87 $11.93 $15.78 $11.84 $16.73 $13.18
----------------------------------------------------------------------------------------------
Income From
Investment Operations:
Net Investment
Loss (0.35) (0.34) (0.38) (0.34) (0.18) (0.11) (0.01) (0.03) 0.03 0.02
Net Gains or
Losses on
Securities
(both realized
and
unrealized) 5.82 10.81 (1.98) 13.77 3.59 6.42 (2.13) 3.97 (2.34) 4.80
----------------------------------------------------------------------------------------------
Total From
Investment
Operations 5.47 10.47 (2.36) 13.43 3.41 6.31 (2.14) 3.94 (2.31) 4.82
----------------------------------------------------------------------------------------------
Less
Distributions:
Dividends (from
net investment
income) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.03) 0.00
Distributions
(from
capital gain) (7.73) (0.87) (2.26) (0.26) (1.68) (0.37) (1.71) 0.00 (2.55) (1.27)
Return of
capital
distribution 0.00 0.00 (0.11) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------------
Total
Distributions (7.73) (0.87) (2.37) (0.26) (1.68) (0.37) (1.71) 0.00 (2.58) (1.27)
----------------------------------------------------------------------------------------------
Net Asset
Value,
End of Period $35.38 $37.64 $28.04 $32.77 $19.60 $17.87 $11.93 $15.78 $11.84 $16.73
==============================================================================================
TOTAL RETURN
(without
sales charge) 17.47% 38.6% (7.4)% 69.1% 20.8% 54.4% (14.8)% 33.3% (9.0)% 40.2%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of
Period (in 000s) $800,250 $715,191 $553,460 $618,193 $179,081 $58,656 $33,472 $51,680 $51,062 $74,235
Ratio of
Expenses to
Average Net
Assets 1.88% 1.9% 1.9% 2.0% 2.0% 2.0% 1.9% 1.9% 2.0% 1.7%
Ratio of Net
Investment
Income to
Average
Net Assets (1.07)% (1.1)% (1.4)% (1.3)% (1.0)% (0.8)% (0.1)% (0.2)% 0.3% 0.1%
Portfolio
Turnover Rate 91.23% 101.6% 78.4% 105.4% 93.8% 144.6% 106.2% 153.4% 124.9% 188.7%
Average
Commission
Rate $0.07
</TABLE>
*Annualized
10 PIMCO Funds: Multi-Manager Series
<PAGE>
Financial Highlights
The following schedule of financial highlights for the Interna-
tional Fund is for shares outstanding throughout the periods list-
ed. The information provided reflects results of operations of the
Fund's former investment objective and policies through August 31,
1992; such results would not necessarily have been achieved had
the Fund's current objective and policies been in effect. On No-
vember 15, 1994, Blairlogie became the Portfolio Manager of the
Fund.
INTERNATIONAL FUND
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------------- --------------------
2/1/91- 5/22/95-
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/96 9/30/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------- -------------------
Net Asset
Value,
Beginning of
Period $12.19 $12.92 $12.17 $10.04 $10.54 $9.48 $11.75 $11.30
-------------------------------------------------- -------------------
Income From
Investment Operations:
Net Investment
Income (Loss) 0.07 0.07 0.04 0.07 0.05 0.02 0.00(/1/) 0.00
Net Gains or
Losses on
Securities
(both realized
and
unrealized) 0.77 (0.56) 0.94 2.80 (0.37) 1.04 0.73(/1/) 0.45
-------------------------------------------------- -------------------
Total From
Investment
Operations 0.84 (0.49) 0.98 2.87 (0.32) 1.06 0.73 0.45
-------------------------------------------------- -------------------
Less
Distributions:
Distributions
(from
capital gain) 0.00 (0.24) (0.23) (0.74) (0.18) 0.00 0.00 0.00
-------------------------------------------------- -------------------
Net Asset
Value,
End of Period $13.03 $12.19 $12.92 $12.17 $10.04 $10.54 $12.48 $11.75
================================================== ===================
TOTAL RETURN
(without
sales charge) 6.89% (3.7)% 8.2% 30.4% (3.1)% 17.3% 6.21% 4.0%
RATIOS /
SUPPLEMENTAL
DATA
Net Assets, End
of Period (in
000s) $20,056 $17,951 $23,289 $11,992 $471 $22 $5,893 $503
Ratio of
Expenses to
Average Net
Assets 1.41% 1.5% 1.4% 1.4% 1.9% 1.9%* 2.16% 2.3%*
Ratio of Net
Investment
Income to
Average
Net Assets 0.49% 0.6% 0.3% 0.6% 0.5% 0.7%* (0.26)% (0.1)%*
Portfolio
Turnover Rate 109.58% 169.8% 55.1% 67.6% 159.6% 107.1% 109.58% 169.8%
Average
Commission
Rate $0.00 $0.00
<CAPTION>
Class C
----------------------------------------------------------------------------------------------
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/89 9/30/88 9/30/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
Net Asset
Value,
Beginning of
Period $11.75 $12.56 $11.92 $9.92 $10.49 $10.04 $13.33 $10.07 $12.87 $9.70
----------------------------------------------------------------------------------------------
Income From
Investment Operations:
Net Investment
Income (Loss) (0.05) (0.02) (0.06) (0.01) (0.06) (0.08) (0.10) (0.18) (0.10) (0.10)
Net Gains or
Losses on
Securities
(both realized
and
unrealized) 0.77 (0.55) 0.93 2.75 (0.33) 1.76 (2.02) 3.44 (1.83) 3.27
----------------------------------------------------------------------------------------------
Total From
Investment
Operations 0.72 (0.57) 0.87 2.74 (0.39) 1.68 (2.12) 3.26 (1.93) 3.17
----------------------------------------------------------------------------------------------
Less
Distributions:
Distributions
(from
capital gain) 0.00 (0.24) (0.23) (0.74) (0.18) (1.23) (1.17) 0.00 (0.87) 0.00
----------------------------------------------------------------------------------------------
Net Asset
Value,
End of Period $12.47 $11.75 $12.56 $11.92 $9.92 $10.49 $10.04 $13.33 $10.07 $12.87
==============================================================================================
TOTAL RETURN
(without
sales charge) 6.13% (4.5)% 7.4% 29.4% (3.8)% 18.3% (17.4)% 32.4% (14.0)% 32.7%
RATIOS /
SUPPLEMENTAL
DATA
Net Assets, End
of Period (in
000s) $203,544 $215,349 $294,492 $147,194 $28,299 $33,594 $36,282 $56,150 $60,394 $107,584
Ratio of
Expenses to
Average Net
Assets 2.16% 2.2% 2.2% 2.2% 2.6% 2.6% 2.3% 2.3% 2.4% 2.4%
Ratio of Net
Investment
Income to
Average
Net Assets (0.26)% (0.2)% (0.5)% (0.1)% (0.6)% (0.2)% (0.3)% (0.7)% (0.5)% (0.9)%
Portfolio
Turnover Rate 109.58% 169.8% 55.1% 67.6% 159.6% 107.1% 93.0% 83.6% 94.9% 134.0%
Average
Commission
Rate $0.00
</TABLE>
1. Per share amounts based on average number of shares outstanding during the
period 10/1/95-9/30/96.
*Annualized
January 17, 1997 Prospectus
11
<PAGE>
Financial Highlights
The following schedule of financial highlights for the Innovation
Fund is for shares outstanding throughout the periods listed.
INNOVATION FUND
<TABLE>
<CAPTION>
Class A Class B Class C
---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
12/22/94- 5/22/95- 12/22/94-
9/30/96 9/30/95 9/30/96 9/30/95 9/30/96 9/30/95
---------------- --------------- -----------------
Net Asset Value,
Beginning of Period $14.74 $10.00 $14.66 $11.81 $14.65 $10.00
---------------- --------------- -----------------
Income From
Investment Operations:
Net Investment Loss (0.07) (0.06) (/1/) (0.11) (0.08) (0.15) (0.13) (/1/)
Net Gains or Losses on
Securities (both
realized and
unrealized) 2.94 4.80 2.84 2.93 2.89 4.78
---------------- --------------- -----------------
Total From Investment
Operations 2.87 4.74 2.73 2.85 2.74 4.65
---------------- --------------- -----------------
Less Distributions:
Distributions (from
capital gain) (0.35) 0.00 (0.35) 0.00 (0.35) 0.00
---------------- --------------- -----------------
Net Asset Value,
End of Period $17.26 $14.74 $17.04 $14.66 $17.04 $14.65
================ =============== =================
TOTAL RETURN (without
sales charge) 19.86% 47.4% 18.99% 24.1% 19.08% 46.5%
RATIOS / SUPPLEMENTAL
DATA
Net Assets, End of
Period (in 000s) $50,067 $28,239 $33,778 $6,509 $137,752 $63,952
Ratio of Expenses to
Average Net Assets 1.31% 1.4%* 2.06% 2.3%* 2.06% 2.2%*
Ratio of Net Investment
Income to Average Net
Assets (0.61)% (0.6)%* (1.36)% (1.7)%* (1.36)% (1.4)%*
Portfolio Turnover Rate 123.14% 86.1% 123.14% 86.1% 123.14% 86.1%
Average Commission Rate $0.06 $0.06 $0.06
</TABLE>
1. Reflecting voluntary waiver of investment advisory fee of
$4,666 (0.00 per share) by the Advisor as more fully described in
Note 3(a) to the Financial Statements in the PIMCO Advisors Funds'
1996 Annual Report.
*Annualized
12
PIMCO Funds: Multi-Manager Series
<PAGE>
Financial Highlights
The following schedule of financial highlights for the Precious
Metals Fund is for shares outstanding throughout the periods list-
ed. The information provided reflects results of operations under
the Fund's former investment objective and policies through Novem-
ber 14, 1994; such results would not necessarily have been
achieved had the Fund's current objective and policies been in ef-
fect.
PRECIOUS METALS FUND
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------------- ---------------
2/1/91- 6/15/95-
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/96 9/30/95
------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value,
Beginning of
Period $12.33 $14.14 $10.32 $7.54 $7.51 $7.19 $11.90 $11.61
------------------------------------------------- ---------------
Income From
Investment Operations:
Net Investment
Income (Loss) 0.03 0.07 0.08 0.06 (0.01) (0.07) (0.03) (0.01)
Net Gains or
Losses on
Securities
(both realized
and
unrealized) (0.24) (1.88) 3.74 2.72 0.04 0.39 (0.25) 0.30
------------------------------------------------- ---------------
Total From
Investment
Operations (0.21) (1.81) 3.82 2.78 0.03 0.32 (0.28) 0.29
------------------------------------------------- ---------------
Less
Distributions:
Dividends (from
net investment
income)
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions
(from
capital gain) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------------------------------------------------- ---------------
Total
Distributions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------------------------------------------------- ---------------
Net Asset
Value,
End of Period $12.12 $12.33 $14.14 $10.32 $7.54 $7.51 $11.62 $11.90
================================================= ===============
TOTAL RETURN
(without
sales charge) (1.70)% (12.8)% 37.0% 36.9% 0.4% 6.8% (2.35)% 2.5%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of Period (in
000s) $6,245 $7,670 $11,229 $3,425 $668 $514 $2,218 $251
Ratio of
Expenses to
Average Net
Assets 1.32% 1.4% 1.3% 1.4% 1.9% 2.1%* 2.07% 2.2%*
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets 0.19% 0.6% 0.6% 0.6% (0.1)% (1.4)%* (0.56)% (0.2)%*
Portfolio
Turnover Rate 35.27% 8.7% 11.0% 10.0% 29.6% 19.4% 35.27% 8.7%
Average
Commission
Rate $0.02 $0.02
<CAPTION>
Class C
------------------------------------------------------------------------
10/10/88-
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/89
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value,
Beginning of
Period $11.90 $13.75 $10.11 $7.44 $7.46 $9.40 $9.86 $10.00
------------------------------------------------------------------------
Income From
Investment Operations:
Net Investment
Income (Loss) (0.07) (0.02) (0.02) (0.02) (0.06) (0.05) (0.05) (0.05)
Net Gains or
Losses on
Securities
(both realized
and
unrealized) (0.21) (1.83) 3.66 2.69 0.04 (1.89) (0.41) (0.08)
------------------------------------------------------------------------
Total From
Investment
Operations (0.28) (1.85) 3.64 2.67 (0.02) (1.94) (0.46) (0.13)
------------------------------------------------------------------------
Less
Distributions:
Dividends (from
net investment
income) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.01)
Distributions
(from
capital gain) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------
Total
Distributions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.01)
------------------------------------------------------------------------
Net Asset
Value,
End of Period $11.62 $11.90 $13.75 $10.11 $7.44 $7.46 $9.40 $9.86
========================================================================
TOTAL RETURN
(without
sales charge) (2.35)% (13.5)% 36.0% 35.9% (0.3)% (20.6)% (4.7)% (1.3)%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of Period (in
000s) $37,609 $42,341 $62,825 $23,884 $6,633 $ 6,995 $9,918 $6,630
Ratio of
Expenses to
Average Net
Assets 2.07% 2.2% 2.1% 2.2% 2.6% 2.4% 2.4% 2.5%*
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets (0.56)% (0.2)% (0.2)% (0.2)% (0.8)% (0.8)% (0.8)% (0.6)%*
Portfolio
Turnover Rate 35.27% 8.7% 11.0% 10.0% 29.6% 19.4% 22.5% 8.8%
Average
Commission
Rate $0.02
</TABLE>
*Annualized
January 17, 1997 Prospectus
13
<PAGE>
Financial Highlights
The following schedule of financial highlights for the Tax Exempt
Fund is for shares outstanding throughout the periods listed.
TAX EXEMPT FUND
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------------- ---------------
3/14/91- 5/30/95-
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/96 9/30/95
--------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value,
Beginning of
Period $11.83 $11.21 $12.74 $11.94 $11.53 $11.30 $11.84 $11.90
--------------------------------------------------- ---------------
Income From
Investment Operations:
Net Investment
Income 0.62 0.57 0.56 0.61 0.65 0.38 0.53 0.16
Net Gains or
Losses on
Securities
(both realized
and
unrealized) (0.01) 0.63 (1.31) 1.02 0.42 0.23 0.00 (0.07)
--------------------------------------------------- ---------------
Total From
Investment
Operations 0.61 1.20 (0.75) 1.63 1.07 0.61 0.53 0.09
--------------------------------------------------- ---------------
Less
Distributions:
Dividends (from
net investment
income)
(0.52) (0.58) (0.58) (0.64) (0.66) (0.38) (0.44) (0.15)
Dividends (in
excess of net
investment
income) (0.05) 0.00 0.00 0.00 0.00 0.00 (0.04) 0.00
Distributions
(from
capital gain) 0.00 0.00 (0.20) (0.19) 0.00 0.00 0.00 0.00
--------------------------------------------------- ---------------
Total
Distributions (0.57) (0.58) (0.78) (0.83) (0.66) (0.38) (0.48) (0.15)
--------------------------------------------------- ---------------
Net Asset
Value,
End of Period $11.87 $11.83 $11.21 $12.74 $11.94 $11.53 $11.89 $11.84
=================================================== ===============
TOTAL RETURN
(without
sales charge) 5.22% 11.0% (6.1)% 14.2% 9.5% 10.4% 4.54% 0.8%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of Period (in
000s) $5,864 $2,701 $2,726 $2,852 $2,295 $321 $2,258 $228
Ratio of
Expenses to
Average Net
Assets 1.07% 1.1% 1.1% 1.1% 1.1% 1.1%* 1.82% 1.9%*
Ratio of Net
Investment
Income to
Average
Net Assets 5.12% 5.0% 4.7% 5.0% 5.6% 5.8%* 4.37% 4.0%*
Portfolio
Turnover Rate 49.33% 35.0% 63.2% 55.9% 107.4% 119.0% 49.33% 35.0%
<CAPTION>
Class C
-----------------------------------------------------------------------------------------
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92 9/30/91 9/30/90 9/30/89 9/30/88 9/30/87
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value,
Beginning of
Period $11.82 $11.21 $12.73 $11.94 $11.53 $10.97 $11.10 $10.82 $10.23 $11.51
-----------------------------------------------------------------------------------------
Income From
Investment Operations:
Net Investment
Income 0.52 0.48 0.47 0.52 0.58 0.62 0.63 0.65 0.65 0.66
Net Gains or
Losses on
Securities
(both realized
and
unrealized) 0.00 0.62 (1.30) 1.01 0.41 0.56 (0.13) 0.28 0.59 (0.84)
-----------------------------------------------------------------------------------------
Total From
Investment
Operations 0.52 1.10 (0.83) 1.53 0.99 1.18 0.50 0.93 1.24 (0.18)
-----------------------------------------------------------------------------------------
Less
Distributions:
Dividends (from
net investment
income) (0.44) (0.49) (0.49) (0.55) (0.58) (0.62) (0.63) (0.65) (0.65) (0.66)
Dividends (in
excess of net
investment
income) (0.04) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions
(from
capital gain) 0.00 0.00 (0.20) (0.19) 0.00 0.00 0.00 0.00 0.00 (0.44)
-----------------------------------------------------------------------------------------
Total
Distributions (0.48) (0.49) (0.69) (0.74) (0.58) (0.62) (0.63) (0.65) (0.65) (1.10)
-----------------------------------------------------------------------------------------
Net Asset
Value,
End of Period $11.86 $11.82 $11.21 $12.73 $11.94 $11.53 $10.97 $11.10 $10.82 $10.23
=========================================================================================
TOTAL RETURN
(without
sales charge) 4.46% 10.1% (6.7)% 13.3% 8.8% 11.0% 4.5% 8.8% 12.4% (2.1)%
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End
of Period (in
000s) $47,082 $54,224 $68,214 $81,475 $52,113 $46,663 $46,630 $60,609 $63,261 $66,610
Ratio of
Expenses to
Average Net
Assets 1.82% 1.8% 1.8% 1.8% 1.8% 1.8% 1.7% 1.7% 1.8% 1.8%
Ratio of Net
Investment
Income to
Average
Net Assets 4.37% 4.3% 4.0% 4.2% 4.9% 5.5% 5.6% 5.9% 6.1% 5.9%
Portfolio
Turnover Rate 49.33% 35.0% 63.2% 55.9% 107.4% 119.0% 77.5% 203.6% 211.3% 204.4%
</TABLE>
*Annualized
14
PIMCO Funds: Multi-Manager Series
<PAGE>
Investment Objectives and Policies
The investment objective and general investment policies of each
Fund are described below. There can be no assurance that the in-
vestment objective of any Fund will be achieved. Because the mar-
ket value of each Fund's investments will change, the net asset
value per share of each Fund will also vary.
FUND EQUITY INCOME FUND seeks current income as a primary investment
DESCRIPTIONSobjective, and long-term growth of capital as a secondary objec-
tive. The Fund invests primarily in common stocks characterized by
having below-average price to earnings ("P/E") ratios and higher
dividend yields relative to their industry groups. In selecting
securities, the Portfolio Manager classifies a universe of approx-
imately 2,000 stocks by industry, each of which has a minimum mar-
ket capitalization of $200 million at the time of investment. The
universe is then screened to find the lowest P/E ratios in each
industry, subject to application of quality and price momentum
screens. From this group, approximately 25 stocks with the highest
yields are chosen for the Fund. The universe is then rescreened to
find the highest yielding stock in each industry, subject to ap-
plication of quality and price momentum screens. From this group,
approximately 25 stocks with the lowest P/E ratios are added to
the Fund. Although quarterly rebalancing is a general rule, re-
placements are made whenever an alternative stock within the same
industry has a significantly lower P/E ratio or higher dividend
yield than the current Fund holding. For information on other in-
vestment policies, see "Investment Objectives and Policies--Equity
Funds." See "Characteristics and Risks of Securities and Invest-
ment Techniques" in this Prospectus and "Investment Objectives and
Policies" in the Statement of Additional Information for more de-
tails on investment practices and related risks. The Portfolio
Manager for the Equity Income Fund is NFJ.
RENAISSANCE FUND seeks long-term growth of capital and income. The
Fund invests primarily in a variety of income-producing equity se-
curities. Income-producing equity securities include common stocks
that pay dividends, preferred stocks and securities (including
debt securities) that are convertible into common stocks ("con-
vertible securities").
The Fund may invest a portion of its assets in preferred stocks
and convertible securities rated at least B by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P")
(or similarly rated by another Nationally Recognized Statistical
Rating Organization ("NRSRO"), or unrated but determined by the
Portfolio Manager to be of comparable quality), and may invest up
to 10% of its total assets in convertible securities rated below B
by Moody's or S&P (or similarly rated by another NRSRO or unrated
but determined by the Portfolio Manager to be of comparable quali-
ty). Securities rated Ba or below by Moody's or BB or below by S&P
(or of similar quality) are not considered to be of "investment
grade" quality. These lesser rated debt securities may involve
special risks. See "Characteristics and Risks of Securities and
Investment Techniques--Risks of High Yield Securities ("Junk
Bonds")." Although the Fund may invest in such securities, it nei-
ther invests nor has the present intention of investing 35% or
more of its net assets in securities that are not considered to be
of "investment grade" quality. The Fund will not invest in con-
vertible securities that are in default at the time of acquisi-
tion.
The non-convertible debt securities in which the Fund may in-
vest include corporate or government debt securities of any matu-
rity, including zero coupon securities. These non-convertible debt
securities may be rated B or higher by Moody's or S&P (or simi-
larly rated by another NRSRO or unrated and determined by the
Portfolio Manager to be of comparable quality). The Fund may in-
vest a portion of its assets in securities of foreign issuers
traded in foreign securities markets (not including Eurodollar
certificates of deposit), which will not exceed 15% of the Fund's
assets at the time of investment. Investing in the securities of
foreign issuers involves special risks and considerations not typ-
ically associated with investing in U.S. companies. The Fund may
also purchase and write call and put options on securities and se-
curities indexes; enter into futures contracts and use options on
futures contracts; buy or sell foreign currencies; and enter into
forward foreign currency contracts. For information on other in-
vestment policies, see "Investment Objectives and Policies--Equity
Funds." See "Characteristics and Risks of Securities and Invest-
ment Techniques" in this Prospectus and "Investment Objectives and
Policies" in the Statement of Additional Information for more de-
tails on investment practices and related risks. The Portfolio
Manager for the Renaissance Fund is Columbus Circle.
15
January 17, 1997 Prospectus
<PAGE>
VALUE FUND seeks long-term growth of capital and income. The Fund
invests primarily in common stocks characterized by having below-
average P/E ratios relative to their industry group. In selecting
securities, the Portfolio Manager classifies a universe of approx-
imately 2,000 stocks by industry, each of which has a minimum mar-
ket 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 low-
est P/E ratios that pass the quality and price momentum screens
are then selected for the Fund. The Fund usually invests in ap-
proximately 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. For information on other investment poli-
cies, see "Investment Objectives and Policies--Equity Funds." See
"Characteristics and Risks of Securities and Investment Tech-
niques" in this Prospectus and "Investment Objectives and Poli-
cies" in the Statement of Additional Information for more details
on investment practices and related risks. The Portfolio Manager
for the Value Fund is NFJ.
CAPITAL APPRECIATION FUND seeks growth of capital. The Fund in-
vests primarily in common stocks of 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 the approximately 1,000 largest market
capitalization stocks, all of which are those of companies with
market capitalizations of at least $100 million at the time of in-
vestment. The Fund usually invests in approximately 60 to 100 com-
mon 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
Portfolio Manager 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 rela-
tive price performance. The universe is rescreened frequently to
obtain a favorable composition of growth and value characteristics
for the entire Fund. For information on other investment policies,
see "Investment Objectives and Policies--Equity Funds." See "Char-
acteristics and Risks of Securities and Investment Techniques" in
this Prospectus and "Investment Objectives and Policies" in the
Statement of Additional Information for more details on investment
practices and related risks. The Portfolio Manager for the Capital
Appreciation Fund is Cadence.
GROWTH FUND seeks long-term growth of capital. Income is an inci-
dental consideration. The Fund invests primarily in common stocks
of companies with medium to large market capitalizations. The Fund
may invest a portion of its assets in securities of foreign is-
suers traded in foreign securities markets (not including Eurodol-
lar certificates of deposit), which will not exceed 15% of the
Fund's assets at the time of investment. Investing in the securi-
ties of foreign issuers involves special risks and considerations
not typically associated with investing in U.S. companies. The
Fund may also purchase and write call and put options on securi-
ties and securities indexes; enter into futures contracts and use
options on futures contracts; buy or sell foreign currencies; and
enter into forward foreign currency contracts. For information on
other investment policies, see "Investment Objectives and Poli-
cies--Equity Funds." See "Characteristics and Risks of Securities
and Investment Techniques" in this Prospectus and "Investment Ob-
jectives and Policies" in the Statement of Additional Information
for more details on investment practices and related risks. The
Portfolio Manager for the Growth Fund is Columbus Circle.
MID CAP GROWTH FUND seeks growth of capital. The Fund invests pri-
marily in common stocks of middle capitalization companies that
have improving fundamentals (such as growth of earnings and divi-
dends) 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 invest-
ment, excluding the 200 companies with the highest market capital-
ization. The Fund usually invests in approximately 60 to 100 com-
mon 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
16
PIMCO Funds: Multi-Manager Series
<PAGE>
growth screen, (iv) an earnings momentum screen, and (v) an earn-
ings surprise screen. The Portfolio Manager believes that the mod-
els identify the stocks in the universe exhibiting growth charac-
teristics with reasonable valuations. Stocks are replaced when
they score worse-than-median screen ranks, have negative earnings
surprises, or show poor relative price performance. The universe
is rescreened frequently to obtain a favorable composition of
growth and value characteristics for the entire Fund. For informa-
tion on other investment policies, see "Investment Objectives and
Policies--Equity Funds." See "Characteristics and Risks of Securi-
ties and Investment Techniques" in this Prospectus and "Investment
Objectives and Policies" in the Statement of Additional Informa-
tion for more details on investment practices and related risks.
The Portfolio Manager for the Mid Cap Growth Fund is Cadence.
TARGET FUND seeks capital appreciation. No consideration is given
to income. The Fund invests primarily in common stocks of compa-
nies with medium market capitalizations. The Fund may invest a
portion of its assets in securities of foreign issuers traded in
foreign securities markets (not including Eurodollar certificates
of deposit), which will not exceed 15% of the Fund's assets at the
time of investment. Investing in the securities of foreign issuers
involves special risks and considerations not typically associated
with investing in U.S. companies. The Fund may also purchase and
write call and put options on securities and securities indexes;
enter into futures contracts and use options on futures contracts;
buy or sell foreign currencies; and enter into forward foreign
currency contracts. For information on other investment policies,
see "Investment Objectives and Policies--Equity Funds." See "Char-
acteristics and Risks of Securities and Investment Techniques" in
this Prospectus and "Investment Objectives and Policies" in the
Statement of Additional Information for more details on investment
practices and related risks. The Portfolio Manager for the Target
Fund is Columbus Circle.
SMALL CAP VALUE FUND seeks long-term growth of capital and income.
The Fund invests primarily in common stocks of companies with mar-
ket capitalizations between $50 million and $1 billion at the time
of investment. In selecting securities, the Portfolio Manager di-
vides a universe of up to approximately 2,000 stocks into quar-
tiles based upon P/E ratio. The lowest quartile in P/E ratio is
screened for market capitalizations between $50 million and $1
billion, subject to application of quality and price momentum
screens. Approximately 100 stocks with the lowest P/E ratios are
combined in the Fund, subject to limits on the weighting for any
one industry. Although quarterly rebalancing is a general rule,
replacements are made whenever a holding achieves a higher P/E ra-
tio than the S&P 500's P/E ratio or its industry average P/E ra-
tio, or when an alternative stock within the same industry has a
significantly lower P/E ratio than the current Fund holding. The
Fund is intended for aggressive investors seeking above-average
gains and willing to accept the greater risks associated there-
with. For information on other investment policies, see "Invest-
ment Objectives and Policies--Equity Funds." See "Characteristics
and Risks of Securities and Investment Techniques" in this Pro-
spectus and "Investment Objectives and Policies" in the Statement
of Additional Information for more details on investment practices
and related risks. The Portfolio Manager for the Small Cap Value
Fund is NFJ.
OPPORTUNITY FUND seeks capital appreciation. No consideration is
given to income. Except to the extent described under "How to Buy
Shares--Limited Offering of Shares of the Opportunity Fund to New
Investors," the Fund is closed to new investors. The Fund invests
primarily in common stocks of companies with market capitaliza-
tions of less than $1 billion. The Fund is intended for aggressive
investors seeking above-average gains and willing to accept the
greater risks associated therewith.
The Fund may invest a portion of its assets in securities of
foreign issuers traded in foreign securities markets (not includ-
ing Eurodollar certificates of deposit), which will not exceed 15%
of the Fund's assets at the time of investment. Investing in the
securities of foreign issuers involves special risks and consider-
ations not typically associated with investing in U.S. companies.
The Fund may also purchase and write call and put options on secu-
rities and securities indexes; enter into futures contracts and
use options on futures contracts; buy or sell foreign currencies;
and enter into forward foreign currency contracts. For information
on other investment policies, see "Investment Objectives and Poli-
cies--Equity Funds." See "Characteristics and Risks of Securities
and Investment Techniques" in this Prospectus and
17
January 17, 1997 Prospectus
<PAGE>
"Investment Objectives and Policies" in the Statement of Addi-
tional Information for more details on investment practices and
related risks. The Portfolio Manager for the Opportunity Fund is
Columbus Circle.
INTERNATIONAL DEVELOPED FUND seeks long-term growth of capital.
The Fund invests primarily in a diversified portfolio of interna-
tional equity securities. The Morgan Stanley Capital International
EAFE (Europe, Australasia, Far East) Index ("EAFE Index") is used
as a basis for choosing the countries in which the Fund invests.
However, the Fund is not limited to the countries and weightings
of the EAFE Index. Under normal market conditions, the Fund will
invest no more than 35% of its assets in securities issued by com-
panies located in countries that the Portfolio Manager determines,
on the basis of market capitalization, liquidity, and other con-
siderations, to have underdeveloped securities markets. The Port-
folio Manager applies two levels of screening in selecting invest-
ments for the Fund. First, an active country selection model ana-
lyzes world markets and assigns a relative value ranking, or
"favorability weighting," to each country in the relevant country
universe to determine markets which are relatively undervalued.
Second, at the stock selection level, quality analysis and value
analysis are applied to each security, assessing variables such as
balance sheet strength and earnings growth (quality factors) and
performance relative to the industry, price to earnings ratios and
price to book ratios (value factors). This two-level screening
method identifies undervalued securities for purchase and also
provides a sell discipline for fully valued securities. In select-
ing securities, the Portfolio Manager considers, to the extent
practicable and on the basis of information available to it for
research, a company's environmental business practices.
For purposes of allocating the Fund's investments, a company is
considered to be located in the country in which it is domiciled,
in which it is primarily traded, from which it derives a signifi-
cant portion of its revenues, or in which a significant portion of
its goods or services are produced.
Most of the international equity securities in which the Fund
invests will be traded in foreign currencies. The Fund may engage
in foreign currency transactions to protect itself against fluctu-
ations in currency exchange rates in relation to the U.S. dollar
or to the weighting of a particular foreign currency on the EAFE
Index. Such foreign currency transactions may include forward for-
eign currency contracts, foreign exchange futures contracts, and
options thereon, currency exchange transactions on a spot (i.e.,
cash) basis, and put and call options on foreign currencies. Up to
10% of the Fund's assets may be invested in the securities of
other investment companies. The Fund may invest in stock index
futures contracts, and options thereon, and may sell (write) call
and put options. The Fund also may engage in equity index swap
transactions.
Investing in the securities of foreign issuers involves special
risks and considerations not typically associated with investing
in U.S. companies. For information on other investment policies,
see "Investment Objectives and Policies--Equity Funds." See "Char-
acteristics and Risks of Securities and Investment Techniques" in
this Prospectus and "Investment Objectives and Policies" in the
Statement of Additional Information for more details on investment
practices and related risks. The Portfolio Manager for the Inter-
national Developed Fund is Blairlogie.
INTERNATIONAL FUND seeks capital appreciation through investments
in an international portfolio. Income is an incidental considera-
tion. Under normal market conditions, at least 65% of the Fund's
total assets will be invested in common stocks, which may or may
not pay dividends, as well as convertible bonds, convertible pre-
ferred stocks, warrants, rights or other equity securities, for a
combination of capital appreciation and income. Convertible secu-
rities may include securities convertible only by certain classes
of investors (which may not include the Fund). The Fund may not
invest in convertible securities which are of less than investment
grade quality at the time of purchase.
The Fund will normally invest in securities traded in developed
foreign securities markets. Particular consideration is given to
investments principally traded in developed North American (other
than United States), Japanese, European, Pacific and Australian
securities markets, and in securities of foreign issuers traded on
U.S. securities markets. The Fund will also invest in emerging
markets, where markets may not yet fully reflect the potential of
the developing economy. There are no prescribed limits on geo-
graphic asset distribution and the Fund has the authority to
18
PIMCO Funds: Multi-Manager Series
<PAGE>
invest in securities traded in securities markets of any country
in the world. In allocating the Fund's assets among the various
securities markets of any country of the world, the Portfolio Man-
ager will consider such factors as the condition and growth poten-
tial of the various economies and securities markets, currency and
taxation considerations and other pertinent financial, social, na-
tional and political factors. Under certain adverse investment
conditions, the Fund may restrict the number of securities markets
in which its assets will be invested, although under normal market
circumstances the Fund's investments will include securities prin-
cipally traded in at least three different countries. The Fund
will not limit its investments to any particular type or size of
company.
The Fund may invest up to 10% of its assets in securities of
other investment companies, such as closed-end management invest-
ment companies which invest in foreign markets. The Fund may also
purchase and write call and put options on securities, securities
indexes, and on foreign currencies; enter into futures contracts
and use options on futures contracts, including futures contracts
on stock indexes and on foreign currencies; buy or sell foreign
currencies; and enter into forward foreign currency contracts.
The Fund will not normally invest in securities of U.S. issuers
traded on U.S. securities markets. However, when the Portfolio
Manager believes that conditions in international securities mar-
kets warrant a defensive investment strategy, the Fund may invest
up to 100% of its assets in domestic debt, foreign debt and equity
securities principally traded in the U.S., including money market
instruments, obligations issued or guaranteed by the U.S. or a
foreign government or their respective agencies, authorities or
instrumentalities, or corporate bonds and sponsored American De-
pository Receipts.
Investing in the securities of foreign issuers involves special
risks and considerations not typically associated with investing
in U.S. companies. For information on other investment policies,
see "Investment Objectives and Policies--Equity Funds." See "Char-
acteristics and Risks of Securities and Investment Techniques" in
this Prospectus and "Investment Objectives and Policies" in the
Statement of Additional Information for more details on investment
practices and related risks. The Portfolio Manager for the Inter-
national Fund is Blairlogie.
EMERGING MARKETS FUND seeks long-term growth of capital. The Fund
invests primarily in common stocks of companies located in coun-
tries identified as emerging market countries. The Morgan Stanley
Capital International Emerging Markets Free Index ("MSCI Free In-
dex") and the International Finance Corporation Emerging Markets
Index ("IFC Index") are used as the bases for choosing the coun-
tries in which the Fund invests. However, the Fund is not limited
to the countries and weightings of these indexes. The Portfolio
Manager applies two levels of screening in selecting investments
for the Fund. First, an active country selection model analyzes
world markets and assigns a relative value ranking, or
"favorability weighting," to each country in the relevant country
universe to determine markets which are relatively undervalued.
Second, at the stock selection level, quality analysis and value
analysis are applied to each security, assessing variables such as
balance sheet strength and earnings growth (quality factors) and
performance relative to the industry, price to earnings ratios,
and price to book ratios (value factors). This two-level screening
method identifies undervalued securities for purchase as well as
provides a sell discipline for fully valued securities. In select-
ing securities, the Portfolio Manager considers, to the extent
practicable and on the basis of information available to it for
research, a company's environmental business practices.
For purposes of implementing its investment objective, the Fund
invests primarily in some or all of the following emerging market
countries (this list is not exclusive):
Argentina Greece Jordan Poland Thailand
Brazil Hong Kong Malaysia Portugal Turkey
Chile Hungary Mexico South Africa Venezuela
China India Pakistan South Korea Zimbabwe
Colombia Indonesia Peru Sri Lanka
Czech Republic Israel Philippines Taiwan
January 17, 1997 Prospectus
19
<PAGE>
For purposes of allocating the Fund's investments, a company is
considered to be located in the country in which it is domiciled,
in which it is primarily traded, from which it derives a signifi-
cant portion of its revenues, or in which a significant portion of
its goods or services are produced.
Most of the foreign securities in which the Fund invests will
be denominated in foreign currencies. The Fund may engage in for-
eign currency transactions to protect itself against fluctuations
in currency exchange rates in relation to the U.S. dollar or to
the weighting of a particular foreign currency on the MSCI Free
Index or the IFC Index. Such foreign currency transactions may in-
clude forward foreign currency contracts, foreign exchange futures
contracts, and options thereon, currency exchange transactions on
a spot (i.e., cash) basis, and put and call options on foreign
currencies. Up to 10% of the Fund's assets may be invested in the
securities of other investment companies. The Fund may invest in
stock index futures contracts, and options thereon, and may sell
(write) call and put options. The Fund may also engage in equity
index swap transactions.
For information on other investment policies, see "Investment
Objectives and Policies--Equity Funds." For a discussion of cer-
tain risks posed by investing in emerging market countries, see
"Characteristics and Risks of Securities and Investment Tech-
niques--Foreign Securities." See "Characteristics and Risks of Se-
curities and Investment Techniques" in this Prospectus and "In-
vestment Objectives and Policies" in the Statement of Additional
Information for more details on investment practices and related
risks. The Portfolio Manager for the Emerging Markets Fund is
Blairlogie.
INNOVATION FUND seeks capital appreciation. No consideration is
given to income. The Fund invests primarily (i.e., at least 65% of
its assets) in common stocks of companies which utilize innovative
technologies to gain a strategic competitive advantage in their
industry as well as companies that provide and service those tech-
nologies. Securities will be selected with minimal emphasis on
more traditional factors such as growth potential or value rela-
tive to intrinsic worth. Instead, the Fund will be guided by the
theory of Positive Momentum & Positive Surprise (see "Management
of the Trust--Portfolio Managers--Columbus Circle"), with special
emphasis on common stocks of companies whose perceived strength
lies in their use of innovative technologies in new products, en-
hanced distribution systems and improved management techniques.
Although the Fund emphasizes the utilization of technologies, it
is not restricted to investment in companies in a particular busi-
ness sector or industry.
The Fund may invest a portion of its assets in securities of
foreign issuers traded in foreign securities markets (not includ-
ing Eurodollar certificates of deposit), which will not exceed 15%
of the Fund's assets at the time of investment. Investing in the
securities of foreign issuers involves special risks and consider-
ations not typically associated with investing in U.S. companies.
The Fund may also purchase and write call and put options on secu-
rities and securities indexes; enter into futures contracts and
use options on futures contracts; buy or sell foreign currencies;
and enter into forward foreign currency contracts. For information
on other investment policies, see "Investment Objectives and Poli-
cies--Equity Funds." See "Characteristics and Risks of Securities
and Investment Techniques" in this Prospectus and "Investment Ob-
jectives and Policies" in the Statement of Additional Information
for more details on investment practices and related risks. The
Portfolio Manager for the Innovation Fund is Columbus Circle.
PRECIOUS METALS FUND seeks capital appreciation. No consideration
is given to income. The Fund concentrates investments in a global
portfolio of common stocks of companies principally engaged in
precious metals-related activities, which include companies prin-
cipally engaged in the extraction, processing, distribution or
marketing of precious metals (the "precious metals industry"). A
particular company is deemed to be "principally engaged" in the
precious metals industry if at the time of investment the Portfo-
lio Manager considers that at least 50% of the company's assets,
revenues or profits are derived from the precious metals industry.
Normally, at least 65% of the assets of the Fund will be invested
in the precious metals industry and in securities the value of
which is linked to the price of a precious metal. See "Character-
istics and Risks of Securities and Investment Techniques--Precious
Metals."
20
PIMCO Funds: Multi-Manager Series
<PAGE>
The Fund will seek to identify securities of companies which,
based upon the Portfolio Manager's evaluation of their fundamental
investment characteristics, are undervalued in comparison to the
present or anticipated value of the precious metals relevant to
them. Examples of precious metals include gold, silver and plati-
num. To the extent permitted by federal tax law, the Fund may in-
vest directly in gold bullion and other precious metals. The Fund
has no present intention of investing directly in precious metals
other than gold.
The Fund does not presently intend to invest more than 10% of
its assets in either precious metals such as gold bullion or in
futures on precious metals, such as gold futures, and options
thereon. The Fund may invest up to 100% of its assets in securi-
ties principally traded on foreign securities markets and in secu-
rities of foreign issuers that are traded on U.S. securities mar-
kets, and may invest up to 100% of its assets in securities of
companies whose assets, revenues or profits are derived from a
single precious metal. At the present time, the Fund has no inten-
tion of investing more than 5% of its assets in securities the
value of which is linked to the price of a single precious metal.
The Fund may invest without limit in securities of foreign is-
suers traded in foreign securities markets. Investing in the secu-
rities of foreign issuers involves special risks and considera-
tions not typically associated with investing in U.S. companies.
The Fund may also purchase and write call and put options on secu-
rities, securities indexes, commodity indexes, and on foreign cur-
rencies; enter into futures contracts and use options on futures
contracts, including futures contracts on stock indexes, foreign
currencies, and precious metals; buy or sell foreign currencies;
and enter into forward foreign currency contracts.
The Fund, because of its emphasis on one industrial sector,
should be considered as one aspect of a diversified portfolio and
may not be suitable by itself as a balanced investment program.
For information on other investment policies, see "Investment Ob-
jectives and Policies--Equity Funds." See "Characteristics and
Risks of Securities and Investment Techniques" in this Prospectus
and "Investment Objectives and Policies" in the Statement of Addi-
tional Information for more details on investment practices and
related risks. The Portfolio Manager for the Precious Metals Fund
is Van Eck.
BALANCED FUND seeks total return consistent with prudent invest-
ment management. The Fund attempts to achieve this objective
through a management policy of investing in the following asset
classes: common stock, fixed income securities, and money market
instruments. The proportion of the Fund's total assets allocated
among common stocks, fixed income securities, and money market in-
struments will vary from time to time and will be determined by
the Advisor. In determining the allocation of the Fund's assets
among the three asset classes, the Advisor will employ asset allo-
cation principles which take into account certain economic fac-
tors, market conditions, and the expected relative total return
and risk of the various asset classes. Under normal circumstances,
it is anticipated that the Fund will generally maintain a balance
among the types of securities in which it invests. Thus, the Fund
will normally maintain 40% to 65% of its assets in common stock,
at least 25% of its assets in fixed income securities, and less
than 10% of its assets in money market instruments. However, in no
event would the Fund invest in any common stock if, at the time of
investment, more than 80% of the Fund's assets would be invested
in common stock; in no event would the Fund invest in a fixed in-
come security (other than a short-term instrument) if, at the time
of investment, more than 80% of the Fund's assets would be in-
vested in fixed income securities; nor would the Fund invest in a
money market instrument if, at the time of investment, more than
60% of its assets would be invested in money market instruments.
In managing the Fund, the Advisor uses a specialist approach
and has engaged three of the Trust's Portfolio Managers to manage
certain portions of the Fund's assets. The portion of the assets
of the Fund allocated by the Advisor for investment in common
stock (the "Common Stock Segment") will be further allocated by
the Advisor for investment by NFJ and Cadence. The portion of the
Common Stock Segment allocated to NFJ will be managed in accor-
dance with the investment policies of the Value Fund; the portion
allocated to Cadence will be managed in accordance with the in-
vestment policies of the Capital Appreciation Fund. Allocations of
the Common Stock Segment to NFJ and Cadence will vary from time to
time as determined by the Advisor.
January 17, 1997 Prospectus
21
<PAGE>
The portion of the assets of the Fund allocated by the Advisor
for investment in fixed income debt securities (the "Fixed Income
Securities Segment") will be managed by Pacific Investment Manage-
ment. The Fund may invest the Fixed Income Securities Segment in
the following types of securities: securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; corpo-
rate debt securities, including convertible securities and corpo-
rate commercial paper; mortgage-related and other asset-backed se-
curities; inflation-indexed bonds issued by both governments and
corporations; structured notes and loan participations; bank cer-
tificates of deposit, fixed time deposits and bankers' accept-
ances; repurchase agreements and reverse repurchase agreements;
obligations of foreign governments or their subdivisions, agencies
and instrumentalities; and obligations of international agencies
or supranational entities. Fixed income securities may have fixed,
variable, or floating rates of interest.
The Fund invests the Fixed Income Securities Segment in fixed
income securities of varying maturities. Portfolio holdings will
be concentrated in areas of the bond market (based on quality,
sector, coupon or maturity) that Pacific Investment Management be-
lieves to be relatively undervalued. Fixed income securities in
which the Fund may invest will, at the time of investment, be
rated Baa or better by Moody's, BBB or better by S&P or, if not
rated by Moody's or S&P, will be of comparable quality as deter-
mined by Pacific Investment Management, except that up to 10% of
the Fixed Income Securities Segment may be invested in lower rated
securities that are rated B or higher by Moody's or S&P or, if not
rated by Moody's or S&P, determined by Pacific Investment Manage-
ment to be of comparable quality. High yield fixed income securi-
ties rated lower than Baa by Moody's or BBB by S&P, or of equiva-
lent quality, are not considered to be investment grade, and are
commonly referred to as "junk bonds." Securities rated below in-
vestment grade and comparable unrated securities are subject to
greater risks than higher quality fixed income securities. See
"Characteristics and Risks of Securities and Investment Tech-
niques--Risks of High Yield Securities ("Junk Bonds")." The Fund
also may invest up to 20% of the Fixed Income Securities Segment
in securities denominated in foreign currencies, and may invest
beyond this limit in U.S. dollar-denominated securities of foreign
issuers.
PIMCO Advisors will manage directly the assets of the Fund al-
located for investment in money market instruments (the "Money
Market Segment"). Because of the Fund's flexible investment poli-
cy, portfolio turnover may be greater than for a fund that does
not allocate assets among various types of securities. See "Char-
acteristics and Risks of Securities and Investment Techniques--
Portfolio Turnover."
The Fund may engage in the purchase and writing of put and call
options on debt securities and securities indexes and may also
purchase or sell interest rate futures contracts, stock index
futures contracts, and options thereon. The Fund also may enter
into swap agreements with respect to foreign currencies, interest
rates, and securities indexes. With respect to securities of the
Fixed Income Securities Segment denominated in foreign currencies,
the Fund may engage in foreign currency exchange transactions by
means of buying or selling foreign currencies on a spot basis, en-
tering into forward foreign currency contracts, and buying and
selling foreign currency options, foreign currency futures, and
options on foreign currency futures. Foreign currency exchange
transactions may be entered into for the purpose of hedging
against foreign currency exchange risk arising from the Fund's in-
vestment or anticipated investment in securities denominated in
foreign currencies and for purposes of increasing exposure to a
particular foreign currency or to shift exposure to foreign cur-
rency fluctuations from one country to another. See "Characteris-
tics and Risks of Securities and Investment Techniques" in this
Prospectus and "Investment Objectives and Policies" in the State-
ment of Additional Information for more details on investment
practices and related risks.
TAX EXEMPT FUND seeks high current income exempt from federal in-
come tax, consistent with preservation of capital, by investing in
debt securities whose interest is, in the opinion of bond counsel
for the issuer at the time of issuance, exempt from federal income
tax ("Tax Exempt Bonds"). Tax Exempt Bonds generally are issued by
states and local governments and their agencies, authorities and
other instrumentalities. It is a policy of the Fund that, under
normal market conditions, at least 80% of its net assets will be
invested in Tax Exempt Bonds rated Baa or higher by Moody's or BBB
or higher by S&P, or which are similarly rated by another NRSRO,
or if unrated, determined by the Portfolio
22
PIMCO Funds: Multi-Manager Series
<PAGE>
Manager to be of quality comparable to obligations so rated. Tax
Exempt Bonds rated in the fourth highest rating category (e.g.,
Baa by Moody's) may be considered to possess some speculative
characteristics by certain NRSROs.
The Fund may invest up to 20% of its net assets, under normal
market conditions, in any combination of (1) Tax Exempt Bonds
which are rated at least Ba by Moody's or BB by S&P (or similarly
rated by another NRSRO or, if unrated, determined by the Portfolio
Manager to be of comparable quality) and (2) U.S. Government secu-
rities, money market instruments or "private activity" bonds. Se-
curities rated below investment grade and comparable unrated secu-
rities are subject to greater risks than higher quality fixed in-
come securities. See "Characteristics and Risks of Securities and
Investment Techniques--Risks of High Yield Securities ("Junk
Bonds")." For temporary defensive purposes the Fund may invest all
or a portion of its assets in U.S. Government securities and money
market instruments. The Fund may purchase put or call options on
U.S. Government securities, Tax Exempt Bonds and Tax Exempt Bond
indexes, purchase and sell futures contracts on U.S. Government
securities, Tax Exempt Bonds and Tax Exempt Bond indexes, and pur-
chase put and call options on such futures contracts. The Fund may
enter into repurchase agreements with banks and broker-dealers;
make short sales of securities held in the Fund's portfolio or
which the Fund has the right to acquire without the payment of
further consideration; and purchase and sell securities on a when-
issued or delayed delivery basis and enter into forward commit-
ments to purchase securities. The Fund may also invest a portion
or, for temporary defensive purposes, up to 100% of its assets in
money market instruments.
Dividends to Fund shareholders derived from money market in-
struments and U.S. Government securities are taxable as ordinary
income. The Fund may seek to reduce fluctuations in its net asset
value by engaging in portfolio strategies involving options on se-
curities, futures contracts, and options on futures contracts. Any
gain derived by the Fund from the use of such instruments will be
treated as a combination of short-term and long-term capital gain
and, if not offset by realized capital losses incurred by the
Fund, will be distributed to shareholders and will be taxable to
shareholders as a combination of ordinary income and long-term
capital gain. See "Characteristics and Risks of Securities and In-
vestment Techniques" in this Prospectus and "Investment Objectives
and Policies" in the Statement of Additional Information for more
details on investment practices and related risks. The Portfolio
Manager for the Tax Exempt Fund is Columbus Circle.
EQUITY The Equity Income, Value, Capital Appreciation, Mid Cap Growth,
FUNDS Small Cap Value, International Developed and Emerging Markets
Funds will each invest primarily (normally at least 65% of its as-
sets) in common stock. Each of these Funds may maintain a portion
of its assets, which will usually not exceed 10%, in U.S. Govern-
ment securities, high quality debt securities (whose maturity or
remaining maturity will not exceed five years), money market obli-
gations, and in cash to provide for payment of the Fund's expenses
and to meet redemption requests. It is the policy of these Funds
to be as fully invested in common stocks as practicable at all
times. This policy precludes these Funds from investing in debt
securities as a defensive investment posture (although these 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. These Funds may also invest in con-
vertible securities, preferred stocks, and warrants, subject to
certain limitations.
The Renaissance, Growth, Target, Opportunity, International,
Innovation and Precious Metals Funds (together with the Funds
listed in the preceding paragraph, the "Equity Funds") will each
invest primarily (normally at least 65% of its assets) in equity
securities (income-producing equity securities in the case of the
Renaissance Fund), including common stocks, preferred stocks and
securities (including debt securities and warrants) convertible
into or exercisable for common stocks. Each of these Funds may in-
vest a portion or, for temporary defensive purposes, up to 100% of
its assets in short-term U.S. Government securities and other
money market instruments.
One or more of the Equity Funds may temporarily not be invested
primarily in equity securities immediately following the commence-
ment of operations or after receipt of significant new monies. Any
of the Equity Funds may
January 17, 1997 Prospectus
23
<PAGE>
temporarily not contain the number of securities in which the
Fund normally invests if the Fund does not have sufficient
assets to be fully invested, or pending the Portfolio Manager's
ability to prudently invest new monies.
The Equity Funds may also lend portfolio securities; enter
into repurchase agreements and reverse repurchase agreements
(subject to the Funds' investment limitations described below);
purchase and sell securities on a when-issued or delayed
delivery basis; and enter into forward commitments to purchase
securities. Each of the Equity Funds may invest in American
Depository Receipts ("ADRs"). The International Developed,
International, Emerging Markets and Precious Metals Funds may
invest in European Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs"). The Equity Funds that invest
primarily in securities of foreign issuers may invest a portion
of their assets in debt securities and money market obligations
issued by U.S. and foreign issuers that are either U.S. dollar-
denominated or denominated in foreign currency. For more
information on these investment practices, see "Characteristics
and Risks of Securities and Investment Techniques" in this
Prospectus and "Investment Objectives and Policies" in the
Statement of Additional Information.
DURATION Under normal circumstances, the average portfolio duration of
the Fixed Income Securities Segment of the Balanced Fund will
vary within a three- to six-year time frame, and the average
portfolio duration of the Tax Exempt Fund will vary within a
three- to ten-year time frame, based on the relevant Portfolio
Manager's forecast for interest rates. Duration is a measure of
the expected life of a fixed income security that was developed
as a more precise alternative to the concept of "term to
maturity." Traditionally, a fixed income security's "term to
maturity" has been used as proxy for the sensitivity of the
security's price to changes in interest rates (which is the
"interest rate risk" or "volatility" of the security). However,
"term to maturity" measures only the time until a fixed income
security provides its final payment, taking no account of the
pattern of the security's payments prior to maturity. In
contrast, duration incorporates a bond's yield, coupon interest
payments, final maturity and call features into one measure of
the average life of a fixed income security on a present value
basis. Duration management is one of the fundamental tools used
by the Portfolio Managers for the Fixed Income Securities
Segment of the Balanced Fund and the Tax Exempt Fund. For more
information on investments in fixed income securities, see
"Characteristics and Risks of Securities and Investment Tech-
niques" in this Prospectus and "Investment Objectives and Poli-
cies" in the Statement of Additional Information.
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 de-
grees. 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. 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 some or all of the Funds may invest, see the
Statement of Additional Information.
INVESTMENTS IN Certain of the Funds may invest in common stock of companies
COMPANIES with market capitalizations that are small compared to other
WITH SMALL publicly traded companies. Generally, small market
AND MEDIUM capitalization is considered to be less than $1 billion and
MARKET large market capitalization is considered to be more than $5
CAPITALIZATIONS billion. Under normal market conditions, the Small Cap Value
and Opportunity Funds will invest primarily in companies with
market capitalizations of $1 billion or less. Investments in
larger companies present certain advantages in that such
companies generally have greater financial resources, more
24
PIMCO Funds: Multi-Manager Series
<PAGE>
extensive research and development, manufacturing, marketing and
service capabilities, and more stability and greater depth of man-
agement and technical personnel. Investments in smaller, less sea-
soned companies may present greater opportunities for growth but
also may involve greater risks than customarily are associated
with more established companies. The securities of smaller compa-
nies 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 they may
be dependent upon a limited management group. Their securities may
be traded only in the over-the-counter market or on a regional se-
curities exchange. As a result, the disposition of securities to
meet redemptions may require a Fund to sell these securities at a
disadvantageous time, or at disadvantageous prices, or to make
many small sales over a lengthy period of time.
Many of the Funds may also invest in stocks of companies with
medium market capitalizations. The Target Fund may invest primar-
ily in such securities. Whether a U.S. issuer's market capitaliza-
tion is medium is determined by reference to the capitalization
for all issuers whose equity securities are listed on a United
States national securities exchange or which are reported on
NASDAQ. Issuers with market capitalizations within the range of
capitalization of companies included in the S&P Mid Cap 400 Index
may be regarded as being issuers with medium market capitaliza-
tions. Such investments share some of the risk characteristics of
investments in stocks of companies with small market capitaliza-
tions described above, although such companies tend to have longer
operating histories, broader product lines and greater financial
resources and their stocks tend to be more liquid and less vola-
tile than those of smaller capitalization issuers.
FOREIGN The International Developed, International and Emerging Markets
INVESTMENTS Funds may invest directly in foreign equity securities; U.S. dol-
lar- or foreign currency-denominated foreign corporate debt secu-
rities; foreign preferred securities; certificates of deposit,
fixed time deposits and bankers' acceptances issued by foreign
banks; obligations of foreign governments or their subdivisions,
agencies and instrumentalities, international agencies and supra-
national entities; and securities represented by ADRs, EDRs, or
GDRs. ADRs are dollar-denominated receipts issued generally by do-
mestic banks and representing the deposit with the bank of a secu-
rity of a foreign issuer, and are publicly traded on exchanges or
over-the-counter in the United States. EDRs are receipts similar
to ADRs and are issued and traded in Europe. GDRs may be offered
privately in the United States and also trade in public or private
markets in other countries. The Precious Metals Fund may invest
primarily in securities of foreign issuers, securities denominated
in foreign currencies, securities principally traded on securities
markets outside of the United States and in securities of foreign
issuers that are traded on U.S. securities markets, including
ADRs, EDRs, and GDRs. The remaining Equity Funds and the Balanced
Fund may also invest in ADRs. The Balanced Fund may invest up to
20% of its Fixed Income Securities Segment in securities denomi-
nated in foreign currencies, and may invest beyond this limit in
U.S. dollar-denominated securities of foreign issuers. The Renais-
sance, Growth, Target, Opportunity and Innovation Funds may invest
up to 15% of their respective assets in securities which are
traded principally in securities markets outside the United States
(Eurodollar certificates of deposit are excluded for purposes of
these limitations), and may invest without limit in securities of
foreign issuers that are traded in U.S. markets.
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 securi-
ties issued by companies and governments of foreign nations. These
risks include: differences in accounting, auditing and financial
reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expro-
priation 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 coun-
tries. Additionally, foreign securities and dividends and interest
payable on those securities may be subject to foreign taxes, in-
cluding taxes withheld from payments on those securities. Foreign
securities often trade with less frequency and volume than domes-
tic securities and therefore may exhibit greater price volatility.
Additional costs associated with an investment in foreign securi-
ties may include
January 17, 1997 Prospectus
25
<PAGE>
higher custodial fees than apply to domestic custodial arrange-
ments and transaction costs of foreign currency conversions.
Changes in foreign exchange rates also will affect the value of
securities denominated or quoted in currencies other than the U.S.
dollar.
A Fund's investments in foreign currency denominated debt obli-
gations and hedging activities will likely produce a difference
between its book income and its taxable income. This difference
may cause a portion of the Fund's income distributions to consti-
tute returns of capital for tax purposes or require the Fund to
make distributions exceeding book income to qualify as a regulated
investment company for federal tax purposes.
Certain of the Funds and, in particular, the Emerging Markets
Fund, may invest in the securities of issuers based in countries
with developing economies. Investing in developing (or "emerging
market") countries involves certain risks not typically associated
with investing in U.S. securities, and imposes risks greater than,
or in addition to, risks of investing in foreign, developed coun-
tries. A number of emerging market countries restrict, to varying
degrees, foreign investment in stocks. Repatriation of investment
income, capital, and the proceeds of sales by foreign investors
may require governmental registration and/or approval in some
emerging market countries. A number of the currencies of emerging
market countries have experienced significant declines against the
U.S. dollar in recent years, and devaluation may occur subsequent
to investments in these currencies by a Fund. Inflation and rapid
fluctuations in inflation rates have had, and may continue to
have, negative effects on the economies and securities markets of
certain emerging market countries. Many of the emerging securities
markets are relatively small, have low trading volumes, suffer pe-
riods of relative illiquidity, and are characterized by signifi-
cant price volatility. There is a risk in emerging market coun-
tries that a future economic or political crisis could lead to
price controls, forced mergers of companies, expropriation or con-
fiscatory taxation, seizure, nationalization, or creation of gov-
ernment monopolies, any of which may have a detrimental effect on
a Fund's investment.
Additional risks of investing in emerging market countries may
include: currency exchange rate fluctuations; greater social, eco-
nomic and political uncertainty and instability (including the
risk of war); more substantial governmental involvement in the
economy; less governmental supervision and regulation of the secu-
rities markets and participants in those markets; unavailability
of currency hedging techniques in certain emerging market coun-
tries; the fact that companies in emerging market countries may be
newly organized and may be smaller and less seasoned companies;
the difference in, or lack of, auditing and financial reporting
standards, which may result in unavailability of material informa-
tion about issuers; the risk that it may be more difficult to ob-
tain and/or enforce a judgment in a court outside the United
States; and significantly smaller market capitalization of securi-
ties markets.
FOREIGN Foreign currency exchange rates may fluctuate significantly over
CURRENCY short periods of time. They generally are determined by the forces
TRANSACTIONS of supply and demand in the foreign exchange markets and the rela-
tive merits of investments in different countries, actual or per-
ceived changes in interest rates and other complex factors, as
seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention (or the failure
to intervene) by U.S. or foreign governments or central banks, or
by currency controls or political developments in the U.S. or
abroad. Currencies in which the Funds' assets are denominated may
be devalued against the U.S. dollar, resulting in a loss to the
Funds.
The Renaissance, Growth, Target, Opportunity, International De-
veloped, International, Emerging Markets, Innovation, Precious
Metals and Balanced Funds may enter into forward foreign currency
exchange contracts to reduce the risks of adverse changes in for-
eign exchange rates. In addition, the International Developed, In-
ternational, Emerging Markets, Precious Metals and Balanced Funds
may buy and sell foreign currency futures contracts and options on
foreign currencies and foreign currency futures. All of the Funds
that may buy or sell foreign currencies may enter into forward
foreign currency exchange contracts to reduce the risks of adverse
changes in foreign exchange rates. A forward foreign currency ex-
change contract involves an obligation to purchase or sell a spe-
cific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at
a price set at the time of the contract. By entering into a for-
ward foreign currency exchange contract, the Fund "locks in" the
exchange rate
26
PIMCO Funds: Multi-Manager Series
<PAGE>
between the currency it will deliver and the currency it will re-
ceive for the duration of the contract. As a result, a Fund re-
duces its exposure to changes in the value of the currency it will
deliver and increases its exposure to changes in the value of the
currency it will exchange into. The effect on the value of a Fund
is similar to selling securities denominated in one currency and
purchasing securities denominated in another currency. Contracts
to sell foreign currency would limit any potential gain which
might be realized by a Fund if the value of the hedged currency
increases. A Fund may enter into these contracts for the purpose
of hedging against foreign exchange risk arising from the Fund's
investment or anticipated investment in securities denominated in
foreign currencies. Such hedging transactions may not be success-
ful and may eliminate any chance for a Fund to benefit from favor-
able fluctuations in relevant foreign currencies. The Interna-
tional Developed, International and Emerging Markets Funds may
also enter into hedging contracts for purposes of increasing expo-
sure to a foreign currency or to shift exposure to foreign cur-
rency fluctuations from one currency to another. To the extent
that they do so, the International Developed, International and
Emerging Markets Funds will be subject to the additional risk that
the relative value of currencies will be different than antici-
pated by the particular Fund's Portfolio Manager. These Funds may
use one currency (or a basket of currencies) to hedge against ad-
verse changes in the value of another currency (or a basket of
currencies) when exchange rates between the two currencies are
positively correlated. Each Fund will segregate assets determined
to be liquid by the Advisor or a Portfolio Manager in accordance
with procedures established by the Board of Trustees in a segre-
gated account to cover its obligations under forward foreign cur-
rency exchange contracts entered into for non-hedging purposes.
MONEY Each of the Funds may invest at least a portion of its assets in
MARKET the following kinds of money market instruments:
INSTRUMENTS (1) short-term U.S. Government securities;
(2) certificates of deposit, bankers' acceptances and other
bank obligations rated in the two highest rating categories by
at least two NRSROs, or, if rated by only one NRSRO, in such
agency's two highest grades, or, if unrated, determined to be
of comparable quality by the Advisor or a Portfolio Manager.
Bank obligations must be those of a bank that has deposits in
excess of $2 billion or that is a member of the Federal Deposit
Insurance Corporation. A Fund may invest in obligations of U.S.
branches or subsidiaries of foreign banks ("Yankee dollar obli-
gations") or foreign branches of U.S. banks ("Eurodollar obli-
gations");
(3) commercial paper rated in the two highest rating categories
by at least two NRSROs, or, if rated by only one NRSRO, in such
agency's two highest grades, or, if unrated, determined to be
of comparable quality by the Advisor or a Portfolio Manager;
(4) corporate obligations with a remaining maturity of 397 days
or less whose issuers have outstanding short-term debt obliga-
tions rated in the highest rating category by at least two
NRSROs, or, if rated by only one NRSRO, in such agency's high-
est grade, or, if unrated, determined to be of comparable qual-
ity by the Advisor or a Portfolio Manager; and
(5) repurchase agreements with domestic commercial banks or
registered broker-dealers.
MORTGAGE- The Balanced Fund may invest in mortgage-related securities, and
RELATEDAND in other asset-backed securities (unrelated to mortgage loans)
OTHERASSET- that are offered to investors in the future. The value of some
BACKED mortgage-related or asset-backed securities in which the Fund in-
SECURITIES vests may be particularly sensitive to changes in prevailing in-
terest rates, and, like the other investments of the Fund, the
ability of the Fund to successfully utilize these instruments may
depend in part upon the ability of the Portfolio Manager to fore-
cast interest rates and other economic factors correctly.
MORTGAGE PASS-THROUGH SECURITIES are securities representing in-
terests in "pools" of mortgage loans secured by residential or
commercial real property in which payments of both interest and
principal on the securities are generally made monthly, in effect
"passing through" monthly payments made by the individual borrow-
ers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early re-
payment of principal on some mortgage-related securities (arising
from prepayments of principal due to sale of the underlying prop-
erty, refinancing, or
27
January 17, 1997 Prospectus
<PAGE>
foreclosure, net of fees and costs which may be incurred) may ex-
pose the Fund to a lower rate of return upon reinvestment of prin-
cipal. Also, if a security subject to prepayment has been pur-
chased at a premium, the value of the premium would be lost in the
event of prepayment. Like other fixed income securities, when in-
terest rates rise, the value of a mortgage-related security gener-
ally will decline; however, when interest rates are declining, the
value of mortgage-related securities with prepayment features may
not increase as much as other fixed income securities. The rate of
prepayments on underlying mortgages will affect the price and vol-
atility of a mortgage-related security, and may have the effect of
shortening or extending the effective maturity of the security be-
yond what was anticipated at the time of purchase. To the extent
that unanticipated rates of prepayment on underlying mortgages in-
crease the effective maturity of a mortgage-related security, the
volatility of such security can be expected to increase.
Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves)
may be guaranteed by the full faith and credit of the U.S. Govern-
ment (in the case of securities guaranteed by the Government Na-
tional Mortgage Association ("GNMA")); or guaranteed by agencies
or instrumentalities of the U.S. Government (in the case of secu-
rities guaranteed by the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"),
which are supported only by the discretionary authority of the
U.S. Government to purchase the agency's obligations). Mortgage-
related securities created by non-governmental issuers (such as
commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market
issuers) may be supported by various forms of insurance or guaran-
tees, including individual loan, title, pool and hazard insurance
and letters of credit, which may be issued by governmental enti-
ties, private insurers or the mortgage poolers.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") are hybrid mortgage-
related instruments. Similar to a bond, interest and pre-paid
principal on a CMO are paid, in most cases, semi-annually. CMOs
may be collateralized by whole mortgage loans but are more typi-
cally collateralized by portfolios of mortgage pass-through secu-
rities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured
into multiple classes, with each class bearing a different stated
maturity. Monthly payments of principal, including prepayments,
are first returned to investors holding the shortest maturity
class; investors holding the longer maturity classes receive prin-
cipal only after the first class has been retired. CMOs that are
issued or guaranteed by the U.S. Government or by any of its agen-
cies or instrumentalities will be considered U.S. Government secu-
rities by the Fund, while other CMOs, even if collateralized by
U.S. Government securities, will have the same status as other
privately issued securities for purposes of applying the Fund's
diversification tests.
COMMERCIAL MORTGAGE-BACKED SECURITIES include securities that re-
flect an interest in, and are secured by, mortgage loans on com-
mercial real property. The market for commercial mortgage-backed
securities developed more recently and in terms of total outstand-
ing principal amount of issues is relatively small compared to the
market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed secu-
rities reflect the risks of investing in the real estate securing
the underlying mortgage loans. These risks reflect the effects of
local and other economic conditions on real estate markets, the
ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility
than other types of mortgage-related or asset-backed securities.
MORTGAGE-RELATED SECURITIES include securities other than those
described above that directly or indirectly represent a participa-
tion in, or are secured by and payable from, mortgage loans on
real property, such as CMO residuals or stripped mortgage-backed
securities ("SMBS"), and may be structured in classes with rights
to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while
the other class will receive most of the interest and the remain-
der of the principal. In the most extreme case, one class will re-
ceive all of the interest (the interest-only, or "IO" class),
while the other class will receive
28
PIMCO Funds: Multi-Manager Series
<PAGE>
all of the principal (the principal-only, or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayments) on the related
underlying mortgage assets, and a rapid rate of principal payments
may have a material adverse effect on the Fund's yield to maturity
from these securities. The Balanced Fund has adopted a policy un-
der which it will not invest more than 5% of its net assets in any
combination of IO, PO, or inverse floater securities. For a dis-
cussion of the characteristics of some of these instruments, see
the Statement of Additional Information.
TAX EXEMPT The Tax Exempt Fund invests in Tax Exempt Bonds which are gener-
BONDS ally issued by states and local governments and their agencies,
authorities and other instrumentalities. Tax Exempt Bonds are sub-
ject to credit and market risk. Credit risk relates to the ability
of the issuer to make payments of principal and interest. The is-
suer of a Tax Exempt Bond may make such payments from money raised
through a variety of sources, including (1) the issuer's general
taxing power, (2) a specific type of tax, or (3) a particular fa-
cility or project. The ability of an issuer to make such payments
could be affected by litigation, legislation or other political
events or the bankruptcy of the issuer. Market risk relates to
changes in a security's value as a result of changes in interest
rates. Lower rated Tax Exempt Bonds generally provide higher
yields but are subject to greater credit and market risk than
higher quality Tax Exempt Bonds.
CONVERTIBLE Many of the Funds may invest in convertible securities. Convert-
SECURITIES ible securities are generally preferred stocks or fixed income se-
curities that are convertible into common stock at either a stated
price or a stated rate. The price of the convertible security will
normally vary in some proportion to changes in the price of the
underlying common stock because of this conversion feature. A con-
vertible security will normally also provide a fixed income
stream. For this reason, the convertible security may not decline
in price as rapidly as the underlying common stock.
A Fund's Portfolio Manager will select convertible securities
to be purchased by the Fund based primarily upon its evaluation of
the fundamental investment characteristics and growth prospects of
the issuer of the security. As a fixed income security, a convert-
ible security tends to increase in market value when interest
rates decline and to decrease in value when interest rates rise.
While convertible securities generally offer lower interest or
dividend yields than non-convertible fixed income securities of
similar quality, their value tends to increase as the market value
of the underlying stock increases and to decrease when the value
of the underlying stock decreases.
The Renaissance Fund may invest in so-called "synthetic con-
vertible securities," which are composed of two or more different
securities whose investment characteristics, taken together, re-
semble those of convertible securities. For example, the Renais-
sance Fund may purchase a non-convertible debt security and a war-
rant or option. The synthetic convertible differs from the true
convertible security in several respects. Unlike a true convert-
ible security, which is a single security having a unitary market
value, a synthetic convertible comprises two or more separate se-
curities, each with its own market value. Therefore, the "market
value" of a synthetic convertible is the sum of the values of its
fixed income component and its convertible component. For this
reason, the values of a synthetic convertible and a true convert-
ible security may respond differently to market fluctuations.
RISKS OF The Renaissance, Balanced and Tax Exempt Funds may invest a por-
HIGH YIELD tion of their assets in fixed income securities rated lower than
SECURITIES Baa by Moody's or lower than BBB by S&P but rated at least B by
("JUNK Moody's or S&P or, if not rated, determined by the Portfolio Man-
BONDS") ager to be of comparable quality. Securities rated lower than Baa
by Moody's or lower than BBB by S&P are sometimes referred to as
"high yield" or "junk" bonds. Investors should consider the risks
associated with high yield securities before investing in these
Funds.
Investing in high yield securities involves special risks in
addition to the risks associated with investments in higher rated
fixed income securities. While offering a greater potential oppor-
tunity for capital appreciation and higher yields than investments
in higher rated debt securities, high yield securities typically
entail greater potential price volatility and may be less liquid
than investment grade debt. High yield securities may be regarded
as predominately speculative with respect to the issuer's continu-
ing ability to meet principal and interest payments. Analysis of
the
January 17, 1997 Prospectus
29
<PAGE>
creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities, and
achievement of a Fund's investment objective may, to the extent of
its investments in high yield securities, depend more heavily on
the Portfolio Manager's creditworthiness analysis than would be
the case if the Fund were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than higher
grade securities.
The following chart provides information on the weighted aver-
age percentage of rated and unrated debt or fixed income securi-
ties in the portfolios of each Fund that invested at least 5% of
its average assets in high yield securities during the Fund's most
recent fiscal year. The numerical rating designations correspond
to the associated rating categories. The designation "1st" corre-
sponds to the top rating category (i.e., Aaa by Moody's and/or AAA
by S&P), "2nd" corresponds to the second highest rating category
(i.e., Aa by Moody's and/or AA by S&P), etc. For a description of
these rating categories, see the Appendix to the Statement of Ad-
ditional Information. The columns related to unrated securities
present the percentage of a Fund's total net assets invested dur-
ing such fiscal year (1) in unrated high yield securities believed
by the Advisor or the relevant Portfolio Manager to be equivalent
in quality to fixed income securities of the indicated rating and
(2) in all unrated fixed income securities.
RATED
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH 5TH 6TH 7TH 8TH 9TH 10TH
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renaissance* 5.06 -- -- -- 2.94 4.16 -- -- -- --
UNRATED BUT CONSIDERED EQUIVALENT TO
<CAPTION>
TOTAL
1ST 2ND 3RD 4TH 5TH 6TH 7TH 8TH 9TH 10TH UNRATED
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renaissance* -- -- -- -- -- 1.58 -- -- -- -- 1.58
</TABLE>
*Represents holdings of the PIMCO Advisors Equity Income Fund for
its fiscal year ended September 30, 1996. The Equity Income Fund
reorganized as the Renaissance Fund of the Trust on January 17,
1997.
For additional discussion of the characteristics of lower rated
fixed income securities, see the Statement of Additional Informa-
tion. Ratings assigned to fixed income securities are described in
the Appendix to the Statement of Additional Information.
DERIVATIVE Certain Funds may purchase and write call and put options on secu-
INSTRUMENTS rities, securities indexes and foreign currencies, and enter into
futures contracts and use options on futures contracts as further
described below. In pursuit of their investment objectives, the
Renaissance, Growth, Target, Opportunity, International Developed,
International, Emerging Markets, Innovation, Precious Metals and
Balanced Funds may engage in the purchase and writing of call and
put options on securities and may engage in the purchase and writ-
ing of options on securities indexes. The Tax Exempt Fund may pur-
chase call or put options on U.S. Government securities, Tax Ex-
empt Bonds and Tax Exempt Bond indexes. The Precious Metals Fund
may purchase and write options on commodities indexes. The Funds
that may invest in foreign-currency denominated securities may en-
gage in the purchase and writing of call and put options on for-
eign currencies. The International Developed, Emerging Markets and
Balanced Funds may also enter into swap agreements with respect to
securities indexes. The Balanced Fund may also enter into swap
agreements with respect to foreign currencies and interest rates.
The Funds may use these techniques to hedge against changes in in-
terest rates, foreign currency exchange rates or securities pric-
es; and for the International Developed, International and Emerg-
ing Markets Funds, to increase exposure to a foreign currency, to
shift exposure to foreign currency fluctuations from one country
to another, or as part of their overall investment strategies.
Each Fund will maintain a segregated account consisting of assets
determined to be liquid by the Advisor or a Portfolio Manager in
accordance with procedures
30
PIMCO Funds: Multi-Manager Series
<PAGE>
established by the Board of Trustees (or, as permitted by applica-
ble regulation, enter into certain offsetting positions) to cover
its obligations under options, futures, and swaps to avoid
leveraging of the Fund.
For these purposes, derivative instruments are deemed to con-
sist of securities or other instruments whose value is derived
from or related to the value of some other instrument or asset,
and not to include those securities whose payment of principal
and/or interest depend upon cash flows from underlying assets,
such as mortgage-related or asset-backed securities. See "Mort-
gage-Related and Other Asset-Backed Securities." The value of some
derivative instruments in which the Funds invest may be particu-
larly sensitive to changes in prevailing interest rates, and, like
the other investments of the Funds, the ability of a Fund to suc-
cessfully utilize these instruments may depend in part upon the
ability of the Portfolio Manager to forecast interest rates and
other economic factors correctly. If the Portfolio Manager incor-
rectly forecasts such factors and has taken positions in deriva-
tive instruments contrary to prevailing market trends, the Funds
could be exposed to the risk of loss.
The Funds might not employ any of the strategies described be-
low, and no assurance can be given that any strategy used will
succeed. If the Portfolio Manager incorrectly forecasts interest
rates, market values or other economic factors in utilizing a de-
rivatives strategy for a Fund, the Fund might have been in a bet-
ter position if it had not entered into the transaction at all.
The use of these strategies involves certain special risks, in-
cluding a possible imperfect correlation, or even no correlation,
between price movements of derivative instruments and price move-
ments of related investments. While some strategies involving de-
rivative instruments can reduce the risk of loss, they can also
reduce the opportunity for gain or even result in losses by off-
setting favorable price movements in related investments, or due
to the possible inability of a Fund to purchase or sell a portfo-
lio security at a time that otherwise would be favorable for it to
do so, or the possible need for a Fund to sell a portfolio secu-
rity at a disadvantageous time, because the Fund is required to
maintain asset coverage or offsetting positions in connection with
transactions in derivative instruments, and the possible inability
of a Fund to close out or to liquidate its derivatives positions.
OPTIONS ON SECURITIES, SECURITIES INDEXES, COMMODITY INDEXES AND
CURRENCIES Certain Funds may purchase put options on securities.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in
market value. These Funds may also purchase call options on secu-
rities. One purpose of purchasing call options is to protect
against substantial increases in prices of securities the Fund in-
tends to purchase pending its ability to invest in such securities
in an orderly manner. A Fund may sell put or call options it has
previously purchased, which could result in a net gain or loss de-
pending on whether the amount realized on the sale is more or less
than the premium and other transaction costs paid on the put or
call option which is sold. A Fund may write a call or put option
only if the option is "covered" by the Fund holding a position in
the underlying securities or by other means which would permit im-
mediate satisfaction of the Fund's obligation as writer of the op-
tion. Prior to exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series.
The purchase and writing of options involves certain risks.
During the option period, the covered call writer has, in return
for the premium on the option, given up the opportunity to profit
from a price increase in the underlying security above the exer-
cise price, but, as long as its obligation as a writer continues,
has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer
of the option. Once an option writer has received an exercise no-
tice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the un-
derlying security at the exercise price. If a put or call option
purchased by the Fund is not sold when it has remaining value, and
if the market price of the underlying security remains equal to or
greater than the exercise price (in the case of a put), or remains
less than or equal to the exercise price (in the case of a call),
the Fund will lose its entire investment in the option. Also,
where a put or call option on a particular security is purchased
to hedge against price movements in a related security, the price
of the put or call option may move more or less than the price of
the related security. There can be no assurance that a liquid mar-
ket will exist when a Fund seeks to close out an option position.
January 17, 1997 Prospectus
31
<PAGE>
Furthermore, if trading restrictions or suspensions are imposed on
the options markets, a Fund may be unable to close out a position.
For each of the Renaissance, Growth, Target, Opportunity, In-
ternational, Innovation, and Precious Metals Funds, in the case of
a written call option on a securities index, the Fund will own
corresponding securities whose historic volatility correlates with
that of the index.
The International Developed, International, Emerging Markets,
Precious Metals and Balanced Funds may buy or sell put and call
options on foreign currencies as a hedge against changes in the
value of the U.S. dollar (or another currency) in relation to a
foreign currency in which a Fund's securities may be denominated.
Currency options traded on U.S. or other exchanges may be subject
to position limits which may limit the ability of a Fund to reduce
foreign currency risk using such options. Over-the-counter options
differ from traded options in that they are two-party contracts,
with price and other terms negotiated between buyer and seller,
and generally do not have as much market liquidity as exchange-
traded options. The Funds may be required to treat as illiquid
over-the-counter options purchased and securities being used to
cover certain written over-the-counter options.
SWAP AGREEMENTS The International Developed and Emerging Markets
Funds may enter into equity index swap agreements for purposes of
gaining exposure to the stocks making up an index of securities in
a foreign market without actually purchasing those stocks. The
Balanced Fund may enter into swap agreements to hedge against
changes in interest rates, foreign currency exchange rates or se-
curities prices. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from
a few weeks to more than one year. In a standard swap transaction,
two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest
factor. The gross returns to be exchanged or "swapped" between the
parties are generally calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, or in a
"basket" of securities representing a particular index.
Most swap agreements entered into by the Funds calculate the
obligations of the parties to the agreement on a "net basis." Con-
sequently, a Fund's current obligations (or rights) under a swap
agreement will generally be equal only to the net amount to be
paid or received under the agreement based on the relative values
of the positions held by each party to the agreement (the "net
amount"). A Fund's current obligations under a swap agreement will
be accrued daily (offset against amounts owed to the Fund), and
any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account con-
sisting of assets determined to be liquid by the Portfolio Manager
in accordance with procedures established by the Board of Trustees
to limit any potential leveraging of the Fund's portfolio. Obliga-
tions under swap agreements so covered will not be construed to be
"senior securities" for purposes of a Fund's investment restric-
tion concerning senior securities. A Fund will not enter into a
swap agreement with any single party if the net amount owed or to
be received under existing contracts with that party would exceed
5% of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in
furthering its investment objective will depend on the Portfolio
Manager's ability to predict correctly whether certain types of
investments are likely to produce greater returns than other in-
vestments. Because they are two-party contracts and because they
may have terms of greater than seven days, swap agreements may be
considered to be illiquid investments. Moreover, a Fund bears the
risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap
agreement counterparty. The Funds will enter into swap agreements
only with counterparties that meet certain standards for credit-
worthiness (generally, such counterparties would have to be eligi-
ble counterparties under the terms of the Funds' repurchase agree-
ment guidelines). Certain restrictions imposed on the Funds by the
Internal Revenue Code may limit the Funds' ability to use swap
agreements. The swaps market is a relatively new market and is
largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely
affect a Fund's ability to terminate existing swap agreements or
to realize amounts to be received under such agreements.
32
PIMCO Funds: Multi-Manager Series
<PAGE>
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS The Balanced
Fund may invest in interest rate futures contracts and options
thereon. The Precious Metals Fund may purchase and sell futures
contracts on precious metals (such as gold), and purchase and
write options on precious metals futures contracts. The Interna-
tional Developed, International, Emerging Markets, Precious Metals
and Balanced Funds may invest in stock index futures contracts and
options thereon. The International Developed, International,
Emerging Markets, Precious Metals and Balanced Funds may invest in
foreign exchange futures contracts and options thereon ("futures
options") that are traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation
system. The Tax Exempt Fund may purchase and sell futures con-
tracts on U.S. Government securities and Tax Exempt Bonds, as well
as purchase put and call options on such futures contracts. These
Funds may engage in such futures transactions as an adjunct to
their securities activities.
There are several risks associated with the use of futures and
futures options for hedging purposes. There can be no guarantee
that there will be a correlation between price movements in the
hedging vehicle and in the portfolio securities being hedged. An
incorrect correlation could result in a loss on both the hedged
securities in a Fund and the hedging vehicle, so that the portfo-
lio return might have been greater had hedging not been attempted.
There can be no assurance that a liquid market will exist at a
time when a Fund seeks to close out a futures contract or a
futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures con-
tract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day
at a price beyond that limit. In addition, certain of these in-
struments are relatively new and without a significant trading
history. As a result, there is no assurance that an active second-
ary market will develop or continue to exist. Lack of a liquid
market for any reason may prevent a Fund from liquidating an unfa-
vorable position, and the Fund would remain obligated to meet mar-
gin requirements until the position is closed.
The Funds will only enter into futures contracts or futures op-
tions which are standardized and traded on a U.S. or foreign ex-
change or board of trade, or similar entity, or quoted on an auto-
mated quotation system. Each Fund will use financial futures con-
tracts and related options only for "bona fide hedging" purposes,
as such term is defined in applicable regulations of the Commodity
Futures Trading Commission ("CFTC"), or, with respect to positions
in financial futures and related options that do not qualify as
"bona fide hedging" positions, will enter such positions only to
the extent that aggregate initial margin deposits plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," would not exceed 5%
of the Fund's net assets.
PRECIOUS The Precious Metals Fund will concentrate its investments in the
METALS precious metals industry. Prices of precious metals can be ex-
pected to respond to changes in rates of inflation and to percep-
tions of economic and political instability. The values of compa-
nies engaged in precious metal-related activities whose securities
are principally traded on foreign securities exchanges may also be
affected by changes in the exchange rate between the relevant for-
eign currency and the U.S. dollar. Based on historical experience,
the prices of precious metals and of securities of companies en-
gaged in precious metal-related activities may be subject to ex-
treme fluctuations, reflecting wider economic or political insta-
bility or for other reasons.
LOANS OF For the purpose of achieving income, each Fund (with the exception
PORTFOLIO of the Tax Exempt Fund) may lend its portfolio securities to bro-
SECURITIES kers, dealers, and other financial institutions, provided: (i) the
loan is secured continuously by collateral consisting of U.S. Gov-
ernment securities, cash or cash equivalents (negotiable certifi-
cates of deposit, bankers' acceptances or letters of credit) main-
tained 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 the
Fund's limitation on lending its portfolio securities. Each Fund's
performance will continue to reflect changes in the value of the
securities loaned and will also reflect the receipt of either in-
terest, through investment of cash collateral by the Fund in per-
missible investments, or a fee, if the collateral is U.S. Govern-
ment securities. Securities lending involves the risk of loss of
rights in the collateral or delay in recovery of
January 17, 1997 Prospectus
33
<PAGE>
the collateral should the borrower fail to return the security
loaned or become insolvent. The Funds may pay lending fees to the
party arranging the loan.
SHORT SALES Each Fund may from time to time make short sales involving securi-
ties held in the Fund's portfolio or which the Fund has the right
to acquire without the payment of further consideration. Short
sales expose the Fund to the risk that it will be required to pur-
chase securities to cover its short position at a time when the
securities have appreciated in value, thus resulting in a loss to
the Fund.
WHEN- Each Fund may purchase securities which it is eligible to purchase
ISSUED, on a when-issued basis, may purchase and sell such securities for
DELAYED delayed delivery and may make contracts to purchase such securi-
DELIVERY ties for a fixed price at a future date beyond normal settlement
AND time (forward commitments). When-issued transactions, delayed de-
FORWARD livery purchases and forward commitments involve a risk of loss if
COMMITMENT the value of the securities declines prior to the settlement date,
TRANSACTIONS which risk is in addition to the risk of decline in the value of
the Fund's other assets. No income accrues to the purchaser of
such securities prior to delivery.
REPURCHASE For the purposes of maintaining liquidity and achieving income,
AGREEMENTS 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 bank-
ruptcy or otherwise, the Fund will seek to sell the securities
which it holds, which action could involve procedural costs or de-
lays in addition to a loss on the securities if their value should
fall below their repurchase price. Those Funds whose investment
objectives do not include the earning of income will invest in re-
purchase agreements only as a cash management technique with re-
spect 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 in-
vestment in illiquid securities.
REVERSE A reverse repurchase agreement may for some purposes be considered
REPURCHASE borrowing that involves the sale of a security by a Fund and its
AGREEMENTS agreement to repurchase the instrument at a specified time and
AND OTHER price. The Fund will maintain a segregated account consisting of
BORROWINGS assets determined to be liquid by the Advisor or Portfolio Manager
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 agree-
ments. Reverse repurchase agreements will be subject to the Funds'
limitations on borrowings. A Fund also may borrow money for in-
vestment purposes subject to any policies of the Fund currently
described in this Prospectus or in the Statement of Additional In-
formation. Such a practice will result in leveraging of a Fund's
assets. Leverage will tend to exaggerate the effect on net asset
value of any increase or decrease in the value of a Fund's portfo-
lio and may cause a Fund to liquidate portfolio positions when it
would not be advantageous to do so.
PORTFOLIO The length of time a Fund has held a particular security is not
TURNOVER generally a consideration in investment decisions. The investment
policies of a Fund may lead to frequent changes in the Fund's in-
vestments, particularly in periods of volatile market movements. A
change in the securities held by a Fund is known as "portfolio
turnover." High portfolio turnover (e.g., over 100%) involves cor-
respondingly greater expenses to a Fund, including brokerage com-
missions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestments in other securities. Such
sales may result in realization of taxable capital gains. See
"Taxes." The portfolio turnover rate for each Fund which offered
Class A, Class B or Class C shares prior to the date of this Pro-
spectus is set forth under "Financial Highlights." Portfolio turn-
over for the remaining Funds which offered Institutional or Admin-
istrative Class shares prior to the date of this Prospectus is in-
corporated by reference in the Statement of Additional Informa-
tion.
34
PIMCO Funds: Multi-Manager Series
<PAGE>
ILLIQUID Each of the Equity Income, Value, Capital Appreciation, Mid Cap
SECURITIES Growth, Small Cap Value and Balanced Funds may invest in securi-
ties that are illiquid, but will not acquire such securities if
they would compose more than 10% of the value of the 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).
Each of the Renaissance, Growth, Target, Opportunity,
International Developed, International, Emerging Markets,
Innovation, Precious Metals and Tax Exempt Funds may invest in
securities that are illiquid so long as no more than 15% of the
value of the Fund's net assets (taken at market value at the time
of investment) would be invested in such securities. Certain
illiquid securities may require pricing at fair value as
determined in good faith under the supervision of the Board of
Trustees. A Portfolio Manager 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 transactions in liquid
securities.
The term "illiquid securities" for this purpose means securi-
ties 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 Advisor or a Portfolio Manager
has determined to be liquid under procedures approved by the
Board of Trustees).
INVESTMENT The International Developed, International and Emerging Markets
IN Funds may invest in securities of other investment companies,
INVESTMENT such as closed-end management investment companies, or in pooled
COMPANIES accounts or other investment vehicles which invest in foreign
markets. As a shareholder of an investment company, these Funds
may indirectly bear service and other fees which are in addition
to the fees the Funds pay their service providers.
CREDIT AND All fixed income securities are subject to market risk and credit
MARKET RISK risk. Market risk relates to market-induced changes in a
OF security's value, usually as a result of changes in interest
FIXEDINCOME rates. The value of a Fund's investments in fixed income securi-
SECURITIES ties will change as the general level of interest rates
fluctuate. During periods of falling interest rates, the value of
a Fund's fixed income securities generally rise. Conversely,
during periods of rising interest rates, the value of a Fund's
fixed income securities generally decline. Credit risk relates
to the ability of the issuer to make payments of principal and
interest.
"FUNDAMENTAL" The investment objective of each of the Renaissance, Growth, Tar-
POLICIES get, Opportunity, International, Innovation, Precious Metals and
Tax Exempt Funds described in this Prospectus may be changed by
the Board of Trustees without shareholder approval. The
investment objective of each other Fund is fundamental and may
not be changed without shareholder approval by vote of a majority
of the outstanding shares of that Fund. If there is a change in
a Fund's investment objective, including a change approved by
shareholder vote, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current
financial position and needs.
Performance Information
From time to time the Trust may make available certain
information about the performance of the Class A, Class B and
Class C shares of some or all of the Funds. Information about a
Fund's performance is based on that Fund's (or its
35
January 17, 1997 Prospectus
<PAGE>
predecessor's) record to a recent date and is not intended to in-
dicate future performance. Performance information is computed
separately for each Fund's Class A, Class B and Class C shares in
accordance with the formulas described below. Because Class B and
Class C shares bear the expense of the distribution fee attending
the deferred sales charge (Class B) and asset based sales charge
(Class C) alternatives and certain other expenses, it is expected
that, under normal circumstances, the level of performance of a
Fund's Class B and Class C shares will be lower than that of the
Fund's Class A shares, although an investment in Class B or Class
C shares is not reduced by the front-end sales charge generally
applicable to an investment in Class A shares.
The total return of Class A, Class B and/or Class C shares of
all Funds may be included in advertisements or other written mate-
rial. When a Fund's total return is advertised with respect to its
Class A, Class B and/or Class C shares, it will be calculated for
the past year, the past five years, and the past ten years (or if
the Fund has been offered for a period shorter than one, five or
ten years, that period will be substituted) since the establish-
ment of the Fund or its predecessor series of PIMCO Advisors
Funds, as more fully described in the Statement of Additional In-
formation. Consistent with Securities and Exchange Commission
rules and informal guidance, for periods prior to the initial of-
fering date of a particular class, total return presentations for
the class will be based on the historical performance of an older
class of the Fund (the older class to be used in each case is set
forth in the Statement of Additional Information) restated to re-
flect current sales charges (if any) of the newer class, but not
reflecting any higher operating expenses (such as 12b-1 distribu-
tion and servicing fees and administrative fee charges) associated
with the newer class. All other things being equal, higher ex-
penses of an older class would have adversely affected (i.e., re-
duced) total return for a newer class (i.e., if the newer class
had been issued since the inception of the Fund) by the amount of
such higher expenses, compounded over the relevant period. Total
return for each class is measured by comparing the value of an in-
vestment in the Fund at the beginning of the relevant period (in
the case of Class A shares, giving effect to the maximum initial
sales charge) to the redemption value of the investment in the
Fund at the end of the period (assuming immediate reinvestment of
any dividends or capital gains distributions at net asset value
and giving effect to the deduction of the maximum CDSC which would
be payable). Total return may be advertised using alternative
methods that reflect all elements of return, but that may be ad-
justed to reflect the cumulative impact of alternative fee and ex-
pense structures, such as the currently effective advisory and ad-
ministrative fees for the Funds.
Quotations of yield for a Fund or class will be based on the
investment income per share (as defined by the Securities and Ex-
change Commission) during a particular 30-day (or one-month) pe-
riod (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. The tax equivalent
yield of the Tax Exempt Fund's Class A, Class B and Class C shares
may also be advertised, calculated like yield except that, for any
given tax bracket, net investment income will be calculated as the
sum of (i) any taxable income of the class plus (ii) the tax ex-
empt income of the class divided by the difference between 1 and
the effective federal income tax rates for taxpayers in that tax
bracket.
Current distribution information may also be provided to the
Trust's shareholders in shareholder reports or other shareholder
communications, or in certain types of sales literature provided
to prospective investors. Current distribution information for a
particular class of a Fund will be based on distributions for a
specified period (i.e., total dividends from net investment in-
come), 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 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.
The Advisor and each Portfolio Manager may also report to
shareholders or to the public in advertisements concerning its
performance as adviser to clients other than the Funds, and on its
comparative performance or standing in relation to other money
managers. Such comparative information may be compiled or provided
by independent ratings services or by news organizations. Any per-
formance information, whether related to the Funds, the Advisor or
36
PIMCO Funds: Multi-Manager Series
<PAGE>
the Portfolio Managers, 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 representa-
tive of what may be achieved in the future.
Investment results of the Funds will fluctuate over time, and
any representation 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.
How to Buy Shares
Class A, Class B (except the Opportunity Fund) and Class C shares
of each Fund of the Trust are continuously offered through the
Trust's principal underwriter, PIMCO Funds Distribution Company
(the "Distributor"), and through other firms which have dealer
agreements with the Distributor ("participating brokers") or which
have agreed to act as introducing brokers for the Distributor
("introducing brokers"). Except to the extent described under
"Limited Offering of Shares of the Opportunity Fund to New Invest-
ors" below, the Opportunity Fund is closed to new investors. See
"Restrictions on Sales of and Exchanges for Shares of the Opportu-
nity Fund." The Opportunity Fund does not offer Class B shares.
There are two ways to purchase Class A, Class B or Class C
shares: either 1) through your dealer or broker which has a dealer
agreement with the Distributor; or 2) directly by mailing a PIMCO
Funds Account Application (an "Account Application") with payment,
as described below under the heading Direct Investment, to the
Distributor (if no dealer is named in the Account Application, the
Distributor may act as dealer).
Each Fund (except the Opportunity Fund) currently offers and
sells three classes of shares in this Prospectus (Class A, Class B
and Class C). The Opportunity Fund does not offer Class B shares.
Institutional Class and Administrative Class shares of certain of
the Funds are offered through a separate prospectus. 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 alterna-
tive"), 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 CDSC. See "Alternative Purchase Ar-
rangements." Purchase payments for Class B and Class C shares are
fully invested at the net asset value next determined after ac-
ceptance 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 (normally 4:00 p.m. Eastern time) on the
New York Stock Exchange (the "Exchange"), 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 of-
fering price is determined that day will receive such offering
price if the orders were received by the dealer or broker from its
customer prior to such determination and were transmitted to and
received by the Distributor prior to its close of business that
day (normally 5:00 p.m. Eastern time) or, in the case of certain
retirement plans, received by the Distributor prior to 10:00 a.m.
Eastern time on the next business day. Purchase orders received on
other than a regular business day will be executed on the next
succeeding regular business day. The Distributor, in its sole dis-
cretion, may accept or reject any order for purchase of Fund
shares. The sale of shares will be suspended during any period in
which the Exchange is closed for other than weekends or holidays,
or if permitted by the rules of the Securities and Exchange Com-
mission, 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 as-
sets, or during any other period as permitted by the Securities
and Exchange Commission for the protection of investors.
January 17, 1997 Prospectus
37
<PAGE>
Except for gifts to minors or purchases through the PIMCO Auto
Invest plan, the PIMCO Auto Exchange plan and tax-qualified pro-
grams referred to below, the minimum initial investment in Class
A, Class B or Class C shares of the Trust and series of PIMCO
Funds: Pacific Investment Management Series is $1,000 and in any
Fund is $250, and the minimum additional investment is $100 per
Fund. The minimum initial investment for gifts to minors is $250
per Fund. For information about dealer commissions, see "Alterna-
tive Purchase Arrangements" below. Persons selling Fund shares may
receive different compensation for selling Class A, Class B or
Class C shares. Normally, Fund shares purchased through partici-
pating brokers are held in the investor's account with that bro-
ker. No share certificates will be issued unless specifically re-
quested in writing by an investor or broker-dealer.
DIRECT Investors who wish to invest in Class A, Class B or Class C shares
INVESTMENT of the Trust directly, rather than through a participating broker,
may do so by opening an account with the Distributor. To open an
account, an investor should complete the Account Application. All
shareholders who open direct accounts with the Distributor will
receive from the Distributor individual confirmations of each pur-
chase, 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 fea-
tures or plans offered by the Trust may be obtained by calling the
Distributor at 800-426-0107 or by calling your broker.
PURCHASE BY Investors who wish to invest directly may send a check payable to
MAIL PIMCO Funds Distribution Company, along with a completed applica-
tion form to:
PIMCO Funds 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 con-
verted 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 Subsequent purchases of Class A, Class B or Class C shares can be
PURCHASES made as indicated above by mailing a check with a letter describ-
OF SHARES ing the investment or with the additional investment portion of a
confirmation statement. Except for subsequent purchases through
the PIMCO Auto Invest plan, the PIMCO Auto Exchange plan, tax-
qualified programs and PIMCO Fund Link referred to below, and ex-
cept during periods when an Automatic Withdrawal Plan is in ef-
fect, the minimum subsequent purchase is $100 in any Fund. All
payments should be made payable to PIMCO Funds Distribution Com-
pany and should clearly indicate the shareholder's account number.
Checks should be mailed to the address above under "Purchase by
Mail."
TAX- The Distributor makes available retirement plan services and docu-
QUALIFIED ments for Individual Retirement Accounts (IRAs) for which First
RETIREMENT National Bank of Boston serves as trustee and for IRA Accounts es-
PLANS tablished with Form 5305-SIMPLE under the Internal Revenue Code.
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.
38
PIMCO Funds: Multi-Manager Series
<PAGE>
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 re-
tirement plan. Investors who maintain their accounts with partici-
pating brokers should consult their broker about similar types of
accounts that may be offered through the broker. The minimum ini-
tial and subsequent investment in any Fund for tax-qualified plans
is $25.
PIMCO AUTO The PIMCO Auto Invest plan provides for periodic investments into
INVEST the shareholder's account with the Trust by means of automatic
transfers of a designated amount from the shareholder's bank ac-
count. 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 Auto Invest plan is available from the Dis-
tributor or participating brokers. You may enroll by completing
the appropriate section on the Account Application, or you may ob-
tain an Auto Invest Application by calling the Distributor or your
broker.
PIMCO AUTO The PIMCO Auto Exchange plan establishes regular, periodic ex-
EXCHANGE changes from one Fund to another Fund or a series of PIMCO Funds:
Pacific Investment Management Series which offers Class A, Class B
or Class C shares. 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. Ex-
changes for shares of the Opportunity Fund are currently re-
stricted to the extent provided under "Limited Offering of Shares
of the Opportunity Fund to New Investors" and "Restrictions on
Sales of and Exchanges for Shares of the Opportunity Fund" below.
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 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 tele-
phone request at 800-426-0107. For more information on exchanges,
see "Exchange Privilege."
PIMCO FUND PIMCO Fund Link ("Fund Link") connects your Fund account with a
LINK bank account. Fund Link may be used for subsequent purchases and
for redemptions and other transactions described under "How to Re-
deem." 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 pur-
chases, call 800-852-8457. All such calls will be recorded. Fund
Link is normally established within 45 days of receipt of a Fund
Link Application by Shareholder Services, Inc. (the "Transfer
Agent"). The minimum investment by Fund Link is $50 per Fund.
Shares will be purchased on the regular business day the Distribu-
tor receives the funds through the ACH system, provided the funds
are received before the close of regular trading on the Exchange.
If the funds are received after the close of regular trading, the
shares will be purchased on the next regular business day.
Fund Link privileges must be requested on the Account Applica-
tion. 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" below. Such
privileges apply to each shareholder of record for the account un-
less and until the Distributor receives written instructions from
a shareholder of record canceling such privileges. Changes of bank
account information must be made by completing a new Fund Link Ap-
plication 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 believed 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
January 17, 1997 Prospectus
39
<PAGE>
to amend, suspend or discontinue Fund Link privileges at any time
without prior notice. Fund Link does not apply to shares held in
broker "street name" accounts.
LIMITED OFFERING OF SHARES OF THE OPPORTUNITY FUND TO NEW INVEST-
ORS As described below under "Restrictions on Sales of and Ex-
changes for Shares of the Opportunity Fund," shares of the Oppor-
tunity Fund are normally not available for purchase by new invest-
ors in the Fund. However, beginning January 27, 1997, the Opportu-
nity Fund will begin offering Class A shares (and Class C shares
to the extent determined by the Distributor as described below) to
new investors (the "Offering") on a limited basis as described be-
low.
During the first ten business days of the Offering, only Class
A Opportunity Fund shares will be offered. During such period,
there will be an aggregate purchase minimum of $20,000 (per ac-
count, per transaction) and an aggregate purchase maximum of
$250,000 (per account, per transaction) of Class A shares. The
Distributor may adjust the length of this period and the minimum
and maximum purchase levels for Class A shares, and may determine
that, after the period, Class C shares of the Fund will also be
offered at minimum and maximum purchase levels established by the
Distributor.
Employees of the Advisor, any affiliated Portfolio Manager and
the Distributor (and any spouse or child of any such employee, or
any trust, profit sharing or pension plan for the benefit of any
such employee) may acquire Opportunity Fund shares during the Of-
fering for a minimum aggregate investment of $1,000.
With the exception of certain benefit plans not currently eli-
gible to acquire Opportunity Fund shares, all investors eligible
to purchase shares of other Funds of the Trust may participate in
the Offering. Existing Class A shareholders (and to the extent
Class C shares are offered, Class C shareholders) of other Funds
of the Trust or series of PIMCO Funds: Pacific Investment Manage-
ment Series may, in addition to purchasing shares, acquire Oppor-
tunity Fund shares during the Offering by exchanging their Class A
(or Class C) shares for the same class of Opportunity Fund shares
in the manner described under "Exchange Privilege" below.
The Offering will close (and the Opportunity Fund will again be
closed to new investors) at the close of business on the day (the
"Closing Date") on which an aggregate gross amount of $250 million
of the Fund's Class A and Class C shares has been sold to new in-
vestors (including shares acquired through exchanges as described
above). Shares purchased and subsequently redeemed during the Of-
fering will not be resold during the Offering. All purchase orders
for the Opportunity Fund's shares received on the Closing Date
will be honored even if the result would be to exceed the $250
million limit. However, if purchase orders for an aggregate of
greater than $250 million of Opportunity Fund Class A shares are
received on January 27, 1996 (the commencement date of the Offer-
ing), aggregate gross sales will be limited to $250 million, un-
less the Distributor otherwise determines, and will be allocated
among the potential purchasers by the Distributor as it deems ap-
propriate.
For additional information regarding the terms of the Offering,
please contact the Distributor (at 800-426-0107) or your broker.
RESTRICTIONS ON SALES OF AND EXCHANGES FOR SHARES OF THE OPPORTU-
NITY FUND Except to the extent described under "Limited Offering
of Shares of the Opportunity Fund to New Investors" above, shares
of the Opportunity Fund are not available for purchase by new in-
vestors in the Fund. The following categories of existing share-
holders will still be permitted to purchase additional shares of
the Fund: (i) shareholders who owned shares of the Opportunity
Fund on December 31, 1992 will be permitted to purchase additional
shares of the Fund for as long as they continue to own some shares
of the Fund; (ii) participants in any self-directed qualified ben-
efit plan (for example, 401(k), 403(b) and Keogh Plans, but not
IRAs or SEP IRAs) that owned Opportunity Fund shares on March 1,
1993 for any single plan participant will be eligible to direct
the purchase of the Fund's shares by their plan account for so
long as the plan continues to own some shares of the Fund for any
single plan participant; and (iii) shareholders who acquire shares
during the Offering described under "Limited Offering of Shares of
the Opportunity Fund to New Investors" above will be permitted to
purchase additional shares of the Fund for as long as they con-
tinue to own some shares of the Fund. In the event a shareholder
redeems all of his or her shares of the Opportunity Fund, or all
participants in a self-directed qualified
40
PIMCO Funds: Multi-Manager Series
<PAGE>
benefit plan described above redeem their shares of the Opportu-
nity Fund, such shareholder, or the participants in such plan,
will no longer be eligible to purchase shares of the Opportunity
Fund. The Opportunity Fund does not offer Class B shares to new or
existing investors.
Shareholders of other Funds are not permitted to exchange any
of their shares for Opportunity Fund shares unless the sharehold-
ers are independently eligible to purchase Opportunity Fund shares
because they already owned such shares of the Fund on December 31,
1992 (March 1, 1993, in the case of the self-directed qualified
benefit plans described above) or acquired such shares during the
Offering described under "Limited Offering of Shares of the Oppor-
tunity Fund to New Investors" above.
The Trust reserves the right at any time to modify these re-
strictions, including the suspension of all sales of Opportunity
Fund shares or the lifting of restrictions on different classes of
investors and/or transactions.
SIGNATURE When a signature guarantee is called for, the shareholder should
GUARANTEE have "Signature Guaranteed" stamped under his signature and guar-
anteed by any of the following entities: U.S. banks, foreign banks
having a U.S. correspondent bank, credit unions, savings associa-
tions, 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 guaran-
tee pursuant to its written signature guarantee standards or pro-
cedures, 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 require-
ments from time to time upon notice to shareholders, which may be
given by means of a new or supplemented Prospectus.
ACCOUNT Changes in registration or account privileges may be made in writ-
REGISTRATION ing to the Transfer Agent. Signature guarantees may be required.
CHANGES See "Signature Guarantee" above. All correspondence must include
the account number and must be sent to:
PIMCO Funds Distribution Company
P.O. Box 5866
Denver, CO 80217-5866
Alternative Purchase Arrangements
The Trust offers investors three classes of shares in this Pro-
spectus (Class A, Class B and Class C) which bear sales charges in
different forms and amounts and which bear different levels of ex-
penses. Through a separate prospectus, certain of the Funds offer
up to two additional classes of shares, Institutional Class shares
and Administrative Class shares, to pension and profit sharing
plans, employee benefit trusts, endowments, foundations, corpora-
tions and other high net worth individuals. Institutional Class
shares and Administrative Class shares are sold without sales
charges and have different expenses than Class A, Class B and
Class C shares. As a result of lower sales charges and/or operat-
ing expenses, Administrative Class and Institutional Class shares
are generally expected to achieve a higher investment return than
Class A, Class B or Class C shares. To obtain more information
about Institutional Class or Administrative Class shares, please
call the Distributor at 800-426-0107.
The alternative purchase arrangements offered in this Prospec-
tus are designed to enable a retail 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 particular Fund; and
whether the investor intends to exchange shares for shares of
other Funds. Generally, when making an investment decision, in-
vestors should consider the anticipated life of an intended in-
vestment in the Funds, the accumulated distribution and servicing
fees plus CDSCs on Class B or Class C shares, the initial sales
charge plus accumulated servicing fees on Class A shares (plus a
CDSC in certain circumstances), the possibility that the antici-
pated higher return on Class A shares due to the lower ongoing
41
January 17, 1997 Prospectus
<PAGE>
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 CDSCs applicable to Class A, Class B and
Class 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 appli-
cable to such shares. Similar reductions are not available on the
contingent deferred sales charge alternative (Class B) or the as-
set 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 correspond-
ingly higher dividends on a per share basis. However, because ini-
tial 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 CDSC. 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 CDSC
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 ini-
tial 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 CDSC, and will be subject to the servicing
fees charged for Class A shares which are lower than the distribu-
tion 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 CDSC after they have been held for one year and are
subject to only a 1% CDSC 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 main-
tain 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 CDSC is available. See generally "Initial Sales Charge
Alternative--Class A Shares" and "Waiver of Contingent Deferred
Sales Charges" below.
The maximum single purchase of Class B shares of the Trust and
series of PIMCO Funds: Pacific Investment Management Series ac-
cepted is $249,999. The maximum single purchase of Class C shares
of the Trust and series of PIMCO Funds: Pacific Investment Manage-
ment Series 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 Distri-
bution and Servicing Plans" below.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES The CDSC applicable to
Class A and Class 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 separa-
tion from service and attaining age 55; (ii) any partial or com-
plete redemption in connection with a qualifying loan or hardship
withdrawal from an employer sponsored retirement plan;
42
PIMCO Funds: Multi-Manager Series
<PAGE>
(iii) any complete redemption in connection with a distribution
from a qualified employer retirement plan in connection with ter-
mination 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; (vi) certain periodic redemptions under an Automatic With-
drawal Plan from an account meeting certain minimum balance re-
quirements, in amounts meeting certain maximums established from
time to time by the Distributor; (vii) redemptions by Trustees,
officers and employees of the Trust, and by directors, officers
and employees of the Distributor and the Advisor; (viii) redemp-
tions 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 redemp-
tions 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; (xii) redemptions ef-
fected 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; or
(xiii) redemptions in connection with IRA accounts established
with Form 5305-SIMPLE under the Code for which the Trust is the
designated financial institution.
The CDSC applicable to Class B shares is currently waived for
any partial or complete redemption (a) in connection with a dis-
tribution without penalty under Section 72(t) of the Code from a
403(b)(7) plan or an IRA upon attaining age 59 1/2; (b) following
death or disability (as defined in the Code) of a shareholder (in-
cluding 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; and (c) of up to 10%
per year of the value of an account subject to an Automatic With-
drawal Plan. See "How to Redeem--Automatic Withdrawal Plan."
The Distributor may require documentation prior to waiver of
the CDSC for any class, including distribution letters, certifica-
tion by plan administrators, applicable tax forms, death certifi-
cates, physicians' certificates, etc.
43
January 17, 1997 Prospectus
<PAGE>
INITIAL Class A shares are sold at a public offering price equal to their
SALES net asset value per share plus a sales charge, as set forth below.
CHARGE As indicated below under "Class A Deferred Sales Charge," certain
ALTERNATIVE investors that purchase $1,000,000 or more of any Fund's Class A
- -- CLASS A shares (and thus pay no initial sales charge) may be subject to a
SHARES 1% CDSC if they redeem such shares during the first 18 months af-
ter their purchase.
ALL FUNDS EXCEPT TAX EXEMPT FUND
<TABLE>
<CAPTION>
DISCOUNT OR
SALES CHARGE AS SALES CHARGE COMMISSION TO
AMOUNT OF % OF NET AS % OF PUBLIC DEALERS AS % OF
PURCHASE AMOUNT INVESTED OFFERING PRICE PUBLIC OFFERING PRICE
----------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 5.82% 5.50% 4.75%
----------------------------------------------------------------------
$50,000 - $99,999 4.71% 4.50% 4.00%
----------------------------------------------------------------------
$100,000 - $249,999 3.63% 3.50% 3.00%
----------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
----------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
----------------------------------------------------------------------
$1,000,000+ 0.00%(/1/) 0.00%(/1/) 0.75%(/2/)
</TABLE>
TAX EXEMPT FUND
<TABLE>
<CAPTION>
DISCOUNT OR
SALES CHARGE AS SALES CHARGE AS COMMISSION
AMOUNT OF % OF NET % OF PUBLIC TO DEALERS AS % OF
PURCHASE AMOUNT INVESTED OFFERING PRICE PUBLIC OFFERING PRICE
-----------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 4.71% 4.50% 4.00%
-----------------------------------------------------------------------
$50,000 - $99,999 4.17% 4.00% 3.50%
-----------------------------------------------------------------------
$100,000 - $249,999 3.63% 3.50% 3.00%
-----------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
-----------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
-----------------------------------------------------------------------
$1,000,000+ 0.00%(/1/) 0.00%(/1/) 0.50%(/2/)
</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 CDSC 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 CDSC as described under "Waiver of
Contingent Deferred Sales Charges" above. See "Class A Deferred
Sales Charge" below.
2. 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) of each Fund except
the Tax Exempt Fund, 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; and for Class A
shares of the Tax Exempt Fund, according to the following sched-
ule: 0.50% of the first $2,000,000, and 0.25% of amounts over
$2,000,000.
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. During such peri-
ods as may from time to time be designated by the Distributor, the
Distributor will pay an additional amount of up to .50% of the
purchase price on sales of Class A shares of all or selected Funds
purchased to each participating broker which obtains purchase or-
ders in amounts exceeding thresholds established from time to time
by the Distributor. From time to time, the Distributor, its parent
and/or its affiliates may make additional payments to one or more
participating brokers based upon factors such as the level of
sales or the length of time clients' assets have remained in the
Trust.
44
PIMCO Funds: Multi-Manager Series
<PAGE>
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 enti-
tled 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 series of PIMCO Funds: Pacific Investment Manage-
ment Series which offer Class A shares (together, "eligible PIMCO
Funds") 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 in-
dividual, his or her spouse and their children under the age of 21
years purchasing Class A shares of the eligible PIMCO Funds for
his, her or their own account; (ii) a single purchase by a trustee
or other fiduciary purchasing shares for a single trust, estate or
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. For further information, call the Distributor at
800-426-0107 or your broker.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION) A purchase of
additional Class A shares of any eligible PIMCO 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 eligible PIMCO
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 Tax Exempt Fund
worth $25,000 at the current maximum offering price and wished to
purchase Class A shares of the Growth 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 Growth Fund, rather than the 5.50% rate.
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 eligible PIMCO Fund(s). Each pur-
chase of shares under a Letter of Intent will be made at the pub-
lic offering price or prices applicable at the time of such pur-
chase to a single transaction of the dollar amount indicated in
the Letter. At the investor's option, a Letter of Intent may in-
clude purchases of Class A shares of any eligible PIMCO 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 in-
cluded and the sales charge on any purchases prior to the Letter
will not be adjusted.
Investors qualifying for the Combined Purchase Privilege de-
scribed above may purchase shares of the eligible PIMCO Funds un-
der 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, you and your spouse each purchase Class A
shares of the Growth 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 to qual-
ify for the 3.50% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000 in any
of the Funds).
A Letter of Intent is not a binding obligation to purchase the
full amount indicated. The minimum initial investment under a Let-
ter 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 in-
dicated is not purchased, a sufficient amount of such escrowed
shares will be involuntarily redeemed to pay the additional sales
charge
January 17, 1997 Prospectus
45
<PAGE>
applicable to the amount actually purchased, if necessary. Divi-
dends on escrowed shares, whether paid in cash or reinvested in
additional eligible PIMCO Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow will
be released.
If you wish to enter into a Letter of Intent in conjunction
with your initial investment in Class A shares of a Fund, you
should complete the appropriate portion of the Account Applica-
tion. If you are a current Class A shareholder desiring to do so
you can obtain a form of Letter of Intent by contacting the Dis-
tributor at 800-426-0107 or any broker participating in this pro-
gram.
REINSTATEMENT PRIVILEGE A Class A shareholder who has caused any
or all of his shares to be redeemed may reinvest all or any por-
tion of the redemption proceeds in Class A shares of any eligible
PIMCO Fund at net asset value without any sales charge, provided
that such reinvestment is made within 120 calendar days after the
redemption or repurchase date. Shares are sold to a reinvesting
shareholder at the net asset value next determined. See "How Net
Asset Value is Determined." A reinstatement pursuant to this priv-
ilege will not cancel the redemption transaction and, consequent-
ly, 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 sharehold-
er'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 Dis-
tributor 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 Advi-
sor 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 PIMCO Funds: Pa-
cific Investment Management Series and Cash Accumulation Trust,
registered investment companies for which the Advisor or an affil-
iate acts as investment adviser, (c) current registered represent-
atives and other full-time employees of participating brokers or
such persons' spouses, (d) trustees or other fiduciaries purchas-
ing shares for certain employer sponsored plans that have at least
100 eligible participants or at least $1 million in total plan as-
sets, (e) trustees or other fiduciaries purchasing shares for cer-
tain employer-sponsored plans, the trustee, fiduciary or adminis-
trator for which has an agreement with the Distributor with re-
spect to such purchases, (f) participants investing through ac-
counts known as "wrap accounts" established with brokers or deal-
ers approved by the Distributor where such brokers or dealers are
paid a single, inclusive fee for brokerage and investment manage-
ment services, (g) broker-dealers or registered investment advis-
ers affiliated with such broker-dealers with which the Distributor
has an agreement for the use of PIMCO Funds: Multi-Manager Series
in particular investment products for which a fee is charged, and
(h) trust accounts for which trust companies affiliated with the
Trust or the Advisor serve as trustee. As described above, the
Distributor will not pay any initial commission to dealers upon
the sale of Class A shares to the purchasers described in this
paragraph except for sales to purchasers described under (d) or
(e) in this paragraph.
NOTIFICATION OF DISTRIBUTOR An investor or participating broker
must notify the Distributor whenever a quantity discount or re-
duced sales charge is applicable to a purchase and must provide
the Distributor with sufficient information at the time of pur-
chase 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.
CLASS A DEFERRED SALES CHARGE For all Funds, investors who pur-
chase $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% CDSC (the "Class A CDSC") if such shares are redeemed within 18
months of their purchase. The Class A CDSC does not apply to in-
vestors purchasing
46
PIMCO Funds: Multi-Manager Series
<PAGE>
$1,000,000 or more of any Fund's Class A shares if such investors
are otherwise eligible to purchase Class A shares without any
sales charge because they are described under "Sales at Net Asset
Value" above.
For purchases subject to the Class A CDSC, a 1% CDSC will
apply for any redemption of such Class A shares that occurs
within 18 months of their purchase. No CDSC will be imposed if
the shares redeemed have been acquired through the reinvestment
of dividends or capital gains distributions or if the amount
redeemed is derived from increases in the value of the account
above the amount of purchase payments subject to the CDSC. In
determining whether a CDSC is payable, it is assumed that Class A
shares acquired through the reinvestment of dividends and
distributions are redeemed first, and thereafter that Class A
shares that have been held by an investor for the longest period
of time are redeemed first.
The Class A CDSC is currently waived in connection with
certain redemptions as described above under "Alternative
Purchase Arrangements--Waiver of Contingent Deferred Sales
Charges." For more information about the Class A CDSC, call the
Distributor at 800-426-0107.
PARTICIPATING BROKERS Investment dealers and other financial in-
termediaries 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 and 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 should be read in
connection with such firms' material regarding their fees and
services.
DEFERRED Class B shares are sold at their current net asset value without
SALES CHARGE any initial sales charge. The full amount of an investor's pur-
ALTERNATIVE chase payment will be invested in shares of the Fund(s) selected.
- -- CLASS B A CDSC will be imposed on Class B shares if an investor redeems
SHARES 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. The Opportunity Fund does not offer
Class B shares.
January 17, 1997 Prospectus
47
<PAGE>
Whether a CDSC is imposed and the amount of the CDSC will de-
pend on the number of years since the investor made a purchase
payment from which an amount is being redeemed. Purchases are sub-
ject 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*
</TABLE>
*After the seventh year, 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 earli-
est purchase payment from which a redemption or exchange has not
already been fully effected.
The following example will illustrate the operation of the
Class B CDSC:
Assume that an individual opens an account and makes a purchase
payment of $10,000 for Class B 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 distribu-
tions to $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 5%, the Class B CDSC would be $100.
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 aggregat-
ed. 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 par-
ticipating 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 Dis-
tributor, the Distributor will pay selected participating brokers
an additional amount of up to .50% of the purchase price on sales
of Class B shares of all or selected Funds purchased to each par-
ticipating broker which obtains purchase orders in amounts exceed-
ing 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 Ar-
rangements --Waiver of Contingent Deferred Sales Charges." For
more information about the Class B CDSC, call the Distributor at
800-426-0107.
ASSET BASED Class C shares are sold at their current net asset value without
SALES CHARGE any initial sales charge. A CDSC is imposed on Class C shares if
ALTERNATIVE an investor redeems an amount which causes the current value of
- -- CLASS C the investor's account for a Fund to fall below the total dollar
SHARES 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
48
PIMCO Funds: Multi-Manager Series
<PAGE>
amount redeemed is derived from increases in the value of the ac-
count 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 de-
pend on the number of years since the investor made a purchase
payment from which an amount is being redeemed. Purchases are sub-
ject 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 ear-
liest purchase payment (from which a redemption or exchange has
not already been effected).
The following example will illustrate the operation of the
Class C 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 distribu-
tions to $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 Class C CDSC would be $20.
In determining whether an amount is available for redemption
without incurring a CDSC, the purchase payments made for all Class
C shares in the shareholder's account with the particular Fund are
aggregated, and the current value of all such shares is aggregat-
ed. Any CDSC imposed on a redemption of Class C shares is paid to
the Distributor. Unlike Class B shares, Class C shares do not au-
tomatically 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 share-
holder purchases Class C shares, of 1.00% (representing .75% dis-
tribution fees and .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 with respect to such pur-
chases, no payments are made at the time of purchase. During such
periods as may from time to time be designated by the Distributor,
the Distributor will pay an additional amount of up to .50% of the
purchase price on sales of Class C shares of all or selected Funds
purchased to each participating broker which obtains purchase or-
ders 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 Ar-
rangements--Waiver of Contingent Deferred Sales Charges." For more
information about the Class C CDSC, contact the Distributor at
800-426-0107.
Exchange Privilege
Except with respect to exchanges for shares of the Opportunity
Fund (which are currently subject to certain restrictions), a
shareholder may exchange Class A, Class B and Class C shares of
any Fund for the same Class of shares of any other Fund in an ac-
count with identical registration on the basis of their respective
net asset values. For information on restrictions applicable to
exchanges of shares for shares of the Opportunity Fund, see "Lim-
ited Offering of Shares of the Opportunity Fund to New Investors"
and "Restrictions on Sales of and Exchanges for Shares of the Op-
portunity Fund" under "How to Buy Shares" above. Class A, Class B
and Class C shares of each Fund may also be exchanged for shares
January 17, 1997 Prospectus
49
<PAGE>
of the same class of a series of PIMCO Funds: Pacific Investment
Management Series, an affiliated mutual fund family comprised pri-
marily of fixed income portfolios managed by Pacific Investment
Management, an affiliate of the Advisor. There are currently no
exchange fees or charges. Except with respect to tax-qualified
programs and exchanges effected through the PIMCO 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 Funds
Distribution Company, P.O. Box 5866, Denver, CO 80217-5866 or, un-
less 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 Trans-
fer Agent at 800-852-8457. The Trust will employ reasonable proce-
dures 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 act-
ing on a caller's telephone instructions, will provide written
confirmations of such transactions and will record telephone in-
structions. 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 or address of the shareholder. Changes in regis-
tration information or account privileges may be made in writing
to the Transfer Agent, Shareholder Services, Inc., P.O. Box 5866,
Denver, Colorado 80217-5866, or by use of forms which are avail-
able from the Distributor. A signature guarantee is required. See
"How to Buy Shares--Signature Guarantee." Telephone exchanges may
be made between 9:00 a.m. Eastern time and the close of regular
trading (normally 4:00 p.m. Eastern time) on the Exchange on any
day the Exchange is open (generally weekdays other than normal
holidays). The Trust reserves the right to refuse exchange pur-
chases if, in the judgment of the Advisor, the purchase would ad-
versely affect the Fund and its shareholders. In particular, a
pattern of exchanges characteristic of "market-timing" strategies
may be deemed by the Advisor to be detrimental to the Trust or a
particular 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 Secu-
rities and Exchange Commission regulations, the Trust will give 60
days' advance notice to shareholders of any termination or mate-
rial modification of the exchange privilege. For further informa-
tion 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 capi-
tal appreciation and/or reinvested dividends or capital gains dis-
tributions will be exchanged first, and thereafter any portions
exchanged will be from the earliest investment made in the Fund
from which the exchange was made. Shareholders should take into
account the effect of any exchange on the applicability of any
CDSC that may be imposed upon any subsequent redemption.
Investors may also select the PIMCO Auto Exchange plan which
establishes automatic periodic exchanges. For further information
on automatic exchanges see "How to Buy Shares--PIMCO Auto Ex-
change" above."
How to Redeem
Class A, Class B or Class C shares may be redeemed through a par-
ticipating broker, by telephone, by submitting a written redemp-
tion request directly to the Transfer Agent (for non-broker ac-
counts), or through an Automatic Withdrawal Plan or PIMCO Fund
Link. In the event a shareholder or participants in certain self-
directed qualified employee benefit plans eligible to purchase
shares of the Opportunity Fund redeem(s) all of the shareholder's
or the participants' shares of the Fund (including shares acquired
during the Offering described under "How to Buy Shares--Limited
Offering of Shares of the Opportunity Fund to New Investors"
above), such shareholder or participants in such plans will no
longer be eligible to purchase shares of the Opportunity Fund. See
"How to Buy Shares--Restrictions on Sales of and Exchanges for
Shares of the Opportunity Fund."
50
PIMCO Funds: Multi-Manager Series
<PAGE>
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 bro-
ker who processes a redemption for an investor may charge custom-
ary 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 (normally 4:00 p.m. Eastern time) on the
Exchange on a regular business day and received by the Distributor
prior to the close of the Distributor's business day will be con-
firmed at the net asset value effective as of the closing of the
Exchange on that day, less any applicable CDSC.
DIRECT A shareholder's original Account Application permits the share-
REDEMPTION holder to redeem by written request and by telephone (unless the
shareholder specifically elects not to utilize telephone redemp-
tions) and to elect one or more of the additional redemption pro-
cedures described below. A shareholder may change the instructions
indicated on his original Account Application, or may request ad-
ditional redemption options, only by transmitting a written direc-
tion to the Transfer Agent. Requests to institute or change any of
the additional redemption procedures will require a signature
guarantee.
Redemption proceeds will normally be mailed to the redeeming
shareholder within seven days or, in the case of wire transfer or
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 pro-
ceeds 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 To redeem shares in writing (whether or not represented by certif-
REQUESTS icates), a shareholder must send the following items to the Trans-
fer Agent, Shareholder Services, Inc., P.O. Box 5866, Denver, Col-
orado 80217-5866: (1) a written request for redemption signed by
all registered owners exactly as the account is registered on the
Transfer Agent's records, including fiduciary titles, if any, and
specifying the account number and the dollar amount or number of
shares to be redeemed; (2) for certain redemptions described be-
low, a guarantee of all signatures on the written request or on
the share certificate or accompanying stock power, if required, as
described under "How to Buy Shares--Signature Guarantee"; (3) any
share certificates issued for any of the shares to be redeemed
(see "Certificated Shares" below); and (4) any additional docu-
ments 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 re-
demption 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 ac-
count. To avoid delay in redemption or transfer, shareholders hav-
ing any questions about these requirements should contact the
Transfer Agent in writing or call 1-800-426-0107 before submitting
a request. Redemption or transfer requests will not be honored un-
til all required documents in the proper form have been received
by the Transfer Agent. This redemption option does not apply to
shares held in broker "street name" accounts.
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 redemp-
tion 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 adminis-
trator for which has an agreement with the Distributor.
51
January 17, 1997 Prospectus
<PAGE>
TELEPHONE The Trust accepts telephone requests for redemption of
REDEMPTIONS uncertificated shares for amounts up to $50,000 within any 7 cal-
endar day period, except for investors who have specifically de-
clined 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 a written authorization with a signature guaran-
tee. See "How to Buy Shares--Signature Guarantee." Telephone re-
demptions will not be accepted during the 30-day period following
any change in an account's record address. This redemption option
does not apply to shares held in broker "street name" accounts.
By completing an Account Application, an investor agrees that
the Trust, the Distributor and the Transfer Agent shall not be li-
able for any loss incurred by the investor by reason of the Trust
accepting unauthorized telephone redemption requests for his ac-
count if the Trust reasonably believes the instructions to be gen-
uine. 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 him-
self as the owner of an account or the owner's broker where the
owner has not declined in writing to utilize this service. The
Trust will employ reasonable procedures to confirm that instruc-
tions 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 confirmations of such transac-
tions 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 with-
drawn 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 re-
demption request is received prior to the close of regular trading
(normally 4:00 p.m. Eastern time) on the Exchange that day. If the
redemption request is received after the close 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 se-
curities markets, the volume of calls may make it difficult to re-
deem by telephone, in which case a shareholder may wish to send a
written request for redemption as described under "Written Re-
quests" above. Telephone communications may be recorded by the
Distributor or the Transfer Agent.
FUND LINK If a shareholder has established Fund Link, the shareholder may
REDEMPTIONS 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 a Fund Link Ap-
plication by the Transfer Agent. To use Fund Link for redemptions,
call the Transfer Agent at 800-852-8457. Subject to the limita-
tions set forth above under "Telephone Redemptions," the Distribu-
tor, the Trust and the Transfer Agent may rely on instructions by
any registered owner believed to be genuine and will not be re-
sponsible to any shareholder for any loss, damage or expense aris-
ing out of such instructions. Requests received by the Transfer
Agent prior to the close of regular trading (normally 4:00 p.m.
Eastern time) on the Exchange 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 "How to Buy Shares--
Signature Guarantee." See "How to Buy Shares--PIMCO Fund Link" for
information on establishing the Fund Link privilege. The Trust may
terminate the Fund Link program at any time without notice to
shareholders. This redemption option does not apply to shares held
in broker "street name" accounts.
52
PIMCO Funds: Multi-Manager Series
<PAGE>
EXPEDITED If a shareholder has given authorization for expedited wire re-
WIRE demption, shares can be redeemed and the proceeds sent by federal
TRANSFER wire transfer to a single previously designated bank account. Re-
REDEMPTIONS quests received by the Trust prior to the close of the Exchange
will result in shares being redeemed that day at the next deter-
mined 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 de-
layed by the Trust for up to 7 days if the Distributor deems it
appropriate under then current market conditions. Once authoriza-
tion is on file, the Trust will honor requests by any person iden-
tifying himself as the owner of an account or the owner's broker
by telephone at 800-852-8457 or by written instructions. The Trust
cannot be responsible for the efficiency of the Federal Reserve
wire system or the shareholder's bank. The Trust does not cur-
rently 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 privi-
lege. Shares purchased by check may not be redeemed by wire trans-
fer until such shares have been owned (i.e., paid for) for at
least 15 days. Expedited wire transfer redemptions may be autho-
rized 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 re-
ceive wire redemption proceeds, it is necessary to send a written
request with signatures guaranteed to PIMCO Funds Distribution
Company, P.O. Box 5866, Denver, CO 80217-5866. See "How to Buy
Shares-- Signature Guarantee." This redemption option does not ap-
ply to shares held in broker "street name" accounts.
CERTIFICATEDTo redeem shares for which certificates have been issued, the cer-
SHARES tificates must be mailed to or deposited with the Trust, duly en-
dorsed or accompanied by a duly endorsed stock power or by a writ-
ten request for redemption. Signatures must be guaranteed as de-
scribed under "How to Buy Shares--Signature Guarantee." Further
documentation may be requested from institutions or fiduciary ac-
counts, 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 regis-
tered, including indication of any special capacity of the regis-
tered owner.
AUTOMATIC An investor who owns or buys shares of a Fund having a net asset
WITHDRAWAL value of $10,000 or more may open an Automatic Withdrawal Plan and
PLAN 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 completing the appropriate section of
the Account Application or you may obtain an Automatic Withdrawal
Plan Application from the Distributor or your broker. If an Auto-
matic Withdrawal Plan is set up after the account is established
providing for payment to a person other than the record share-
holder or to an address other than the address of record, a signa-
ture guarantee is required. See "How to Buy Shares--Signature
Guarantee." Class A, Class B and Class C shares of any Fund are
deposited in a plan account and all distributions are reinvested
in additional shares of the particular class of the Fund at net
asset value. Shares in a plan account are then redeemed at net as-
set value (less any applicable CDSC) to make each withdrawal pay-
ment. Any applicable CDSC may be waived for certain redemptions
under an Automatic Withdrawal Plan. See "Alternative Purchase Ar-
rangements--Waiver of Contingent Deferred Sales Charges."
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 pay-
ment selected by the shareholder. The Transfer Agent may acceler-
ate 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 fidu-
ciary, 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
53
January 17, 1997 Prospectus
<PAGE>
Automatic Withdrawal Plan concurrently with purchases of addi-
tional 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 rea-
son, the minimum investment accepted for a Fund while an Automatic
Withdrawal Plan is in effect for that Fund is $1,000, and an in-
vestor 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 Dis-
tributor may terminate or change the terms of the Automatic With-
drawal Plan at any time.
Because the Automatic Withdrawal Plan may involve invasion of
capital, investors should consider carefully with their own finan-
cial 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.
Distributor and Distribution and Servicing Plans
PIMCO Funds Distribution Company (the "Distributor"), a wholly
owned subsidiary of the Advisor, 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 and Class C shares and servicing payments
to participating brokers, certain banks and other financial inter-
mediaries in connection with the sale of Class A shares. In the
case of Class A shares, these parties are also compensated based
on the amount of the front-end sales charge reallowed by the Dis-
tributor, except in cases where Class A shares are sold without a
front-end sales charge. In the case of Class B shares, participat-
ing brokers and other financial intermediaries 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 Agreement 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 current 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 servicing fees up to the annual rate of .25% (calcu-
lated as a percentage of each Fund's average daily net assets at-
tributable to Class A shares).
CLASS B AND CLASS C DISTRIBUTION AND SERVICING FEES: As compensa-
tion for services rendered and expenses borne by the Distributor
in connection with the distribution of Class B and Class C shares
of the Trust, and in connection with personal services rendered to
Class B and Class C shareholders of the Trust and the maintenance
of Class B and Class C shareholder accounts, the Trust pays the
Distributor servicing and distribution fees up to the annual rates
set forth below (calculated as a percentage of each Fund's average
daily net assets attributable to Class B and Class C shares,
respectively):
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FUND FEE FEE
------------------------------
<S> <C> <C>
All Funds .25% .75%
</TABLE>
The Class A servicing fees and Class B and Class C distribution
and servicing fees paid to the Distributor are made under Distri-
bution and Servicing Plans adopted pursuant to Rule 12b-l under
the Investment Company Act of
54
PIMCO Funds: Multi-Manager Series
<PAGE>
1940, as amended (the "1940 Act"), 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 compen-
sate the Distributor for services rendered even if the amount paid
exceeds the Distributor's expenses.
The distribution fee applicable to Class B and Class C shares
may be spent by the Distributor on any activities or expenses pri-
marily intended to result in the sale of Class B or Class C
shares, respectively, including compensation to, and expenses (in-
cluding overhead and telephone expenses) of, financial consultants
or other employees of the Distributor or of participating or in-
troducing brokers who engage in distribution of Class B or Class C
shares, printing of prospectuses and reports for other than exist-
ing Class B or Class C shareholders, advertising, and preparation,
printing and distribution of sales literature. The servicing fee,
applicable to Class A, Class B and Class C shares of the Trust,
may be spent by the Distributor on personal services rendered to
shareholders of the Trust and the maintenance of shareholder ac-
counts, including compensation to, and expenses (including tele-
phone and overhead expenses) of, financial consultants or other
employees of 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 pay-
ments, who provide information periodically to shareholders show-
ing their positions in a Fund's shares, who forward communications
from the Trust to shareholders, who render ongoing advice concern-
ing 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 Class A, Class B or
Class C shares of any Fund may indirectly support sales and ser-
vicing 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 annu-
ally based on the relative sales of each class, except for any ex-
penses that relate only to the sale or servicing of a single
class. The Distributor may make payments to brokers (and with re-
spect 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:
ALL FUNDS(/1/)
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FEE FEE
------------------------------------
<S> <C> <C>
Class A .25% N/A
------------------------------------
Class B (/2/) .25% None
------------------------------------
Class C
(purchased
before July 1,
1991) .25% None
------------------------------------
Class C (/3/)
(purchased on
or after July
1, 1991) .25% .65%
</TABLE>
1. Applies, in part, to Class A, Class B and Class C shares of the
Trust issued to former shareholders of PIMCO Advisors Funds in
connection with the reorganizations/mergers of series of PIMCO Ad-
visors Funds as/with Funds of the Trust in a transaction which
took place on January 17, 1997.
2. Payable only with respect to shares outstanding for one year or
more.
3. 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.
The Distributor may from time to time pay additional cash bo-
nuses or other incentives to selected participating brokers in
connection with the sale or servicing of Class A, Class B and
Class 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
January 17, 1997 Prospectus
55
<PAGE>
shares of a Fund and/or all of the Funds together or a particular
class of shares, during a specific period of time. The Distributor
currently expects that such additional bonuses or incentives will
not exceed .50% of the amount of any sale. In its capacity as ad-
ministrator for the Funds, PIMCO Advisors may pay participating
brokers and other intermediaries for sub-transfer agency and other
services.
If in any year the Distributor's expenses incurred in connec-
tion with the distribution of Class B and Class C shares and, for
Class A, Class B and Class C shares, in connection with the ser-
vicing of shareholders and the maintenance of shareholder ac-
counts, exceed the distribution and/or servicing fees paid by the
Trust, the Distributor would recover such excess only if the Dis-
tribution 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.
From time to time, expenses of principal underwriters incurred
in connection with the sale of Class B and Class C shares of the
Funds and, in connection with the servicing of Class B and Class C
shareholders of the Funds and the maintenance of Class B and Class
C shareholder accounts, may exceed the distribution and servicing
fees collected by the Distributor. Class B and Class C Distribu-
tion and Servicing Plans, which are similar to the Trust's current
Plans, were in effect prior to the date of this Prospectus in re-
spect of certain series of PIMCO Advisors Funds that were prede-
cessors of the Funds listed below. The remaining Funds did not of-
fer Class B or Class C shares prior to the date of this Prospec-
tus. As of September 30, 1996, such expenses were approximately
$11,408,000 in excess of payments under the PIMCO Advisors Funds'
Class B Distribution and Servicing Plan and $2,822,000 in excess
of payments under the PIMCO Advisors Funds' Class C Distribution
and Servicing Plan. The allocation of such excess (on a pro rata
basis) among the predecessors to the Funds listed below as of Sep-
tember 30, 1996 was a follows:
EXCESS EXPENSES*
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------------------
(AS A PERCENTAGE (AS A PERCENTAGE
($ IN THOUSANDS) OF NET ASSETS) ($ IN THOUSANDS) OF NET ASSETS)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Renaissance Fund 621 3.96 140 .06
--------------------------------------------------------------------------------------
Growth Fund 1,474 3.96 884 .06
--------------------------------------------------------------------------------------
Target Fund 1,972 3.96 595 .06
--------------------------------------------------------------------------------------
Opportunity Fund N/A N/A 488 .06
--------------------------------------------------------------------------------------
International Fund 233 3.96 124 .06
--------------------------------------------------------------------------------------
Innovation Fund 1,336 3.96 84 .06
--------------------------------------------------------------------------------------
Precious Metals Fund 88 3.96 23 .06
--------------------------------------------------------------------------------------
Tax Exempt Fund 89 3.96 29 .06
</TABLE>
* The table lists such excess expenses, as of September 30, 1996,
for predecessor series of PIMCO Advisors Funds which reorganized
as the listed Funds of the Trust.
How Net Asset Value Is Determined
The net asset values of Class A, Class B and Class C shares of
each Fund of the Trust will be determined once on each day on
which the Exchange is open (a "Business Day"), as of the close of
regular trading (normally 4:00 p.m., Eastern time) on the Ex-
change. Portfolio securities for which market quotations are read-
ily available are valued at market value. Fixed income securities
generally are valued on the basis of quotations obtained from bro-
kers and dealers or pricing services, which take into account ap-
propriate 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. Certain
fixed income securities for which daily market quotations are not
readily available may be valued, pursuant to guidelines estab-
lished
56
PIMCO Funds: Multi-Manager Series
<PAGE>
by the Board of Trustees, with reference to fixed income securi-
ties whose prices are more readily obtainable and whose durations
are comparable to the securities being valued. Short-term invest-
ments 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. Exchange-traded options, futures and options on
futures are valued at the settlement price as determined by the
appropriate clearing corporation. All other securities and assets
are valued at their fair value as determined in good faith by the
Trustees or by persons acting at their direction.
Quotations of foreign securities in foreign currency are con-
verted to U.S. dollar equivalents using foreign exchange quota-
tions received from independent dealers. The calculation of the
net asset value of the International Developed, International,
Emerging Markets and Precious Metals Funds may not take place con-
temporaneously with the determination of the prices of certain
portfolio securities of foreign issuers used in such calculation.
Further, under the Trust's procedures, the prices of foreign secu-
rities are determined using information derived from pricing serv-
ices and other sources. Information that becomes known to the
Trust or its agents after the time that net asset value is calcu-
lated on any Business Day may be assessed in determining net asset
value per share after the time of receipt of the information, but
will not be used to retroactively adjust the price of the security
so determined earlier or on a prior day. Events affecting the val-
ues of portfolio securities that occur between the time their
prices are determined and 4:00 p.m., Eastern time, may not be re-
flected in the calculation of net asset value. If events materi-
ally affecting the value of such securities occur during such pe-
riod, then these securities may be valued at fair value as deter-
mined by the Advisor or a Portfolio Manager and approved in good
faith by the Board of Trustees.
Each Fund's liabilities are allocated among its classes. The
total of such liabilities allocated to a class plus that class's
distribution and/or servicing fees and any other expenses spe-
cially allocated to that class are then deducted from the class's
proportionate interest in the Fund's assets, and the resulting
amount for each class is divided by the number of shares of that
class outstanding to produce the class's "net asset value" per
share. Under certain circumstances, the per share net asset value
of the Class B and Class C shares of the Funds that do not declare
regular income dividends on a daily basis may be lower than the
per share net asset value of the Class A shares as a result of the
daily expense accruals of the distribution fee applicable to the
Class B and Class C shares. Generally, for Funds that pay income
dividends, those dividends are expected to differ over time by ap-
proximately the amount of the expense accrual differential between
the classes.
Distributions
Shares begin earning dividends on the effective date of purchase,
which is the date that funds are received by the Trust for the
purchase of Class A, Class B and Class C shares. Net investment
income from interest and dividends, if any, will be declared daily
and paid monthly to shareholders of record of the Tax Exempt Fund
and declared and paid quarterly to shareholders of record by the
Equity Income, Renaissance, Value and Balanced Funds. Net
investment income from interest and dividends, if any, will be
declared and paid at least annually to shareholders of record by
the Capital Appreciation, Growth, Mid Cap Growth, Target, Small
Cap Value, Opportunity, International Developed, International,
Emerging Markets, Innovation and Precious Metals Funds. Any net
realized capital gains from the sale of portfolio securities will
be distributed no less frequently than once annually. Net realized
short-term capital gains may be paid more frequently.
All dividends and/or distributions will be paid in the form of
additional shares of the class of shares of the Fund to which the
dividends and/or distributions relate or, at the election of the
shareholder, of another Fund of the Trust as described below, at
net asset value of such Fund, unless the shareholder elects to re-
ceive cash (either paid to shareholders directly or credited to
their account with their participating broker). Dividends paid by
each Fund with respect to each class of shares are calculated in
the same manner and at the same time, but dividends on Class B and
Class C
January 17, 1997 Prospectus
57
<PAGE>
shares are expected to be lower than dividends on Class A shares
as a result of the distribution fee applicable to Class B and
Class C shares. There are no sales charges on reinvested divi-
dends.
Class A, Class B and Class C shareholders of the Trust may
elect to invest dividends and/or distributions paid by any Fund in
shares of the same class of any other Fund of the Trust or series
of PIMCO Funds: Pacific Investment Management Series which offers
such class of shares at net asset value. The shareholder must have
an account existing in the Fund or series selected for investment
with the identical registered name and address and must elect this
option on the Account Application, on a form provided for that
purpose or by a telephone request to the Transfer Agent at 800-
852-8457. For further information on this option, contact your
broker or call the Distributor at 800-426-0107.
Taxes
Each Fund intends to qualify as a regulated investment company an-
nually and to elect to be treated as a regulated investment com-
pany under the Internal Revenue Code of 1986, as amended (the
"Code"). 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.
Shareholders subject to U.S. federal income tax will be subject
to tax on dividends received from a Fund, regardless of whether
received in cash or reinvested in additional shares. Distributions
received by tax-exempt shareholders will not be subject to federal
income tax to the extent permitted under applicable tax law. All
shareholders must treat dividends, other than capital gain divi-
dends, exempt-interest dividends and dividends that represent a
return of capital to shareholders, as ordinary income. In particu-
lar, distributions derived from short-term gains will be treated
as ordinary income. Dividends designated by a Fund as capital gain
dividends derived from the Fund's net capital gains (that is, the
excess of its net long-term capital gains over its net short-term
capital losses) are taxable to shareholders as long-term capital
gain except as provided by an applicable tax exemption. Any dis-
tributions that are not from a Fund's net investment income or net
capital gain may be characterized as a return of capital to share-
holders or, in some cases, as capital gain. Certain dividends de-
clared in October, November or December of a calendar year are
taxable to shareholders (who otherwise are subject to tax on divi-
dends) 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.
Dividends paid to shareholders by the Tax Exempt Fund which are
derived from interest on Tax Exempt Bonds are expected to be des-
ignated by the Fund as "exempt-interest dividends," and sharehold-
ers may exclude such dividends from gross income for federal in-
come tax purposes. However, if a shareholder receives social secu-
rity or railroad retirement benefits, the shareholder may be taxed
on a portion of those benefits as a result of receiving tax-exempt
income. In addition, certain exempt-interest dividends could, as
discussed below, cause certain shareholders to become subject to
the alternative minimum tax and may increase the alternative mini-
mum tax liability of shareholders already subject to this tax.
Other distributions from the Tax Exempt Fund may constitute tax-
able income, and any gain realized on a redemption of shares will
be taxable gain, subject to any applicable tax exemption for which
an investor may qualify.
Dividends derived from interest on certain U.S. Government se-
curities may be exempt from state and local taxes, although inter-
est on mortgage-backed U.S. Government securities may not be so
exempt. The distributions of "exempt-interest dividends" paid by
the Tax Exempt Fund may be exempt from state and local taxation
when received by a shareholder to the extent that they are derived
from interest on Tax Exempt Bonds issued by the state or political
subdivision in which such shareholder resides. The federal exemp-
tion for "exempt-interest dividends" attributable to Tax Exempt
Bonds does not necessarily result in exemption of such dividends
from income for the purpose of state and local taxes. The Trust
will report annually on a state-by-state basis the source of in-
come the Tax Exempt Fund receives on Tax Exempt Bonds that was
paid out as dividends during the preceding year.
58
PIMCO Funds: Multi-Manager Series
<PAGE>
The Code also provides that exempt-interest dividends allocable
to interest received from "private activity bonds" issued after
August 7, 1986 are an item of tax preference for individual and
corporate alternative minimum tax at the applicable rate for indi-
viduals and corporations. Therefore, if the Tax Exempt Fund in-
vests in such private activity bonds, certain of its shareholders
may become subject to the alternative minimum tax on that part of
its distributions to them that are derived from interest income on
such bonds, and certain shareholders already subject to such tax
may have increased liability therefor. However, it is the present
policy of the Tax Exempt Fund to invest no more than 20% of its
assets in such bonds. Other provisions of the Code affect the tax
treatment of distributions from the Tax Exempt Fund for corpora-
tions, casualty insurance companies, and financial institutions.
In particular, under the Code, for corporations, alternative mini-
mum taxable income will be increased by a percentage of the amount
by which the corporation's "adjusted current earnings" (which in-
cludes various items of tax exempt income) exceeds the amount oth-
erwise determined to be alternative minimum taxable income. Ac-
cordingly, an investment in the Tax Exempt Fund may cause share-
holders to be subject to (or result in an increased liability un-
der) the alternative minimum tax.
Current federal tax law requires the holder of a U.S. Treasury
or other fixed income zero-coupon security to accrue as income
each year a portion of the discount at which the security was pur-
chased, even though the holder receives no interest payment in
cash on the security during the year. In addition, pay-in-kind se-
curities will give rise to income which is required to be distrib-
uted and is taxable even though the Fund holding the security re-
ceives no interest payment in cash on the security during the
year. Also, a portion of the yield on certain high yield securi-
ties (including certain pay-in-kind securities) issued after July
10, 1987 may be treated as dividends. Accordingly, each Fund that
holds the foregoing kinds of securities may be required to pay out
as an income distribution each year an amount which is greater
than the total amount of cash interest the Fund actually received.
Such distributions may be made from the cash assets of the Fund or
by liquidation of portfolio securities, if necessary. The Fund may
realize gains or losses from such liquidations. In the event the
Fund realizes net capital gains from such transactions, its share-
holders may receive a larger capital gain distribution, if any,
than they would in the absence of such transactions.
Taxable shareholders should note that the timing of their in-
vestment or redemptions could have undesirable tax consequences.
If shares are purchased on or just before the record date of a
dividend, taxable shareholders will pay full price for the shares
and may receive a portion of their investment back as a taxable
distribution. If shares are redeemed before payment of an exempt-
interest dividend, shareholders may realize a taxable capital
gain, whereas by waiting and receiving the exempt-interest divi-
dend, a portion of their share value would have been received in
the form of tax-free income.
The preceding discussion relates only to federal income tax;
the consequences under other tax laws may differ. Shareholders
should consult their tax advisers as to the possible application
of state and local income tax laws to Trust dividends and capital
gain distributions. For additional information relating to the tax
aspects of investing in a Fund, see the Statement of Additional
Information.
Management of the Trust
The business affairs of the Trust are managed under the direction
of the Board of Trustees. Information about the Trustees and the
Trust's executive officers may be found in the Statement of Addi-
tional Information under the heading "Management of the Trust."
INVESTMENT PIMCO ADVISORS serves as investment adviser to the Funds pursuant
ADVISOR to an investment advisory agreement with the Trust. PIMCO Advisors
is a Delaware limited partnership organized in 1987. PIMCO Advi-
sors provides investment management and advisory services to pri-
vate accounts of institutional and individual clients and to mu-
tual funds. Total assets under management by PIMCO Advisors and
its subsidiary partnerships as of November 30, 1996 were approxi-
mately $111 billion. A portion of the units of the limited partner
interest in PIMCO Advisors is traded publicly on the
January 17, 1997 Prospectus
59
<PAGE>
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
Pacific Investment Management. PIMCO Advisors is governed by an
Operating Board and an 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, Suite 100, Newport Beach,
California 92660. PIMCO Advisors is registered as an investment
adviser with the Securities and Exchange Commission. PIMCO
Advisors currently has six subsidiary partnerships, the following
five of which manage one or more of the Funds: Blairlogie,
Cadence, Columbus Circle, NFJ and Pacific Investment Management.
Under the investment advisory agreement, PIMCO Advisors, sub-
ject 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
Advisor, the investment of the Funds. PIMCO Advisors also fur-
nishes to the Board of Trustees periodic reports on the investment
performance of each Fund.
PORTFOLIO Pursuant to portfolio management agreements, PIMCO Advisors em-
MANAGERS ploys Portfolio Managers to provide investment advisory services
to all of the Funds. With the exception of Van Eck (which manages
the Precious Metals Fund), each Portfolio Manager is an affiliate
of PIMCO Advisors. PIMCO Advisors compensates the Portfolio Manag-
ers from its advisory fee (not from the Trust). Under these agree-
ments, a Portfolio Manager has full investment discretion and
makes all determinations with respect to the investment of a
Fund's assets, or, for the Balanced Fund, with respect to the por-
tion of the Fund's assets allocated to the Portfolio Manager for
investment, and makes all determinations respecting the purchase
and sale of a Fund's securities and other investments.
COLUMBUS CIRCLE manages the Renaissance Fund, the Growth Fund, the
Target Fund, the Opportunity Fund, the Innovation Fund and the Tax
Exempt Fund (the "Columbus Circle Funds"). Columbus Circle is an
investment management firm organized as a general partnership. Co-
lumbus Circle has two partners: PIMCO Advisors as the supervisory
partner, and Columbus Circle Investors Management, Inc. as the
managing partner. Columbus Circle Investors Division of Thomson
Advisory Group L.P. ("TAG"), the predecessor investment adviser to
Columbus Circle, commenced operations in 1975. Accounts managed by
Columbus Circle had combined assets as of November 30, 1996 of ap-
proximately $14 billion. Columbus Circle's address is Metro Cen-
ter, One Station Place, 8th Floor, Stamford, Connecticut 06902.
Columbus Circle is registered as an investment adviser with the
Securities and Exchange Commission.
At the center of Columbus Circle's equity investment strategy
is its theory of Positive Momentum & Positive Surprise. This the-
ory asserts that a good company doing better than generally ex-
pected will experience a rise in its stock price, and conversely,
a company falling short of expectations will experience a drop in
its stock price. Based on this theory, Columbus Circle attempts to
manage the Columbus Circle Funds (except the Tax Exempt Fund) with
a view to investing in growing companies that are surprising the
market with business results that are better than anticipated. The
Trust has been informed that investment decisions made by Columbus
Circle with respect to the Columbus Circle Funds are made by a
committee rather than by a single person acting as portfolio man-
ager. No person is primarily responsible for making recommenda-
tions to that committee.
CADENCE manages the Capital Appreciation Fund, the Mid Cap Growth
Fund and a portion of the Common Stock Segment of the Balanced
Fund (the "Cadence Funds"). 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 Manage-
ment Corporation, the predecessor investment adviser to Cadence,
commenced operations in 1988. Accounts managed by Cadence had com-
bined assets as of November 30, 1996 of approximately $3.3 bil-
lion. Cadence's address is Exchange Place, 53 State Street, Bos-
ton, Massachusetts 02109. Cadence is registered as an investment
adviser with the Securities and Exchange Commission.
60
PIMCO Funds: Multi-Manager Series
<PAGE>
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 Funds. Mr. Breed is a
Managing Director, the Chief Executive Officer, and a founding
partner of Cadence, and has 23 years' investment management expe-
rience. 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 Finan-
cial Analyst. Mr. Bannick is a Managing Director and Executive
Vice President of Cadence and has 11 years' investment management
experience. He previously served as Executive Vice President of
George D. Bjurman & Associates and as Supervising Portfolio Man-
ager of Trinity Investment Management Corporation. Mr. Bannick
joined the predecessor of Cadence in 1992. He graduated from the
University of Massachusetts and received his MBA from Boston Uni-
versity. 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 the predecessor of Cadence in 1993. She
graduated from Stanford University and received a Master of Sci-
ence degree from Northeastern University. Ms. Burdon is a Chart-
ered Financial Analyst and Certified Public Accountant. Mr. Wet-
laufer 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 the predecessor of 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.
NFJ manages the Equity Income Fund, the Value Fund, the Small Cap
Value Fund, and a portion of the Common Stock Segment of the Bal-
anced 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 November 30, 1996 of approximately
$1.8 billion. NFJ's address is 2121 San Jacinto, Suite 1840, Dal-
las, Texas 75201. NFJ is registered as an investment adviser with
the Securities and Exchange Commission.
Chris Najork is responsible for the day-to-day management of
the Equity Income Fund, the Value Fund, and the portion of the
Common Stock Segment of the Balanced Fund allocated to NFJ. Mr.
Najork is a Managing Director and a founding partner of NFJ and
has 27 years' experience encompassing equity research and portfo-
lio management. He received his bachelor's degree and MBA from
Southern Methodist University. Mr. Najork is a Chartered Financial
Analyst. Mr. Najork and Paul A. Magnuson are primarily responsible
for the day-to-day management of the Small Cap Value Fund. Mr.
Magnuson, a research analyst at NFJ, has 11 years' experience in
equity research and portfolio management. He received his bache-
lor's degree in Finance from the University of Nebraska-Lincoln.
BLAIRLOGIE manages the International Developed Fund, the Interna-
tional Fund, and the Emerging Markets Fund (the "Blairlogie
Funds"). Blairlogie is an investment management firm, organized as
a limited partnership under the laws of Scotland, United Kingdom,
with two general partners and one limited partner. The general
partners are PIMCO Advisors, which serves as the supervisory part-
ner, and Blairlogie Holdings Limited, a wholly owned corporate
subsidiary of PIMCO Advisors, which serves as the managing part-
ner. The limited partner is Blairlogie Partners L.P., a limited
partnership, the general partner of which is Pacific Financial As-
set Management Corporation (a subsidiary of Pacific Mutual Life
Insurance Company), and the limited partners of which are the
principal executive officers of Blairlogie Capital Management.
Blairlogie Partners L.P. has agreed with PIMCO Advisors that PIMCO
Advisors will acquire its 25% interest in four annual installments
of 10%, 5%, 5% and 5%, respectively, beginning December 31, 1998.
January 17, 1997 Prospectus
61
<PAGE>
Blairlogie Capital Management Ltd., the predecessor investment ad-
viser to Blairlogie, commenced operations in 1992. Accounts man-
aged by Blairlogie had combined assets as of November 30, 1996 of
approximately $.7 billion. Blairlogie's address is 4th Floor, 125
Princes Street, Edinburgh EH2 4AD, Scotland. Blairlogie is regis-
tered as an investment adviser with the Securities and Exchange
Commission in the United States and with the Investment Management
Regulatory Organisation in the United Kingdom.
James Smith is primarily responsible for the day-to-day manage-
ment of the Blairlogie Funds. Mr. Smith is a Managing Director and
the Chief Investment Officer of Blairlogie and is responsible for
managing an investment team of seven professionals who, in turn,
specialize in selection of stocks within Europe, Asia, and the
Americas, and in currency and derivatives. He previously served as
a Senior Portfolio Manager at Murray Johnstone in Glasgow,
Scotland, responsible for international investment management for
North American clients, and at Schroder Investment Management in
London. Mr. Smith received his bachelor's degree in Economics from
London University and his MBA from Edinburgh University. He is an
Associate of the Institute of Investment Management and Research.
PACIFIC INVESTMENT MANAGEMENT manages the Fixed Income Securities
Segment of the Balanced Fund. Pacific Investment Management is an
investment management firm organized as a general partnership. Pa-
cific Investment Management has two partners: PIMCO Advisors as
the supervisory partner, and PIMCO Management, Inc. as the manag-
ing partner. Pacific Investment Management Company, the predeces-
sor investment adviser to Pacific Investment Management, commenced
operations in 1971. Pacific Investment Management had approxi-
mately $88 billion of assets under management as of November 30,
1996. Pacific Investment Management's address is 840 Newport Cen-
ter Drive, Suite 360, Newport Beach, California 92660. Pacific In-
vestment Management is registered as an investment adviser with
the Securities and Exchange Commission and as a commodity trading
advisor with the CFTC.
William H. Gross is responsible for the day-to-day management
of the Fixed Income Securities Segment of the Balanced Fund. Mr.
Gross is a founder and a Managing Director of Pacific Investment
Management and has been associated with Pacific Investment Manage-
ment or its predecessor for 25 years. He has extensive investment
experience in both credit research and fixed income portfolio man-
agement. He received his bachelor's degree from Duke University
and his MBA from UCLA Graduate School of Business. Mr. Gross is a
Chartered Financial Analyst and a member of The Los Angeles Soci-
ety of Financial Analysts.
VAN ECK is an unaffiliated investment adviser that manages the
Precious Metals Fund. Van Eck is a Delaware corporation which, to-
gether with its affiliates, provides investment advisory services
to other mutual funds and to private accounts. Van Eck is con-
trolled by John C. Van Eck who, along with members of his immedi-
ate family, owns 100% of the stock of Van Eck. Accounts managed by
Van Eck had combined assets as of November 30, 1996 of approxi-
mately $1.7 billion. Van Eck's address is 99 Park Avenue, New
York, NY 10001. Van Eck is registered as an investment adviser
with the Securities and Exchange Commission.
Henry J. Bingham, Executive Managing Director of Van Eck and
President of the International Investors series of Van Eck Funds,
has served as the Portfolio Manager of the Precious Metals Fund
since the Fund commenced operations.
PIMCO Advisors determines the allocation of the Balanced Fund's
assets among various asset classes and manages directly the Money
Market Segment of that Fund.
Registration as an investment adviser with the Securities and Ex-
change Commission does not involve supervision by the Securities
and Exchange Commission over investment advice, and registration
with the CFTC as a commodity trading advisor does not involve su-
pervision by the CFTC over commodities trading. The portfolio man-
agement agreements are not exclusive, and Columbus Circle, Ca-
dence, NFJ, Blairlogie, Pacific Investment Management and Van Eck
62
PIMCO Funds: Multi-Manager Series
<PAGE>
may provide, and currently are providing, investment management
services to other clients, including other investment companies.
FUND PIMCO Advisors also serves as administrator (the "Administrator")
ADMINISTRATOR to the Funds pursuant to an administration agreement with the
Trust. The Administrator provides or procures administrative
services for the Funds, which include clerical help and
accounting, bookkeeping, internal audit services and certain
other services required by the Funds, and preparation of reports
to the Funds' shareholders and regulatory filings. The
Administrator has retained Pacific Investment Management to
provide such services as sub-administrator. The Administrator
and/or the sub-administrator may also retain other affiliates to
provide certain of these services. In addition, the
Administrator, at its own expense, arranges for the provision of
legal, audit, custody, transfer agency (including sub-transfer
agency and other administrative services) and other services
necessary for the ordinary operation of 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 Funds (and not the Administrator) are 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, Pacific Investment Management, 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 Advisor, any Portfolio Manager, 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 distribution and/or service fees payable
with respect to Class A, Class B and Class C shares, and may
include certain other expenses as permitted by the Trust's
Multiple Class Plan adopted pursuant to Rule 18f-3 under the 1940
Act, subject to review and approval by the Trustees.
ADVISORY The Funds feature fixed advisory and administrative fees. For
AND providing or arranging for the provision of investment advisory
ADMINISTRATIVE services to the Funds as described above, PIMCO Advisors receives
FEES monthly fees from each Fund at an annual rate based on the
average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
ADVISORY
FUND FEE RATE
------------------------------
<S> <C>
Tax Exempt Fund .30%
------------------------------
Equity Income, Value,
Capital Appreciation,
Mid Cap Growth and
Balanced Funds .45%
------------------------------
Growth Fund .50%
------------------------------
Target and Interna-
tional Funds .55%
------------------------------
Renaissance, Small Cap
Value, International
Developed and Precious
Metals Funds .60%
------------------------------
Opportunity and Innova-
tion Funds .65%
------------------------------
Emerging Markets Fund .85%
</TABLE>
January 17, 1997 Prospectus
63
<PAGE>
For providing or procuring administrative services to the Funds
as described above, the Administrator receives monthly fees from
each Fund at an annual rate based on the average daily net assets
attributable in the aggregate to the Fund's Class A, Class B and
Class C shares as follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE
FUND FEE RATE
----------------------------------------------------------------
<S> <C>
Precious Metals Fund .45% of first $2.5 billion
.40% of amounts in excess of $2.5 billion
----------------------------------------------------------------
International Developed,
International and
Emerging Markets Funds .65% of first $2.5 billion
.60% of amounts in excess of $2.5 billion
----------------------------------------------------------------
All Other Funds .40% of first $2.5 billion
.35% of amounts in excess of $2.5 billion
</TABLE>
The investment advisory, administration and sub-administration
agreements for the Funds may be terminated by the Trustees, or by
PIMCO Advisors or Pacific Investment Management (as the case may
be) on 60 days' written notice. In addition, these agreements may
be terminated with regard to the Renaissance Fund, Growth Fund,
Target Fund, Opportunity Fund, International Fund, Innovation
Fund, Precious Metals Fund, and Tax Exempt Fund by a majority of
the Trustees that are not interested persons of the Trust, PIMCO
Advisors, or Pacific Investment Management (as the case may be) on
60 days' written notice. Following their initial terms, the agree-
ments will continue from year to year if approved by the Trustees.
Pursuant to the portfolio management agreements between the Ad-
visor and each of the Portfolio Managers, PIMCO Advisors (not the
Trust) pays each Portfolio Manager a fee based on a percentage of
the average daily net assets of a Fund as follows: Columbus Cir-
cle--.38% for the Renaissance Fund, .34% for the Growth Fund, .36%
for the Target Fund, .48% for the Opportunity Fund, .38% for the
Innovation Fund and .30% for the Tax Exempt Fund; Cadence--.35%
for the Capital Appreciation Fund, .35% for the Mid Cap Growth
Fund and .35% for the portion of the Common Stock Segment of the
Balanced Fund allocated to Cadence; NFJ--.35% for the Equity In-
come Fund, .35% for the Value Fund, .50% for the Small Cap Value
Fund and .35% for the portion of the Common Stock Segment of the
Balanced Fund allocated to NFJ; Blairlogie--.50% for the Interna-
tional Developed Fund, .40% for the International Fund and .75%
for the Emerging Markets Fund; Pacific Investment Management--.25%
for the Fixed Income Securities Segment of the Balanced Fund; and
Van Eck--.35% for the Precious Metals Fund.
PORTFOLIO Pursuant to the portfolio management agreements, a Portfolio Man-
TRANSACTIONSager places orders for the purchase and sale of portfolio invest-
ments for a Fund's accounts with brokers or dealers selected by it
in its discretion. In effecting purchases and sales of portfolio
securities for the accounts of the Funds, the Portfolio Managers
will seek the best price and execution of the Fund's orders. In
doing so, a Fund may pay higher commission rates than the lowest
available when the Portfolio Manager 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 Portfolio
Managers also may consider sales of shares of the Trust as a fac-
tor in the selection of broker-dealers to execute portfolio trans-
actions for the Trust.
Some securities considered for investment by the Funds may also
be appropriate for other clients served by the Portfolio Managers.
If a purchase or sale of securities consistent with the investment
policies of a Fund and one or more of these clients served by a
Portfolio Manager is considered at or about the same time, trans-
actions in such securities will be allocated among the Fund and
clients in a manner deemed fair and reasonable by the Portfolio
Manager.
64
PIMCO Funds: Multi-Manager Series
<PAGE>
Description of the Trust
CAPITALIZATION The Trust was organized as a Massachusetts business trust on Au-
gust 24, 1990, and currently consists of twenty-two portfolios
that are operational, sixteen of which are described in this
Prospectus. Other portfolios may be offered by means of a
separate prospectus. The Board of Trustees may establish
additional portfolios in the future. The capitalization of the
Trust consists 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 liable for the obligations of the Trust.
However, the Second Amended and Restated Agreement and
Declaration of Trust (the "Declaration of Trust") of the Trust
disclaims shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or
executed by the Trust or the Trustees. The Declaration of Trust
also provides for indemnification out of a Fund's property for
all loss and expense of any shareholder of that Fund held liable
on account of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which such
disclaimer is inoperative or the Fund of which he or she is or
was a shareholder is unable to meet its obligations, and thus
should be considered remote.
MULTIPLE
CLASSES OF In addition to Class A shares, Class B shares and Class C
SHARES shares, certain Funds also offer Institutional and
Administrative Class shares through a separate prospectus, as
described under "Alternative Purchase Arrangements." This
Prospectus relates only to Class A shares, Class B shares and
Class C shares of the Funds.
Class A, Class B and Class C shares of each Fund represent
interests in the assets of that Fund and have identical
dividend, liquidation and other rights and the same terms and
conditions except that expenses related to the distribution and
shareholder servicing of Class A, Class B and Class C shares are
borne solely by such class and each class may, at the Trustees'
discretion, also pay a different share of other expenses, not
including advisory or custodial fees or other expenses related
to the management of the Trust's assets, if these expenses are
actually incurred in a different amount by that class, or if the
class receives services of a different kind or to a different
degree than the other classes. All other expenses are allocated
to each class on the basis of the net asset value of that class
in relation to the net asset value of the particular Fund.
VOTING Each class of shares of each Fund has identical voting rights
except that each class of shares has exclusive voting rights on
any matter submitted to shareholders that relates solely to that
class, and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class. Each class of shares has exclusive
voting rights with respect to matters pertaining to any
Distribution and Servicing Plan applicable to that class. These
shares are entitled to vote at meetings of shareholders. Matters
submitted to shareholder vote must be approved by each Fund
separately except (i) when required by the 1940 Act shares shall
be voted together and (ii) when the Trustees have determined
that the matter does not affect all Funds, then only
shareholders of the Fund or Funds affected shall be entitled to
vote on the matter. All classes of shares of a Fund will vote
together, except with respect to a Distribution and Servicing
Plan applicable to a class of shares or when a class vote is
required as specified above or otherwise by the 1940 Act. Shares
are freely transferable, are entitled to dividends as declared
by the Trustees and, in liquidation of the Trust, are entitled
to receive the net assets of their Fund, but not of the other
Funds. The Trust does not generally hold annual meetings of
shareholders and will do so only when required by law.
Shareholders may remove Trustees from office by votes cast in
person or by proxy at a meeting of shareholders or by written
consent. Such a meeting will be called at the written request
of the holders of 10% of the Trust's outstanding shares.
Shares entitle their holders to one vote per share (with pro-
portionate voting for fractional shares). As of December 17,
1996, the following were shareholders of record of at least 25%
of the outstanding voting securities of the indicated Fund:
Pacific Mutual Life Insurance Company (Newport Beach,
California) with respect to the Diversified
January 17, 1997 Prospectus
65
<PAGE>
Low P/E Fund (the predecessor of the Value Fund); and Charles
Schwab & Co., Inc. (San Francisco, California) with respect to the
Emerging Markets Fund. To the extent such shareholders are also
the beneficial owners of those shares, they may be deemed to con-
trol (as that term is defined in the 1940 Act) the relevant Fund.
Mailings to Shareholders
To reduce the volume of mail shareholders receive, it is antici-
pated that only one copy of most Trust reports, such as the
Trust's annual report, will be mailed to a shareholder's household
(same surname, same address). A shareholder may call 800-227-7337
if additional shareholder reports are desired.
66
PIMCO Funds: Multi-Manager Series
<PAGE>
PIMCO Funds:
Multi-Manager
Series
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR AND ADMINISTRATOR
PIMCO Advisors L.P., 800 Newport Center Drive, Newport Beach, CA 92660
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
Columbus Circle Investors, Cadence Capital Management, NFJ Investment Group,
Blairlogie Capital Management, Pacific Investment Company, Van Eck
Associates Corporation
- --------------------------------------------------------------------------------
DISTRIBUTOR
PIMCO Funds Distribution Company, 2187 Atlantic Street, Stamford,
Connecticut 06902
- --------------------------------------------------------------------------------
CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City MO 64105
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
Shareholder Services, Inc., P.O. Box 5866, Denver, CO 80217
- --------------------------------------------------------------------------------
For further information about the PIMCO Funds, call 1-800-426-0107
PIMCO
<PAGE>
PIMCO Funds:
Multi-Manager Series
STATEMENT OF ADDITIONAL INFORMATION
January 14, 1997
PIMCO Funds: Multi-Manager Series (the "Trust"), formerly PIMCO Funds:
Equity Advisors Series, PIMCO Advisors Institutional Funds, PFAMCo Funds, and
PFAMCo Fund, is an open-end management investment company ("mutual fund")
currently offering twenty-two separate diversified investment portfolios (the
"Funds"): the Equity Income Fund, the Value Fund, the Renaissance Fund, the
Enhanced Equity Fund, the Growth Fund, the Capital Appreciation Fund, the Mid
Cap Growth Fund, the Core Equity Fund, the Mid Cap Equity Fund, the Target Fund,
the Small Cap Value Fund, the Small Cap Growth Fund, the Opportunity Fund, the
Micro Cap Growth Fund, the Innovation Fund, the International Fund, the
International Developed Fund, the Emerging Markets Fund, the Structured Emerging
Markets Fund, the Precious Metals Fund, the Balanced Fund and the Tax Exempt
Fund.
The Trust's investment adviser is PIMCO Advisors L.P. ("PIMCO Advisors" or
the "Adviser"), 800 Newport Center Drive, Suite 100, Newport Beach, California
92660.
This Statement of Additional Information is not a Prospectus, and should be
used in conjunction with the Prospectuses for the Trust, each dated January 17,
1997, as supplemented from time to time. The Trust offers up to five classes of
shares of each of its Funds through two Prospectuses. Class A, Class B and Class
C shares of certain Funds are offered through the "Retail Prospectus," and
Institutional and Administrative Class shares of certain Funds are offered
through the "Institutional Prospectus" (collectively with the Retail Prospectus,
the "Prospectuses"). A copy of the applicable Prospectus may be obtained free of
charge at the address and telephone number listed below.
<TABLE>
<CAPTION>
Institutional Prospectus: Retail Prospectus:
------------------------ -----------------
<S> <C>
PIMCO Funds PIMCO Funds Distribution Company
840 Newport Center Drive 2187 Atlantic Street
Suite 360 Stamford, Connecticut 06902
Newport Beach, California 92660 Telephone: (800) 426-0107
Telephone: (800) 927-4648 (Current Shareholders)
(800) 800-0952 (New Accounts)
(800) 987-4626 (PIMCO Infolink Audio
Response Network)
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES............................................................................... 3
U.S. Government Securities.............................................................................. 3
Inflation-Indexed Bonds................................................................................. 3
Borrowing............................................................................................... 4
Preferred Stock......................................................................................... 5
Corporate Debt Securities............................................................................... 5
High Yield Securities ("Junk Bonds").................................................................... 6
Participation on Creditors Committees................................................................... 7
Variable and Floating Rate Securities................................................................... 7
Mortgage-Related and Asset-Backed Securities............................................................ 8
Foreign Securities......................................................................................12
Bank Obligations........................................................................................13
Commercial Paper........................................................................................14
Derivative Instruments..................................................................................15
Forward Commitments, When-Issued and Delayed Delivery Transactions......................................20
Warrants to Purchase Securities.........................................................................21
Tax Exempt Bonds........................................................................................21
Metal-Indexed Notes and Precious Metals.................................................................22
Repurchase Agreements...................................................................................23
Securities Loans........................................................................................23
INVESTMENT RESTRICTIONS..........................................................................................24
Fundamental Investment Restrictions.....................................................................24
Non-Fundamental Investment Restrictions.................................................................26
MANAGEMENT OF THE TRUST..........................................................................................30
Trustees ...............................................................................................30
Officers ...............................................................................................32
Trustees' Compensation..................................................................................33
Investment Adviser......................................................................................34
Fund Administrator......................................................................................40
DISTRIBUTION OF TRUST SHARES.....................................................................................42
Distributor and Multi-Class Plan........................................................................42
Contingent Deferred Sales Charge and Initial Sales Charge...............................................43
Distribution and Servicing Plans for Class A, Class B and Class C Shares................................44
Distribution and Administrative Services Plans for Administrative Class Shares..........................48
Purchases, Exchanges and Redemptions....................................................................49
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................................50
Investment Decisions....................................................................................50
Brokerage and Research Services.........................................................................50
Portfolio Turnover......................................................................................53
NET ASSET VALUE..................................................................................................53
TAXATION ........................................................................................................54
Distributions...........................................................................................55
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Sales of Shares.........................................................................................56
Backup Withholding......................................................................................56
Options, Futures, Forward Contracts and Swap Agreements.................................................56
Passive Foreign Investment Companies....................................................................57
Foreign Currency Transactions...........................................................................58
Foreign Taxation........................................................................................58
Original Issue Discount.................................................................................58
Other Taxation..........................................................................................59
OTHER INFORMATION................................................................................................60
Capitalization..........................................................................................60
Performance Information.................................................................................60
Calculation of Yield....................................................................................60
Calculation of Total Return.............................................................................62
Voting Rights ..........................................................................................74
Certain Ownership of Trust Shares.......................................................................75
Custodian...............................................................................................87
Independent Accountants.................................................................................87
Registration Statement..................................................................................87
Financial Statements....................................................................................87
APPENDIX .......................................................................................................A-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of each Fund are
described in the Prospectuses. Additional information concerning the
characteristics of certain of the Funds' investments is set forth below.
U.S. Government Securities
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
com pounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury
securities (e.g., STRIPs and CUBEs) are direct obligations of the U.S.
Government.
Inflation-Indexed Bonds
The Balanced Fund may invest in inflation-indexed bonds, which are fixed
income securities whose principal value is periodically adjusted according to
the rate of inflation. The interest rate on these bonds is generally fixed at
issuance at a rate lower than typical bonds. Over the life of an inflation-
indexed bond, however, interest will be paid based on a principal value which is
adjusted for inflation.
Inflation-indexed securities issued by the U.S. Treasury will initially
have maturities of ten years, although it is anticipated that securities with
other maturities will be issued in the future. The securities will pay interest
on a semi-annual basis, equal to a fixed percentage of the inflation-adjusted
principal amount. For example, if an investor purchased an inflation-indexed
bond with a par value of $1,000 and a 3% real rate of return coupon (payable
1.5% semi-annually), and inflation over the first six months were 1%, the mid-
year par value of the bond would be $1,010 and the first semi-annual interest
payment would be $15.15 ($1,010 times 1.5%). If inflation during the second half
of the year reached 3%, the end-of-year par value of the bond would be $1,030
and the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment rate measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the current
market value of the bonds is not guaranteed, and will fluctuate. The Balanced
Fund may also invest in other inflation related bonds which may or may not
provide a similar guarantee. If such a guarantee of principal is not provided,
the adjusted principal value of the bond repaid at maturity may be less than the
original principal. The value of inflation-indexed bonds is expected to change
in response to changes in real interest rates. Real interest rates in turn are
tied to the relationship between nominal interest rates and the rate of
inflation. Therefore, if inflation were to rise at a faster rate than nominal
interest rates, real interest rates might decline, leading to an increase in
value of inflation-indexed bonds. In contrast, if nominal interest rates
increased
3
<PAGE>
at a faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.
The U.S. Treasury has only recently begun issuing inflation-indexed bonds.
As such, there is no trading history of these securities, and there can be no
assurance that a liquid market in these instruments will develop, although one
is expected. Lack of a liquid market may impose the risk of higher transaction
costs and the possibility a Fund may be forced to liquidate positions when it
would not be advantageous to do so. There also can be no assurance that the U.S.
Treasury will issue any particular amount of inflation-indexed bonds. Certain
foreign governments, such as the United Kingdom, Canada and Australia, have a
longer history of issuing inflation-indexed bonds, and there may be a more
liquid market in certain of these countries for these securities.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the
Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated monthly
by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in
the cost of living, made up of components such as housing, food, transportation
and energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index, calculated by that government.
There can be no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.
Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.
Borrowing
Subject to the limitations described under "Investment Restrictions" below,
a Fund may be permitted to borrow for temporary purposes and/or for investment
purposes. Such a practice will result in leveraging of a Fund's assets and may
cause a Fund to liquidate portfolio positions when it would not be advantageous
to do so. This borrowing may be unsecured. Provisions of the Investment Company
Act of 1940 ("1940 Act") require a Fund to maintain continuous asset coverage
(that is, total assets including borrowings, less liabilities exclusive of
borrowings) of 300% of the amount borrowed, with an exception for borrowings not
in excess of 5% of the Fund's total assets made for temporary administrative
purposes. As noted under "Investment Restrictions," certain Funds are subject to
limitations on borrowings which are more strict than those imposed by the 1940
Act. Any borrowings for temporary administrative purposes in excess of 5% of the
Fund's total assets must maintain continuous asset coverage. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, a
Fund may be required to sell some of its portfolio holdings within three days to
reduce the debt and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time.
Borrowing will tend to exaggerate the effect on net asset value of any increase
or decrease in the market value of a Fund's portfolio. Money borrowed will be
subject to interest costs which may or may not be recovered by appreciation of
the securities purchased. A Fund also may be required to maintain minimum
average balances in connection with such borrowing or to pay a commitment or
other fee to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate.
In addition to borrowing for temporary purposes, a Fund may enter into
reverse repurchase agreements if permitted to do so under its specific
limitations on borrowings. A reverse repurchase agreement involves the sale of a
portfolio-eligible security by a Fund, coupled with its agreement to repurchase
the instrument at a specified time and price. The Fund will maintain a
segregated account with its custodian consisting of assets determined to be
4
<PAGE>
liquid by the Adviser or the Fund's sub-adviser (the Funds' sub-advisers are
referred to herein as "Portfolio Managers") in accordance with procedures
established by the Board of Trustees equal (on a daily mark-to-market basis) to
its obligations under reverse repurchase agreements with broker-dealers (but not
banks). However, reverse repurchase agreements involve the risk that the market
value of securities retained by the Fund may decline below the repurchase price
of the securities sold by the Fund which it is obligated to repurchase. Reverse
repurchase agreements will be subject to the Funds' limitations on borrowings as
specified under "Investment Restrictions" below.
Preferred Stock
All Funds may invest in preferred stock. Preferred stock is a form of
equity ownership in a corporation. The dividend on a preferred stock is a fixed
payment which the corporation is not legally bound to pay. Certain classes of
preferred stock are convertible, meaning the preferred stock is convertible into
shares of common stock of the issuer. By holding convertible preferred stock, a
Fund can receive a steady stream of dividends and still have the option to
convert it to common stock.
Corporate Debt Securities
All Funds may invest in corporate debt securities. The Equity Income,
Value, Capital Appreciation, Mid Cap Growth, Micro Cap Growth, Small Cap Value,
Small Cap Growth, Core Equity, Mid Cap Equity, Enhanced Equity, Emerging
Markets, Structured Emerging Markets and International Developed Funds'
investments in corporate debt securities are limited to short term corporate
debt securities. The investment return of corporate debt securities reflects
interest earnings and changes in the market value of the security. The market
value of a corporate debt obligation may be expected to rise and fall inversely
with interest rates generally. There also exists the risk that the issuers of
the securities may not be able to meet their obligations on interest or
principal payments at the time called for by an instrument.
A Fund's investments in U.S. dollar or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities) which meet the
minimum ratings criteria set forth for the Fund, or, if unrated, are deemed to
be comparable in quality to corporate debt securities in which the Fund may
invest. The rate of return or return of principal on some debt obligations may
be linked or indexed to the level of exchange rates between the U.S. dollar and
a foreign currency or currencies.
Among the corporate debt securities in which the Funds may invest are
convertible securities. A convertible debt security is a bond, debenture, note,
or other security that entitles the holder to acquire common stock or other
equity securities of the same or a different issuer. A convertible security
generally entitles the holder to receive interest paid or accrued until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to non-
convertible debt securities. Convertible securities rank senior to common stock
in a corporation's capital structure and, therefore, generally entail less risk
than the corporation's common stock.
A convertible security may be subject to redemption at the option of the
issuer at a predetermined price. If a convertible security held by a Fund is
called for redemption, the Fund would be required to permit the issuer to redeem
the security and convert it to underlying common stock, or would sell the
convertible security to a third party. A Fund generally would invest in
convertible securities for their favorable price characteristics and total
return potential and would normally not exercise an option to convert.
5
<PAGE>
High Yield Securities ("Junk Bonds")
Certain of the Funds may invest in debt/fixed income securities of domestic
or foreign issuers that meet minimum ratings criteria set forth for a Fund, or
if unrated, are of comparable quality in the opinion of the Fund's Portfolio
Manager. A description of the ratings categories used is set forth in the
Appendix to this Statement of Additional Information.
A security is considered to be below "investment grade" quality if it is
either (1) not rated in one of the four highest rating categories by one of the
Nationally Recognized Statistical Rating Organizations ("NRSROs") (i.e., rated
Ba or below by Moody's Investors Services, Inc. ("Moody's") or BB or below by
Standard & Poor's Corporation ("S&P")) or (2) if unrated, determined by the
Adviser or relevant Portfolio Manager to be of comparable quality to obligations
so rated.
The Renaissance, Balanced and Tax Exempt Funds may purchase high yield
securities (as defined in the Prospectuses) rated in either the fifth or (except
for the Tax Exempt Fund) sixth highest rating categories by any NRSRO or
comparable unrated securities, and the Renaissance Fund may invest up to 10% of
its total assets in high yield securities rated below the sixth highest rating
category by an NRSRO or comparable unrated securities (but will not purchase any
security in default on the date of acquisition). Investment in high yield
securities generally provides greater income and increased opportunity for
capital appreciation than investments in higher quality securities, but it also
typically entails greater price volatility and principal and income risk. High
yield securities are regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments. The market
for these securities is relatively new, and many of the outstanding high yield
securities have not endured a major business recession. A long-term track record
on default rates, such as that for investment grade corporate bonds, does not
exist for this market. Analysis of the creditworthiness of issuers of high yield
securities may be more complex than for issuers of higher quality debt/fixed
income securities. Each Fund of the Trust that may purchase high yield
securities may continue to hold such securities following a decline in their
rating if in the opinion of the Adviser or the Portfolio Manager, as the case
may be, it would be advantageous to do so. Investments in high yield securities
that are eligible for purchase by certain of the Funds are described as
"speculative" by both Moody's and S&P.
Investing in high yield securities involves special risks in addition to
the risks associated with investments in higher rated fixed income securities.
While offering a greater potential opportunity for capital appreciation and
higher yields than investments in higher rated debt securities, high yield
securities typically entail greater potential price volatility and may be less
liquid than investment grade debt. High yield securities may be regarded as
predominately speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Analysis of the creditworthiness of
issuers of high yield securities may be more complex than for issuers of higher
quality debt securities, and achievement of a Fund's investment objective may,
to the extent of its investments in high yield securities, depend more heavily
on the Portfolio Manager's creditworthiness analysis than would be the case if
the Fund were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of high yield securities are likely to be sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt/fixed income securities. If an issuer of high
yield securities defaults, in addition to risking payment of all or a portion of
interest and principal, the Funds investing in such securities may incur
additional expenses to seek recovery. In the case of high yield securities
structured as zero-coupon or pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes, and therefore tend to be
more volatile than securities which pay interest periodically and in cash.
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Prices of high yield/high risk securities have been found to be less
sensitive to interest rate changes than more highly rated investments, but more
sensitive to economic downturns or individual corporate developments. The
secondary market on which high yield securities are traded may be less liquid
than the market for higher grade securities. Less liquidity in the secondary
trading market could adversely affect the price at which the Funds could sell a
high yield security, and could adversely affect the daily net asset value of the
shares. Lower liquidity in secondary markets could adversely affect the value of
high yield/high risk securities held by the Renaissance, Tax Exempt and Balanced
Funds. While lower rated securities typically are less sensitive to interest
rate changes than higher rated securities, the market prices of high yield/high
risk securities structured as "zero coupon" or "pay-in-kind" securities may be
affected to a greater extent by interest rate changes. See Appendix A to this
Statement of Additional Information for further information regarding high
yield/high risk securities. For instance, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly traded
market. When secondary markets for high yield securities are less liquid than
the market for higher grade securities, it may be more difficult to value the
securities because such valuation may require more research, and elements of
judgment may play a greater role in the valuation because there is less
reliable, objective data available.
Debt securities are purchased and sold principally in response to current
assessments of future changes in business conditions and the levels of interest
rates on debt/fixed income securities of varying maturities, the availability of
new investment opportunities at higher relative yields, and current evaluations
of an issuer's continuing ability to meet its obligations in the future. The
average maturity or duration of the debt/fixed income securities in a Fund's
portfolio may be varied in response to anticipated changes in interest rates and
to other economic factors. Securities may be bought and sold in anticipation of
a decline or a rise in market interest rates. In addition, a security may be
sold and another of comparable quality and maturity (usually, but not always, of
a different issuer) purchased at approximately the same time to take advantage
of what are believed to be short-term differentials in values or yields.
Participation on Creditors Committees
A Fund may from time to time participate on committees formed by creditors
to negotiate with the management of financially troubled issuers of securities
held by the Fund. Such participation may subject a Fund to expenses such as
legal fees and may make the Fund an "insider" of the issuer for purposes of the
federal securities laws, and therefore may restrict the Fund's ability to trade
in or acquire additional positions in a particular security when it might
otherwise desire to do so. Participation by a Fund on such committees also may
expose the Fund to potential liabilities under the federal bankruptcy laws or
other laws governing the rights of creditors and debtors. A Fund would
participate on such committees only when the Adviser and the relevant Portfolio
Manager believe that such participation is necessary or desirable to enforce the
Fund's rights as a creditor or to protect the value of securities held by the
Fund.
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic adjustment in
the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.
Certain of the Funds may invest in floating rate debt instruments
("floaters"). The interest rate on a floater is a variable rate which is tied to
another interest rate, such as a money-market index or U.S. Treasury bill rate.
The interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide a Fund with a
certain degree of protection against rises in interest rates. However, the Fund
would generally participate less in appreciation resulting from any general
decline in interest rates.
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Certain Funds may also invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floating rate security will generally exhibit greater
price volatility than a fixed rate obligation of similar credit quality. The
Trust has adopted a policy under which the Balanced Fund will invest no more
than 5% of its net assets in any combination of inverse floater, interest only
("IO"), or principal only ("PO") securities. See "Mortgage-Related and Asset-
Backed Securities" below for a discussion of IOs and POs.
Mortgage-Related and Asset-Backed Securities
Mortgage-related securities are interests in pools of residential or
commercial mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations (see "Mortgage Pass-Through
Securities" below). Certain debt securities are also secured with collateral
consisting of mortgage-related securities (see "Collateralized Mortgage
Obligations" below).
Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
GNMA) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether or not
the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is the
GNMA. GNMA is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of mortgages insured by the Federal Housing Administration (the "FHA"), or
guaranteed by the Department of Veterans Affairs (the "VA").
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the FNMA and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA is a government-sponsored corporation
owned entirely by private stockholders. It is subject to general regulation by
the Secretary of Housing and Urban Development. FNMA purchases conventional
(i.e., not insured or guaranteed by any government agency) residential mortgages
from a list of approved seller/services which include state and federally
chartered savings and loan associations, mutual savings banks, commercial banks,
and credit unions and mortgage bankers. Pass-through securities issued by FNMA
are guaranteed as to timely payment of principal and interest by FNMA but are
not backed by the full faith and credit of the United States Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a government-
sponsored corporation formerly owned by the twelve Federal Home Loan Banks and
now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but Pcs are not backed by the full faith and
credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the
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guarantors of the mortgage-related securities. Pools created by such non-
governmental issuers generally offer a higher rate of interest than government
and government-related pools because there are no direct or indirect government
or agency guarantees of payments in the former pools. However, timely payment of
interest and principal of these pools may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance and letters of credit. The insurance and guarantees are issued by
governmental entities, private insurers and the mortgage poolers. Such insurance
and guarantees, and the creditworthiness of the issuers thereof, will be
considered in determining whether a mortgage-related security meets the Trust's
investment quality standards. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. The Balanced Fund may buy mortgage-related securities
without insurance or guarantees if, through an examination of the loan
experience and practices of the originator/servicers and poolers, the Portfolio
Manager determines that the securities meet the Fund's quality standards.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable. The Balanced Fund will not purchase mortgage-related securities or
any other assets which in the Portfolio Manager's opinion are illiquid if, as a
result, more than 10% of the value of the Fund's total assets will be illiquid.
Mortgage-related securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Balanced
Fund's industry concentration restrictions, see "Investment Restrictions," by
virtue of the exclusion from that test available to all U.S. Government
securities. In the case of privately issued mortgage-related securities, the
Balanced Fund takes the position that mortgage-related securities do not
represent interests in any particular "industry" or group of industries. The
assets underlying such securities may be represented by a portfolio of first
lien residential mortgages (including both whole mortgage loans and mortgage
participation interests) or portfolios of mortgage pass-through securities
issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a
mortgage-related security may in turn be insured or guaranteed by the FHA or the
VA. In the case of private issue mortgage-related securities whose underlying
assets are neither U.S. Government securities nor U.S. Government-insured
mortgages, to the extent that real properties securing such assets may be
located in the same geographical region, the security may be subject to a
greater risk of default than other comparable securities in the event of adverse
economic, political or business developments that may affect such region and,
ultimately, the ability of residential homeowners to make payments of principal
and interest on the underlying mortgages.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semi-annually. CMOs may
be collateralized by whole mortgage loans, but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs,
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the issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semi-annually, as opposed to monthly. The amount of principal payable on each
semi-annual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semi-annual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCS. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage- or asset-backed securities.
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO Residuals. CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying
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mortgage assets, in the same manner as an IO class of stripped mortgage-backed
securities. See "Other Mortgage-Related Securities--Stripped Mortgage-Backed
Securities." In addition, if a series of a CMO includes a class that bears
interest at an adjustable rate, the yield to maturity on the related CMO
residual will also be extremely sensitive to changes in the level of the index
upon which interest rate adjustments are based. As described below with respect
to stripped mortgage-backed securities, in certain circumstances a Fund may fail
to recoup some or all of its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended (the "1933 Act").
CMO residuals, whether or not registered under the 1933 Act, may be subject to
certain restrictions on transferability, and may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on a Fund's yield
to maturity from these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may fail to recoup
some or all of its initial investment in these securities even if the security
is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Other Asset-Backed Securities. Similarly, the Adviser and Portfolio
Managers expect that other asset-backed securities (unrelated to mortgage loans)
will be offered to investors in the future. Several types of asset-backed
securities have already been offered to investors, including Certificates for
Automobile Receivables(SM) ("CARS(SM)"). CARS(SM) represent undivided fractional
interests in a trust whose assets consist of a pool of motor vehicle retail
installment sales contracts and security interests in the vehicles securing the
contracts. Payments of principal and interest on CARS(SM) are passed through
monthly to certificate holders, and are guaranteed up to certain amounts and for
a certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust. An investor's return
on CARS(SM) may be affected by early prepayment of principal on the underlying
vehicle sales contracts. If the letter of credit is exhausted, the trust may be
prevented from realizing the full amount due on a sales contract because of
state law requirements and restrictions relating to foreclosure sales of
vehicles and the obtaining of deficiency judgments following such sales or
because of depreciation, damage or loss of a vehicle, the application of federal
and state bankruptcy and insolvency laws, or other factors. As a result,
certificate holders may experience delays in payments or losses if the letter of
credit is exhausted.
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Consistent with a Fund's investment objectives and policies, the Adviser
and Portfolio Manager also may invest in other types of asset-backed securities.
Foreign Securities
The Emerging Markets, Structured Emerging Markets, International Developed
and International Funds may invest in U.S. dollar or foreign currency-
denominated corporate debt securities of foreign issuers; preferred securities
of foreign issuers; certain foreign bank obligations; and U.S. dollar- or
foreign currency-denominated obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies and
supranational entities. Each of the Funds except for the Tax Exempt Fund may
invest in American Depository Receipts ("ADRs"). The Emerging Markets,
Structured Emerging Markets, International Developed, International and Precious
Metals Funds may also invest in common stocks issued by foreign companies or in
securities represented by European Depository Receipts ("EDRs"), or Global
Depository Receipts ("GDRs"). ADRs are dollar-denominated receipts issued
generally by domestic banks and represent the deposit with the bank of a
security of a foreign issuer. EDRs are foreign currency-denominated receipts
similar to ADRs and are issued and traded in Europe, and are publicly traded on
exchanges or over-the-counter in the United States. GDRs may be offered
privately in the United States and also trade in public or private markets in
other countries. ADRs, EDRs and GDRs may be issued as sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities trade in the form of ADRs, EDRs or GDRs. In unsponsored programs, the
issuer may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a sponsored
program. The Precious Metals Fund may invest primarily in securities of foreign
issuers, securities denominated in foreign currencies, securities principally
traded on securities markets outside of the United States and in securities of
foreign issuers that are traded on U.S. securities markets. The Renaissance,
Core Equity, Mid Cap Equity, Growth, Target, Opportunity and Innovation Funds
each may invest up to 15% of their respective net assets in securities which are
traded principally in securities markets outside the United States (Eurodollar
certificates of deposit are excluded for purposes of these limitations), and
(except for the Core Equity and Mid Cap Equity Funds) may invest without limit
in securities of foreign issuers that are traded in U.S. securities markets. The
Enhanced Equity Fund may invest in common stock of foreign issuers if it is
included in the index from which stocks are selected. The Balanced Fund may
invest up to 20% of its assets allocated for investment in fixed income
securities in securities denominated in foreign currencies, and may invest
beyond this limit in U.S. dollar-denominated securities of foreign issuers.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
include: differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of 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), political instability which can
affect U.S. investments in foreign countries and potential restrictions on the
flow of international capital. In addition, foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
taxes withheld from payments on those securities. Foreign securities often trade
with less frequency and volume than domestic securities and therefore may
exhibit greater price volatility. Changes in foreign exchange rates will affect
the value of those securities which are denominated or quoted in currencies
other than the U.S. dollar.
The risks of investing in foreign securities are particularly high when
securities of issuers based in developing (or "emerging market") countries are
involved. Investing in emerging market countries involves certain risks not
typically associated with investing in U.S. securities, and imposes risks
greater than, or in addition to, risks of investing in foreign, developed
countries. These risks include: greater risks of nationalization or
expropriation of assets or confiscatory taxation; currency devaluations and
other currency exchange rate fluctuations; greater social, economic and
political uncertainty and instability (including the risk of war); more
substantial government involvement in the economy; higher rates of inflation;
less government supervision and regulation of the securities markets and
participants in those markets; controls on foreign investment and limitations on
repatriation of invested
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capital and on the Fund's ability to exchange local currencies for U.S. dollars;
unavailability of currency hedging techniques in certain emerging market
countries; the fact that companies in emerging market countries may be smaller,
less seasoned and newly organized companies; the difference in, or lack of,
auditing and financial reporting standards, which may result in unavailability
of material information about issuers; the risk that it may be more difficult to
obtain and/or enforce a judgment in a court outside the United States; and
greater price volatility, substantially less liquidity and significantly smaller
market capitalization of securities markets.
The Renaissance, Growth, Target, Opportunity, Innovation, International,
International Developed, Emerging Markets, Structured Emerging Markets, Precious
Metals and Balanced Funds may enter into forward foreign currency exchange
contracts to reduce the risks of adverse changes in foreign exchange rates. In
addition, the Emerging Markets, Structured Emerging Markets, International
Developed, International, Balanced and Precious Metals Funds may buy and sell
foreign currency futures contracts and options on foreign currencies and foreign
currency futures.
All of the Funds that may buy or sell foreign currencies may enter into
forward foreign currency exchange contracts to reduce the risks of adverse
changes in foreign exchange rates. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. By entering into a
forward foreign currency exchange contract, the fund "locks in" the exchange
rate between the currency it will deliver and the currency it will receive for
the duration of the contract. As a result, a Fund reduces its exposure to
changes in the value of the currency it will deliver and increases its exposure
to changes in the value of the currency it will exchange into. Contracts to sell
foreign currencies would limit any potential gain which might be realized by a
Fund if the value of the hedged currency increases. A Fund may enter into these
contracts for the purpose of hedging against foreign exchange risks arising from
the Funds' investment or anticipated investment in securities denominated in
foreign currencies. Such hedging transactions may not be successful and may
eliminate any chance for a Fund to benefit from favorable fluctuations in
relevant foreign currencies.
The International, International Developed, Emerging Markets and Structured
Emerging Markets Funds may also enter into forward foreign currency exchange
contracts for purposes of increasing exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one currency to another. To the
extent that they do so, the International, International Developed, Emerging
Markets and Structured Emerging Markets Funds will be subject to the additional
risk that the relative value of currencies will be different than anticipated by
the particular Fund's Portfolio Manager. A Fund may use one currency (or a
basket of currencies) to hedge against adverse changes in the value of another
currency (or a basket of currencies) when exchange rates between the two
currencies are positively correlated. A Fund will segregate assets determined to
be liquid by the Portfolio Manager in accordance with procedures established by
the Board of Trustees in a segregated account to cover forward currency
contracts entered into for non-hedging purposes. The Funds may also use foreign
currency futures contracts and related options on currencies for the same
reasons for which forward foreign currency exchange contracts are used.
Bank Obligations
Bank obligations in which the Funds may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. A Fund will not invest in
fixed time deposits which (1) are not subject to prepayment or (2) provide for
withdrawal penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more than
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10% (in the case of the Equity Income, Value, Enhanced Equity, Capital
Appreciation, Mid Cap Growth, Small Cap Value, Small Cap Growth and Balanced
Funds), or 15% (in the case of the Renaissance, Growth, Mid Cap Equity, Core
Equity, Target, Opportunity, Micro Cap Growth, Innovation, International,
Emerging Markets, Structured Emerging Markets, International Developed, Precious
Metals and Tax Exempt Funds) of its net assets would be invested in such
deposits, repurchase agreements maturing in more than seven days and other
illiquid assets. Each Fund may also hold funds on deposit with its sub-custodian
bank in an interest-bearing account for temporary purposes.
Each Fund limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. A Fund
also may invest in certificates of deposit of savings and loan associations
(federally or state chartered and federally insured) having total assets in
excess of $1 billion.
The Renaissance, Growth, Target, Core Equity, Mid Cap Equity, Opportunity,
Innovation, International, Emerging Markets, Structured Emerging Markets,
International Developed, and Balanced Funds limit their investments in foreign
bank obligations to obligations of foreign banks (including United States
branches of foreign banks) which at the time of investment (i) have more than
$10 billion, or the equivalent in other currencies, in total assets; (ii) in
terms of assets are among the 75 largest foreign banks in the world; (iii) have
branches or agencies (limited purpose offices which do not offer all banking
services) in the United States; and (iv) in the opinion of the Portfolio
Managers, are of an investment quality comparable to obligations of United
States banks in which the Funds may invest. Subject to the Trust's limitations
on concentration of no more than 25% of its assets in the securities of issuers
in a particular industry, there is no limitation on the amount of a Fund's
assets which may be invested in obligations of foreign banks which meet the
conditions set forth herein.
Obligations of foreign banks involve certain risks associated with
investing in foreign securities described under "Foreign Securities" above,
including the possibilities that their liquidity could be impaired because of
future political and economic developments, that their obligations may be less
marketable than comparable obligations of United States banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
United States banks. Foreign banks are not generally subject to examination by
any U.S. Government agency or instrumentality.
Commercial Paper
All Funds may invest in commercial paper. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations and finance companies. The commercial paper
purchased by the Funds consists of U.S. dollar-denominated obligations of
domestic issuers, or, additionally for the Renaissance, Growth, Target, Core
Equity, Mid Cap Equity, Opportunity, Innovation, Emerging Markets, Structured
Emerging Markets, International and International Developed Funds, foreign
currency-denominated obligations of domestic or foreign issuers which, at the
time of investment, are (i) rated "P-1" or "P-2" by Moody's or "A-1" or "A-2" or
better by S&P, (ii) issued or guaranteed as to principal and interest by issuers
or guarantors having an existing debt security rating of "A" or better by
Moody's or "A" or better by S&P, or (iii) securities which, if not rated, are,
in the opinion of the Portfolio Manager, of an investment quality comparable to
rated commercial paper in which the Fund may invest. The rate of return on
commercial paper may be linked or indexed to the level of exchange rates between
the U.S. dollar and a foreign currency or currencies.
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Derivative Instruments
The following describes certain derivative instruments and products in
which the Funds may invest (to the extent described in the Prospectus) and the
risks associated therewith.
Options on Securities and Indexes. A Fund may, to the extent specified for
the Fund in the Prospectuses, purchase and sell both put and call options on
fixed income or other securities or indexes in standardized contracts traded on
foreign or domestic securities exchanges, boards of trade, or similar entities,
or quoted on National Association of Securities Dealers Automated Quotations
("NASDAQ") or on a regulated foreign over-the-counter market, and agreements,
sometimes called cash puts, which may accompany the purchase of a new issue of
bonds from a dealer.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect features of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.)
A Fund will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or other assets determined to be liquid by
the Portfolio Manager in accordance with procedures established by the Board of
Trustees in such amount are placed in a segregated account by its custodian)
upon conversion or exchange of other securities held by the Fund. For a call
option on an index, the option is covered if the Fund maintains with its
custodian assets determined to be liquid by the Portfolio Manager in accordance
with procedures established by the Board of Trustees in an amount equal to the
contract value of the index. A call option is also covered if the Fund holds a
call on the same security or index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written, or (ii) greater than the exercise price of the call written, provided
the difference is maintained by the Fund in assets determined to be liquid by
the Portfolio Manager in accordance with procedures established by the Board of
Trustees in a segregated account with its custodian. A put option on a security
or an index is "covered" if the Fund maintains assets determined to be liquid by
the Portfolio Manager in accordance with procedures established by the Board of
Trustees equal to the exercise price in a segregated account with its custodian.
A put option is also covered if the Fund holds a put on the same security or
index as the put written where the exercise price of the put held is (i) equal
to or greater than the exercise price of the put written, or (ii) less than the
exercise price of the put written, provided the difference is maintained by the
Fund in assets determined to be liquid by the Portfolio Manager in accordance
with procedures established by the Board of Trustees in a segregated account
with its custodian.
If an option written by a Fund expires unexercised, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by a Fund expires unexercised, the Fund realizes a
capital loss equal to the premium paid. Prior to the earlier of exercise or
expiration, an exchange traded option may be closed out by an offsetting
purchase or sale of an option of the same series (type, exchange, underlying
security or index, exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when the
Fund desires.
A Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund
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will realize a capital gain or, if it is less, the Fund will realize a capital
loss. The principal factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of the option,
the volatility of the underlying security or index, and the time remaining until
the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset
of the Fund. The premium received for an option written by a Fund is recorded as
a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
OTC Options. The Renaissance, Growth, Target, Opportunity, Innovation,
International, Precious Metals and Tax Exempt Funds will enter into over-the-
counter ("OTC") options transactions only with primary dealers in U.S.
Government securities and only pursuant to agreements that will assure that the
relevant Fund will at all times have the right to repurchase the option written
by it from the dealer at a specified formula price. The Funds will treat the
amount by which such formula price exceeds the intrinsic value of the option
(i.e., the amount, if any, by which the market price of the underlying security
exceeds the exercise price of the option) as an illiquid investment.
It is the present policy of each of the Renaissance, Growth, Target,
Opportunity, Innovation, International, Precious Metals and Tax Exempt Funds not
to enter into any OTC option transaction if, as a result, more than 15% of that
Fund's net assets would be invested in (i) OTC options purchased by the Fund,
(ii) the illiquid portion (determined under the foregoing formula) of OTC
options written by the Fund, and (iii) other illiquid investments as set forth
below under the heading "Investment Restrictions."
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes, during
the option's life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the premium and the
exercise price of the call.
If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were imposed,
the Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
Foreign Currency Options. Each of the Funds that may buy or sell foreign
currencies may buy or sell put and call options on foreign currencies either on
exchanges or in the over-the-counter market. A put option on a foreign currency
gives the purchaser of the option the right to sell a foreign currency at the
exercise price until the option expires. A call option on a foreign currency
gives the purchaser of the option the right to purchase the currency at the
exercise price until the option expires. Currency options traded on U.S. or
other exchanges may be subject to position limits which may limit the ability of
a Fund to reduce foreign currency risk using such options. Over-the-counter
options differ from traded options in that they are two-party contracts with
price and other terms negotiated between buyer and seller, and generally do not
have as much market liquidity as exchange-traded options.
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Futures Contracts and Options on Futures Contracts. A Fund may use interest
rate, foreign currency or index futures contracts, as specified for that Fund in
the Prospectuses. An interest rate, foreign currency or index futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument, foreign currency or the cash value
of an index at a specified price and time. A futures contract on an index is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. Although the value of an index might be a
function of the value of certain specified securities, no physical delivery of
these securities is made. A public market exists in futures contracts covering a
number of indexes as well as financial instruments and foreign currencies,
including: the S&P 500; the S&P Midcap 400; the Nikkei 225; the NYSE composite;
U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S.
Treasury bills; 90-day commercial paper; bank certificates of deposit;
Eurodollar certificates of deposit; the Australian dollar; the Canadian dollar;
the British pound; the German mark; the Japanese yen; the French franc; the
Swiss franc; the Mexican peso; and certain multinational currencies, such as the
European Currency Unit ("ECU"). It is expected that other futures contracts will
be developed and traded in the future.
Certain Funds may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities and
indexes (discussed above). A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
A Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or in the case of futures options, for which an established
over-the-counter market exists.
When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of assets determined to be liquid by the Portfolio Manager in
accordance with procedures established by the Board of Trustees ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. Margin requirements on foreign exchanges may be different than U.S.
exchanges. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each Fund expects to earn interest income on its initial margin
deposits. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark to market its open futures positions.
A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss. Conversely, if an
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offsetting sale price is more than the original purchase price, the Fund
realizes a capital gain, or if it is less, the Fund realizes a capital loss. The
transaction costs must also be included in these calculations.
Limitations on Use of Futures and Futures Options. In general, the Funds
intend to enter into positions in futures contracts and related options only for
"bona fide hedging" purposes. With respect to positions in futures and related
options that do not constitute bona fide hedging positions, a Fund will not
enter into a futures contract or futures option contract if, immediately
thereafter, the aggregate initial margin deposits relating to such positions
plus premiums paid by it for open futures option positions, less the amount by
which any such options are "in-the-money," would exceed 5% of the Fund's net
assets. A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.
When purchasing a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by the
Portfolio Manager in accordance with procedures established by the Board of
Trustees, that, when added to the amounts deposited with a futures commission
merchant as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high or higher than the price
of the contract held by the Fund.
When selling a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by the
Portfolio Manager in accordance with procedures established by the Board of
Trustees, that are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by the Portfolio Manager in accordance with procedures established by the
Board of Trustees, that, when added to the amounts deposited with a futures
commission merchant as margin, equal the total market value of the futures
contract underlying the call option. Alternatively, the Fund may cover its
position by entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Fund to purchase the same futures contract at a price not
higher than the strike price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by the Portfolio Manager in accordance with procedures established by the
Board of Trustees that equal the purchase price of the futures contract, less
any margin on deposit. Alternatively, the Fund may cover the position either by
entering into a short position in the same futures contract, or by owning a
separate put option permitting it to sell the same futures contract so long as
the strike price of the purchased put option is the same or higher than the
strike price of the put option sold by the Fund.
The requirements for qualification as a regulated investment company also
may limit the extent to which a Fund may enter into futures, futures options or
forward contracts. See "Taxation."
Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. Some of the risk may be
caused by an imperfect correlation between movements in the price of the futures
contract and the price of the security or other investment being hedged. The
hedge will not be fully effective where there is such imperfect correlation. For
example, if the
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price of the futures contract moves more than the price of the hedged security,
a Fund would experience either a loss or gain on the future which is not
completely offset by movements in the price of the hedged securities. To
compensate for imperfect correlations, a Fund may purchase or sell futures
contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the futures contracts. Conversely, a Fund may purchase or sell fewer
contracts if the volatility of the price of the hedged securities is
historically less than that of the futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the futures
contract approaches.
Futures contracts on U.S. Government securities historically have reacted
to an increase or decrease in interest rates in a manner similar to that in
which the underlying U.S. Government securities reacted. To the extent, however,
that the Tax Exempt Fund enters into such futures contracts, the value of such
futures will not vary in direct proportion to the value of the Fund's holdings
of Tax Exempt Bonds. Thus, the anticipated spread between the price of the
futures contract and the hedged security may be distorted due to differences in
the nature of the markets. The spread also may be distorted by differences in
initial and variation margin requirements, the liquidity of such markets and the
participation of speculators in such markets.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or a futures option position, and that Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Additional Risks of Options on Securities, Futures Contracts, Options on
Futures Contracts, and Forward Currency Exchange Contracts and Options thereon.
Options on securities, futures contracts, options on futures contracts, and
options on currencies may be traded on foreign exchanges. Such transactions may
not be regulated as effectively as similar transactions in the United States;
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Trust's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lesser trading
volume.
Swap Agreements. The Emerging Markets, Structured Emerging Markets and
International Developed Funds may enter into equity index swap agreements for
purposes of attempting to gain exposure to the stocks making up an index of
securities in a foreign market without actually purchasing those stocks. The
Balanced Fund may enter into swap agreements to hedge against changes in
interest rates, foreign currency exchange rates or securities prices. Swap
agreements are two party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
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the return on or increase in value of a particular dollar amount invested in a
"basket" of securities representing a particular index.
Most swap agreements entered into by the Funds calculate the obligations of
the parties to the agreement on a "net basis." Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Fund's current obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the maintenance of a
segregated account consisting of assets determined to be liquid by the Portfolio
Manager in accordance with procedures established by the Board of Trustees, to
avoid any potential leveraging of the Fund's portfolio. Obligations under swap
agreements so covered will not be construed to be "senior securities" for
purposes of a Fund's investment restriction concerning senior securities. A Fund
will not enter into a swap agreement with any single party if the net amount
owed or to be received under existing contracts with that party would exceed 5%
of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective will depend on the Portfolio Manager's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Funds will enter into swap
agreements only with counterparties that meet certain standards of
creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Funds' repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code may limit
the Funds' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
Forward Commitments, When-Issued and Delayed Delivery Transactions
A Fund may purchase or sell securities on a when-issued or delayed delivery
basis. These transactions involve a commitment by the Fund to purchase or sell
securities for a predetermined price or yield, with payment and delivery taking
place more than seven days in the future, or after a period longer than the
customary settlement period for that type of security. When delayed delivery
purchases are outstanding, the Fund will set aside and maintain until the
settlement date in a segregated account, assets determined to be liquid by the
Adviser or the Portfolio Manager in accordance with procedures established by
the Board of Trustees in an amount sufficient to meet the purchase price.
Typically, no income accrues on securities purchased on a delayed delivery basis
prior to the time delivery of the securities is made, although a Fund may earn
income on securities it has deposited in a segregated account. When purchasing a
security on a delayed delivery basis, the Fund assumes the rights and risks of
ownership of the security, including the risk of price and yield fluctuations,
and takes such fluctuations into account when determining its net asset value.
Because the Fund is not required to pay for the security until the delivery
date, these risks are in addition to the risks associated with the Fund's other
investments. If the Fund remains substantially fully invested at a time when
delayed delivery purchases are outstanding, the delayed delivery purchases may
result in a form of leverage. When the Fund has sold a security on a delayed
delivery basis, the Fund does not participate in future gains or losses with
respect to the security. If the other party to a delayed delivery transaction
fails to deliver or pay for the securities, the Fund could miss a favorable
price or yield opportunity or could suffer a loss. A Fund may dispose of or
renegotiate a delayed delivery transaction after it is entered into, and may
sell when-issued securities before they are delivered, which may result in a
capital gain or loss. There is no percentage limitation on the extent to which
the Funds may purchase or sell securities on a delayed delivery basis.
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Each Fund may make contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if the
Fund either (i) holds, and maintains until the settlement date in a segregated
account, assets determined to be liquid by the Portfolio Manager in accordance
with procedures established by the Board of Trustees in an amount sufficient to
meet the purchase price or (ii) enters into an offsetting contract for the
forward sale of securities of equal value that it owns. Certain Funds may enter
into forward commitments for the purchase or sale of foreign currencies. Forward
commitments may be considered securities in themselves. They involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Fund's other assets. A Fund may dispose of a commitment prior to settlement
and may realize short-term profits or losses upon such disposition.
Warrants to Purchase Securities
Certain Funds may invest in warrants to purchase equity or fixed income
securities. Bonds with warrants attached to purchase equity securities have many
characteristics of convertible bonds and their prices may, to some degree,
reflect the performance of the underlying stock. Bonds also may be issued with
warrants attached to purchase additional fixed income securities at the same
coupon rate. A decline in interest rates would permit a Fund to buy additional
bonds at the favorable rate or to sell the warrants at a profit. If interest
rates rise, the warrants would generally expire with no value.
Tax Exempt Bonds
As noted in the Prospectuses, it is a non-fundamental policy of the Tax
Exempt Fund to have 80% of its net assets invested in debt obligations the
interest on which, in the opinion of bond counsel to the issuer at the time of
issuance, is exempt from federal income tax ("Tax Exempt Bonds") which are rated
Baa or higher by Moody's or BBB or higher by S&P, or in one of the four highest
rating categories of any other NRSRO, or which are unrated and determined by the
Adviser or the Fund's Portfolio Manager to be of quality comparable to
obligations so rated. Under such policy, the Fund may invest up to 20% of its
net assets in Tax Exempt Bonds rated in the fifth highest rating category by any
NRSRO, or unrated obligations determined by the Portfolio Manager to be of
quality comparable to obligations so rated. A description of these ratings is
set forth in Appendix A hereto. From time to time, however, the Fund may have
less than 80% of its net assets invested in Tax Exempt Bonds for temporary
defensive purposes. The ability of the Fund to invest in securities other than
Tax Exempt Bonds is limited by a requirement of the Internal Revenue Code of
1986 that at least 50% of the Fund's total assets be invested in Tax Exempt
Bonds at the end of each calendar quarter. See "Taxes."
Tax Exempt Bonds share the attributes of debt/fixed income securities
in general, but are generally issued by states, municipalities and other
political subdivisions, agencies, authorities and instrumentalities of states
and multi-state agencies or authorities. The Tax Exempt Bonds which the Tax
Exempt Fund may purchase include general obligation bonds and limited obligation
bonds (or revenue bonds), including industrial development bonds issued pursuant
to former federal tax law. General obligation bonds are obligations involving
the credit of an issuer possessing taxing power and are payable from such
issuer's general revenues and not from any particular source. Limited obligation
bonds are payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source. Tax-exempt private activity bonds and industrial
development bonds generally are also revenue bonds and thus are not payable from
the issuer's general revenues. The credit and quality of private activity bonds
and industrial development bonds are usually related to the credit of the
corporate user of the facilities. Payment of interest on and repayment of
principal of such bonds is the responsibility of the corporate user (and/or any
guarantor).
Under the Internal Revenue Code of 1986, certain limited obligation
bonds are considered "private activity bonds" and interest paid on such bonds is
treated as an item of tax preference for purposes of calculating federal
alternative minimum tax liability.
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Tax Exempt Bonds are subject to credit and market risk. Generally,
prices of higher quality issues tend to fluctuate less with changes in market
interest rates than prices of lower quality issues and prices of longer maturity
issues tend to fluctuate more than prices of shorter maturity issues.
The Tax Exempt Fund may purchase and sell portfolio investments to take
advantage of changes or anticipated changes in yield relationships, markets or
economic conditions. The Fund may also sell Tax Exempt Bonds due to changes in
the Portfolio Manager's evaluation of the issuer or cash needs resulting from
redemption requests for Fund shares. The secondary market for Tax Exempt Bonds
typically has been less liquid than that for taxable debt/fixed income
securities, and this may affect the Fund's ability to sell particular Tax Exempt
Bonds at then-current market prices, especially in periods when other investors
are attempting to sell the same securities.
Prices and yields on Tax Exempt Bonds are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the Tax Exempt Bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
A number of these factors, including the ratings of particular issues, are
subject to change from time to time. Information about the financial condition
of an issuer of Tax Exempt Bonds may not be as extensive as that which is made
available by corporations whose securities are publicly traded.
Obligations of issuers of Tax Exempt Bonds are subject to the
provisions of bankruptcy, insolvency and other laws, such as the Federal
Bankruptcy Reform Act of 1978, affecting the rights and remedies of creditors.
Congress or state legislatures may seek to extend the time for payment of
principal or interest, or both, or to impose other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of interest and principal on their Tax Exempt Bonds
may be materially affected or their obligations may be found to be invalid or
unenforceable. Such litigation or conditions may from time to time have the
effect of introducing uncertainties in the market for Tax Exempt Bonds or
certain segments thereof, or of materially affecting the credit risk with
respect to particular bonds. Adverse economic, business, legal or political
developments might affect all or a substantial portion of the Fund's Tax Exempt
Bonds in the same manner.
Metal-Indexed Notes and Precious Metals
The Precious Metals Fund may invest in notes, the principal amount or
redemption price of which is indexed to and thus varies directly with changes in
the market price of gold bullion or other precious metals ("Metal-Indexed
Notes"). It is expected that the value of Metal-Indexed Notes will be as
volatile as the price of the underlying metal.
The Precious Metals Fund will only purchase Metal-Indexed Notes which
are rated, or are issued by issuers that have outstanding debt obligations
rated, investment grade, commercial paper rated in the top rating category by
any NRSROs, or Metal-Indexed Notes issued by issuers that the Adviser or the
Portfolio Manager has determined to be of similar creditworthiness. Debt
obligations rated in the fourth highest rating category by an NRSRO are
considered to have some speculative characteristics. The Metal-Indexed Notes
might be backed by a bank letter of credit, performance bond or might be
otherwise secured, and any such security, which would be held by the Fund's
custodian, would be taken into account in determining the creditworthiness of
the securities. The Precious Metals Fund might purchase unsecured Metal-Indexed
Notes if the issuer thereof met the Fund's credit standards without any such
security. While the principal amount or redemption price of Metal-Indexed Notes
would vary with the price of the resource, such securities would not be secured
by a pledge of the resource or any other security interest in or claim on the
resource. In the case of Metal-Indexed Notes not backed by a performance bond,
letter of credit or similar security, it is expected that such securities
generally would not be secured by any other specific assets.
The Precious Metals Fund anticipates that if Metal-Indexed senior
securities were to be purchased, such securities would be issued by precious
metals or commodity brokers or dealers, by mining companies, by commercial banks
or by other financial institutions. Such issuers would issue notes to hedge
their inventories and reserves of the resource, or to borrow money at a
relatively low cost (which would include the nominal rate of interest paid on
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Metal-Indexed Notes, described below, and the cost of hedging the issuer's
metals exposure). The Precious Metals Fund would not purchase a Metal-Indexed
Note issued by a broker or dealer if as a result of such purchase more than 5%
of the value of the Fund's total assets would be invested in securities of such
issuer. The Precious Metals Fund might purchase Metal-Indexed Notes from brokers
or dealers which are not also securities brokers or dealers. Precious metals or
commodity brokers or dealers are not subject to supervision or regulation by any
governmental authority or self-regulatory organization in connection with the
issuance of Metal-Indexed Notes.
Until recently, there were no Metal-Indexed Notes outstanding and
consequently there is no secondary trading market for such securities. Although
a limited secondary market might develop among institutional traders, there is
no assurance that such a market will develop. No public market is expected to
develop, since the Precious Metals Fund expects that Metal-Indexed Notes will
not be registered under the 1933 Act, and therefore disposition of such
securities, other than to the issuer thereof (as described below), would be
dependent upon the availability of an exemption from such registration.
Any Metal-Indexed Notes which the Precious Metals Fund might purchase
generally will have maturities of one year or less. Such notes, however, will be
subject to being called for redemption by the issuer on relatively short notice.
In addition, it is expected that the Metal-Indexed Notes will be subject to
being put by the Precious Metals Fund to the issuer or to a stand-by broker
meeting the credit standards set forth above, with payments being received by
the Precious Metals Fund on no more than seven days' notice. A stand-by broker
might be a securities broker-dealer, in which case the Precious Metals Fund's
investment will be limited by applicable regulations of the Securities and
Exchange Commission (the "SEC"). The put feature of the Metal-Indexed Notes will
ensure liquidity even in the absence of a secondary trading market. The
securities will be repurchased upon exercise of the holder's put at the
specified exercise price, less repurchase fees, if any, which are not expected
to exceed 1% of the redemption or repurchase proceeds. Depending upon the terms
of particular Metal-Indexed Notes, there might be a period as long as five days
between the date upon which the Precious Metals Fund notifies the issuer of the
exercise of the put and determination of the sale price.
It is expected that any Metal-Indexed Notes which the Precious Metals
Fund might purchase will bear interest or pay preferred dividends at relatively
nominal rates under 2% per annum. The Precious Metals Fund's holdings of such
senior securities therefore would not generate appreciable current income, and
the return from such senior securities would be primarily from any profit on the
sale or maturity thereof at a time when the price of the relevant precious metal
is higher than it was when the senior securities were purchased. The Precious
Metals Fund will not invest in Metal-Indexed Notes that are not publicly traded
until it is certain of how the Internal Revenue Service would characterize
income derived from such notes.
Repurchase Agreements
Each of the Funds may enter into repurchase agreements with domestic
commercial banks or registered broker/dealers. A repurchase agreement is a
contract under which a Fund would acquire a security for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). In the case of repurchase
agreements with broker-dealers, the value of the underlying securities (or
collateral) will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. The Fund bears a risk of
loss in the event that the other party to a repurchase agreement defaults on its
obligations and the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities. The Adviser and the Portfolio Managers, as
appropriate, will monitor the creditworthiness of the counterparties.
Securities Loans
Each of the Equity Income, Value, Enhanced Equity, Capital
Appreciation, Mid Cap Growth, Small Cap Value, Small Cap Growth, Core Equity,
Mid Cap Equity, Target, Micro Cap Growth, International Developed, Emerging
Markets, Structured Emerging Markets and Balanced Funds may make secured loans
of its portfolio
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securities amounting to no more than 331/3% of its total assets. Each of the
Renaissance, Growth, Opportunity, Innovation, International, and Precious Metals
Funds may make such loans amounting to no more than 25% of their respective
total assets. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.
However, such loans will be made only to broker-dealers that are believed by the
Adviser or the Portfolio Manager to be of relatively high credit standing.
Securities loans are made to broker-dealers pursuant to agreements requiring
that loans be continuously secured by collateral at least equal at all times to
the market value of the securities lent. The borrower pays to the lending Fund
an amount equal to any dividends or interest received on the securities lent.
The Fund may invest only the cash collateral received in interest-bearing,
short-term securities or receive a fee from the borrower. In the case of cash
collateral, the Fund typically pays a rebate to the lender. Although voting
rights or rights to consent with respect to the loaned securities pass to the
borrower, the Fund retains the right to call the loans at any time on reasonable
notice, and it will do so in order that the securities may be voted by the Fund
if the holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund may also call such loans in order
to sell the securities involved.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The investment restrictions set forth below are fundamental policies of
the Renaissance, Growth, Target, Opportunity, Innovation, International,
Precious Metals and Tax Exempt Funds and may not be changed with respect to any
such Fund without shareholder approval by vote of a majority of the outstanding
voting securities of that Fund.
Under these restrictions, none of the above-mentioned Funds may:
(1) borrow money in excess of 10% of the value (taken at the lower of
cost or current value) of such Fund's total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as a
temporary measure to facilitate the meeting of redemption requests (not for
leverage) which might otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased;
(2) pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 10% of such Fund's total assets (taken at cost) and then only to
secure borrowings permitted by Restriction 1 above. (The deposit of securities
or cash or cash equivalents in escrow in connection with the writing of covered
call or put options, respectively, is not deemed to be pledges or other
encumbrances.) (For the purpose of this restriction, collateral arrangements
with respect to the writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial and variation
margin are not deemed to be a pledge of assets and neither such arrangements nor
the purchase or sale of futures or related options are deemed to be the issuance
of a senior security.);
(3) underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws;
(4) purchase or sell real estate, although it may purchase securities
of issuers which deal in real estate, including securities of real estate
investment trusts, and may purchase securities which are secured by interests in
real estate, except that the Precious Metals Fund may purchase or sell
agricultural land;
(5) acquire more than 10% of the voting securities of any issuer, both
with respect to any such Fund and to the Funds to which this policy relates, in
the aggregate; or
(6) concentrate more than 25% of the value of its total assets in any
one industry, or, in the case of the Tax Exempt Fund, in industrial development
revenue bonds based, directly or indirectly, on the credit of private entities
in any one industry; except that the Precious Metals Fund will concentrate more
than 25% of its total assets in securities of companies principally engaged in
the extraction, processing, distribution or marketing of precious
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metals, and the Innovation Fund will concentrate more than 25% of its assets in
companies which use innovative technology to gain a strategic, competitive
advantage in their industry as well as companies that provide and service those
technologies. With respect to investments of the Tax Exempt Fund in utilities,
gas, electric, water and telephone companies will be considered as being in
separate industries.
The investment objective of each of the above-referenced Funds is
non-fundamental and may be changed with respect to each such Fund by the
Trustees without shareholder approval.
The investment objective of each of the Equity Income, Value, Enhanced
Equity, Capital Appreciation, Mid Cap Growth, Small Cap Value, Small Cap Growth,
Core Equity, Mid Cap Equity, Micro Cap Growth, International Developed, Emerging
Markets, Structured Emerging Markets and Balanced Funds, as set forth in the
Prospectuses under "Investment Objectives and Policies," together with the
investment restrictions set forth below, are fundamental policies of each such
Fund and may not be changed with respect to any such Fund without shareholder
approval by vote of a majority of the outstanding shares of that Fund. Under
these restrictions, none of the above-mentioned Funds may:
----
(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;
(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 or swap agreements), except that any such 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 in the Prospectuses
and in this 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
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or variation margin deposits for futures contracts, options on futures
contracts, and forward foreign currency contracts will not be deemed to be
pledges of such Fund's assets);
(8) issue senior securities, except insofar as such 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 such 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 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.
Notwithstanding the provisions of fundamental investment restrictions
(7) and (8) above, a Fund may borrow money for temporary administrative
purposes. To the extent that borrowings for temporary administrative purposes
exceed 5% of the total assets of a Fund, such excess shall be subject to the
300% asset coverage requirement of fundamental investment restriction (7).
Non-Fundamental Investment Restrictions
The Renaissance, Growth, Target, Opportunity, Innovation,
International, Precious Metals and Tax Exempt Funds are also subject to the
following non-fundamental restrictions and policies (which may be changed
without shareholder approval) and, unless otherwise indicated, may not:
(1) invest in (a) securities which at the time of such investment are
not readily marketable, (b) securities the disposition of which is restricted
under federal securities laws, (c) repurchase agreements maturing in more than
seven days (d) OTC options (to the extent described above under "Derivative
Instruments -- OTC Options"), and (e) IO/PO SMBS (as described above under
"Mortgage-Related and Asset-Backed Securities -- Stripped Mortgage Backed
Securities") if, as a result, more than 15% of a Fund's net assets, taken at
current value, would then be invested in securities described in (a), (b), (c),
(d) and (e) above. For the purpose of this restriction securities subject to a
7-day put option or convertible into readily saleable securities or commodities
are not included with subsections (a) or (b);
(2) with respect to the Tax Exempt Fund, invest less than 80% of such
Fund's net assets in Tax Exempt Bonds rated Baa or higher by Moody's or BBB or
higher by S&P or which are unrated and determined by such Fund's Portfolio
Manager to be of comparable quality;
(3) purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities. (For
this purpose, the deposit or payment by a Fund of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.);
(4) make short sales of securities or maintain a short position for the
account of a Fund unless at all times when a short position is open such Fund
owns an equal amount of such securities or owns securities which, without
payment of any further consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the securities sold
short;
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(5) purchase or sell commodities or commodity contracts except that
such Funds may purchase and sell financial futures contracts and related options
and the Precious Metals Fund may purchase and sell precious metals and other
commodities and futures thereon;
(6) make loans, except by purchase of debt obligations or by entering
into repurchase agreements (in the case of the Tax Exempt Fund, with respect to
not more than 20% of its total assets) or through the lending of the Fund's
portfolio securities with respect to not more than 25% of its total assets
(33 1/3% in the case of the Target Fund);
(7) invest in securities of any issuer if, to the knowledge of the
Trust, any officers and Trustees of the Trust and officers and directors of the
Adviser or the Portfolio Manager of the Fund who individually own beneficially
more than 1/2 of 1% of the securities of that issuer, own beneficially in the
aggregate more than 5% of the securities of such issuer;
(8) invest in securities of any issuer if, immediately after such
investment, more than 5% of the total assets of such Fund (taken at current
value) would be invested in the securities of such issuer, except that up to 25%
of the International Fund's and Target Fund's total assets taken at current
value may be invested (without regard to such 5% limitation) in the securities
of an issuer; and provided that this limitation does not apply to bank
certificates of deposit or to obligations issued or guaranteed as to interest
and principal by the U.S. government or its agencies or instrumentalities. For
the purpose of this restriction, each state and each separate political
subdivision, agency, authority or instrumentality of such state, each
multi-state agency or authority, and each guarantor, if any, are treated as
separate issuers of Tax Exempt Bonds;
(9) invest in securities of other investment companies, except by
purchase in the open market involving only customary brokers' commissions except
for the International Fund, which may invest up to 10% of its assets in
securities of other investment companies without regard to this restriction. For
purposes of this restriction, foreign banks and foreign insurance companies or
their respective agents or subsidiaries are not considered investment companies.
(Under the 1940 Act no registered investment company may (a) invest more than
10% of its total assets (taken at current value) in securities of other
investment companies, (b) own securities of any one investment company having a
value in excess of 5% of its total assets (taken at current value), or (c) own
more than 3% of the outstanding voting stock of any one investment company.);
(10) purchase securities the disposition of which is restricted under
the federal securities laws (excluding for purposes of this restriction
securities offered and sold pursuant to Rule 144A of the 1933 Act and Section
4(2) commercial paper) if, as a result, such investments would exceed 10% of the
value of the net assets of the relevant Fund; provided, however, that so long as
a similar restriction applies under the Ohio Administrative Code, no Fund will
invest more than 15% of its total assets in the securities of issuers which
together with any predecessors have a record of less than three years continuous
operation or securities of issuers which are restricted as to disposition
(including Rule 144A securities and Section 4(2) commercial paper);
(11) invest in warrants or rights excluding options (other than
warrants or rights acquired by such Fund as a part of a unit or attached to
securities at the time of purchase) if as a result such investments (valued at
the lower of cost or market) would exceed 5% of the value of such Fund's net
assets; provided that not more than 2% of the Fund's net assets may be invested
in warrants not listed on the New York or American Stock Exchanges;
(12) invest in securities of an issuer, which, together with any
predecessors or controlling persons, has been in operation for less than three
consecutive years and in equity securities for which market quotations are not
readily available (excluding restricted securities) if, as a result, the
aggregate of such investments would exceed 5% of the value of the Fund's net
assets; provided, however, that this restriction shall not apply to any
obligation of the U.S. Government or its instrumentalities or agencies. (Debt
securities having equity features are not considered "equity securities" for
purposes of this restriction.);
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(13) write (sell) or purchase options except that (i) each such Fund
other than the Tax Exempt Fund may (a) write covered call options or covered put
options on securities that it is eligible to purchase (and, with respect to the
Renaissance, Growth, Opportunity, Target, Innovation, International, and
Precious Metals Funds, on stock indexes) and enter into closing purchase
transactions with respect to such options, and (b) in combination therewith, or
separately, purchase put and call options on securities it is eligible to
purchase, and (ii) the Tax Exempt Fund may purchase put options with respect to
all or any part of its portfolio securities and call options with respect to
securities that it is eligible to purchase; provided that the premiums paid by
each such Fund on all outstanding options it has purchased do not exceed 5% of
its total assets. Each such Fund may enter into closing sale transactions with
respect to options it has purchased;
(14) buy or sell oil, gas or other mineral leases, rights or royalty
contracts, except that the Precious Metals Fund may purchase and sell interests
in oil, gas and other natural resources (other than oil, gas or other mineral
leases);
(15) make investments for the purpose of gaining control of a company's
management;
(16) invest in certificates of deposit of any bank if, immediately
after such investment, more than 5% of the total assets of such Fund (taken at
current value) would be invested in the securities (including certificates of
deposit) of that bank, except that each Fund may invest up to 25% of its total
assets without regard to this restriction;
(17) purchase or sell real estate, including investments in limited
partnerships that invest directly in real estate; provided, however, that these
Funds may invest in readily marketable interests in real estate investment
trusts or readily marketable securities of companies that invest in real estate;
(18) with respect to the Target Fund, invest in commodities or
commodity futures contracts; or
(19) engage in short-term trading as a matter of policy; provided,
however, that in pursuing such Fund's investment objective, the Fund's Portfolio
Manager will continue to monitor all securities positions of the Fund and will
seek to dispose of any position that it believes is no longer consistent with
achieving optimum performance.
Each of each of the Equity Income, Value, Enhanced Equity, Capital
Appreciation, Mid Cap Growth, Small Cap Value, Small Cap Growth, Core Equity,
Mid Cap Equity, Micro Cap Growth, International Developed, Emerging Markets,
Structured Emerging Markets and Balanced Funds 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, none of the above-mentioned Funds may:
(1) invest for the purpose of exercising control or management;
(2) invest in securities of another open-end investment company, except
that each of the International Developed and Emerging Markets Funds may invest
up to 10% of its total assets in the securities of other investment companies;
(3) (a) for the Equity Income, Value, Enhanced Equity, Capital
Appreciation, Mid Cap Growth, Small Cap Growth, Small Cap Value, and Balanced
Funds: 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 other securities which legally or in the Adviser's or
Portfolio Manager's opinion may be deemed illiquid (other than securities issued
pursuant to Rule 144A under the 1933 Act and certain commercial paper that the
Adviser or Portfolio Manager 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;
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(b) for the Micro Cap Growth, Core Equity, Mid Cap Equity,
International Developed, Emerging Markets, and Structured Emerging Markets
Funds: invest more than 15% of the net assets of such Fund (taken at market
value at the time of the investment) in securities that are illiquid because
they are subject to legal or contractual restrictions on resale, in repurchase
agreements maturing in more than seven days, or other securities which are
illiquid;
(4) 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;
(5) 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 Portfolio Manager 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;
(6) 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;
(7) 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;
(8) invest more than 5% of the assets of such Fund (taken at market
value at the time of investment) in any combination of interest only, principal
only, or inverse floating rate securities;
(9) borrow money (excluding reverse repurchase agreements which are
subject to such Fund's fundamental borrowing restriction), except for temporary
administrative purposes;
(10) sell securities or property short, except short sales against the
box;
(11) 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 such 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;
(12) 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;
(13) 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
(14) 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.
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 not require a Fund
29
<PAGE>
to dispose of an investment until the Adviser or Portfolio Manager 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 Portfolio Manager 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.
The phrase "shareholder approval," as used in the Prospectuses, and the
phrase a "vote of a majority of the outstanding voting securities," as used
herein, means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund or the Trust, as the case may be, or (2) 67% or
more of the shares of the Fund or the Trust, as the case may be, present at a
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
MANAGEMENT OF THE TRUST
Trustees
The Trustees of the Trust, their ages, and a description of their
principal occupations during the past five years are listed below. Messrs.
Cannon, Carter, Childress, Light, Prindiville, Segall, Stooks and Thorne are
Trustees of PIMCO Advisors Funds ("PAF") as of the date of this Statement of
Additional Information. These Trustees were elected to the Board of Trustees of
the Trust at a Shareholders' meeting held on December 20, 1996 in connection
with the reorganization of certain series of PAF with Funds of the Trust in a
transaction which took place on January 17, 1997. Except as shown, each
Trustee's principal occupation and business experience for the last five years
have been with the employer(s) indicated, although in some cases the Trustee may
have held different positions with such employer(s).
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
Name, Address and Age Principal Occupation(s) During the Past Five Years
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
E. Philip Cannon Trustee, PAF and Cash Accumulation Trust ("CAT"); Headmaster, St.
2401 Claremont Lane John's School, Houston, Texas. Formerly, General Partner, J.B.
Houston, TX 77019 Poindexter & Co., Houston, Texas (private partnership), and Partner, Iberia
Age 56 Petroleum Company (oil and gas production). Mr. Cannon was a director
of WNS Inc., a retailing company which filed a petition in bankruptcy
within the last five years.
- ---------------------------------------------------------------------------------------------------------------
Donald P. Carter Trustee, PAF and CAT; Formerly, Chairman, Executive Vice President and
434 Stable Lane Director, Cunningham & Walsh, Inc., Chicago (advertising agency).
Lake Forest, IL 60045
Age 69
- ---------------------------------------------------------------------------------------------------------------
Gary A. Childress Trustee, PAF and CAT; Chairman and Director, Bellefonte Lime Company,
11 Longview Terrace Inc.; Chief Executive Officer, Woodings & Verona Toolworks Inc. Mr.
Madison, CT 06443 Childress is a partner in GenLime, L.P., a private limited partnership,
Age 62 which has filed a petition in bankruptcy within the last five years.
- ---------------------------------------------------------------------------------------------------------------
(*) William D. Cvengros Trustee, PAF and CAT; Chairman of the Board of the Trust; Chief
800 Newport Center Drive Executive Officer, President, and member of the Operating Board,
Newport Beach, CA 92660 Operating Committee, and Equity Board, PIMCO Advisors; Director,
Age 48 PIMCO Funds Distribution Company ("PFDCO"). Formerly, President of
the Trust, and Director, Vice Chairman, and Chief Investment Officer,
Pacific Mutual Life Insurance Company ("Pacific Mutual").
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
Gary L. Light Trustee, PAF and CAT; Partner, E.V.A. Investors Inc. (private
12220 N. Meridian Street, #145 investments); Consultant to and, prior to March, 1987, Executive Vice
Carmel, IN 46032 President, Mayflower Corporation (trucking and transportation); Vice
Age 59 Chairman and Chief Executive Officer, Sofamor Danek (medical devices).
- ---------------------------------------------------------------------------------------------------------------
Richard L. Nelson President, Nelson Financial Consultants; Director, Wynn's International,
8 Cherry Hills Lane Inc.; Trustee, Pacific Select Fund. Formerly, Partner, Ernst & Young.
Newport Beach, CA 92660
Age 66
- ---------------------------------------------------------------------------------------------------------------
Lyman W. Porter Professor of Management at the University of California, Irvine; Trustee,
2639 Bamboo Street Pacific Select Fund.
Newport Beach, CA 92660
Age 66
- ---------------------------------------------------------------------------------------------------------------
(*) Robert A. Prindiville Trustee, PAF and CAT; Vice President, PIMCO Advisors. Formerly,
2187 Atlantic Street President and Director, Thomson Advisory Group, Inc.; Director and
Stamford, CT 06903 Chairman, PFDCO; Executive Vice President, PIMCO Advisors.
Age 61
- ---------------------------------------------------------------------------------------------------------------
Alan Richards President, Alan Richards Consulting, Inc.; Trustee, Pacific Select Fund;
P.O. Box 675760 Director, Western National Corporation. Formerly, President, Chief
18132 Camino de Estrellas Executive Officer and Director, E.F. Hutton Insurance Group, Inc.;
Rancho Santa Fe, CA 92067 Chairman of the Board, Chief Executive Officer and President, E.F. Hutton
Age 66 Life Insurance Company; Director, E.F. Hutton & Company, Inc.
- ---------------------------------------------------------------------------------------------------------------
Joel Segall Trustee, PAF and CAT; Formerly, President and University Professor,
11 Linden Shores Bernard M. Baruch College, The City University of New York; Deputy
Branford, CT 06405 Under Secretary for International Affairs, United States Department of
Age 73 Labor; Professor of Finance, University of Chicago; Board of Managers,
Coffee, Sugar and Cocoa Exchange.
- ---------------------------------------------------------------------------------------------------------------
W. Bryant Stooks Trustee, PAF and CAT; President, Bryant Investments, Ltd. Formerly,
1530 E. Montebello President, Senior Vice President, Director and Chief Executive Officer,
Phoenix, AZ 85014 Archirodon Group Inc.; Partner, Arthur Andersen & Co.
Age 56
- ---------------------------------------------------------------------------------------------------------------
Gerald M. Thorne Trustee, PAF and CAT; Formerly, President and Director, Firstar National
5 Leatherwood Lane Bank of Milwaukee; Chairman, President and Director, Firstar National
Savannah, GA 31414 Bank of Sheboygan; Director, Bando-McGlocklin.
Age 58
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Trustee is an "interested person" of the Trust (as defined in Section 2(a)(19)
of the 1940 Act).
31
<PAGE>
Officers
The chart below sets forth the name, address, age, position with the
Trust, and principal occupation during the past five years of each officer of
the Trust. Unless otherwise indicated, the business address of all persons
listed below is 840 Newport Center Drive, Suite 360, Newport Beach, California
92660:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Name, Address and Age Position(s) with the Principal Occupation(s) During the Past
Trust Five Years
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stephen J. Treadway President and Chief President, CAT; Executive Vice President,
2187 Atlantic Street Executive Officer PIMCO Advisors; Director and Chairman,
Stamford, CT 06902 PFDCO. Formerly, Executive Vice
Age 49 President, Smith Barney Inc.
- ------------------------------------------------------------------------------------------------------------
R. Wesley Burns Executive Vice Vice President of PAF and CAT; President,
Age 37 President PIMCO Funds: Pacific Investment
Management Series; Executive Vice
President, Pacific Investment Management
Company ("Pacific Investment
Management"). Formerly, Vice President,
Pacific Investment Management.
- ------------------------------------------------------------------------------------------------------------
Newton B. Schott, Jr. Vice President and Vice President and Clerk of PAF and CAT;
2187 Atlantic Street Secretary Senior Vice President-Legal and Secretary,
Stamford, CT 06902 PIMCO Advisors; Director, Executive Vice
Age 54 President and Secretary, PFDCO.
Formerly, Executive Vice President,
Secretary and General Counsel, Thomson
Advisory Group and PIMCO Advisors;
Executive Vice President, Secretary, General
Counsel and Director, Thomson McKinnon
Inc.
- ------------------------------------------------------------------------------------------------------------
Jeffrey M. Sargent Vice President Vice President and Manager of Fund
Age 34 Shareholder Servicing, Pacific Investment
Management; Vice President of PIMCO
Funds: Pacific Investment Management
Series. Formerly, Project Specialist, Pacific
Investment Management.
- ------------------------------------------------------------------------------------------------------------
Teresa A. Wagner Vice President Vice President and Assistant Clerk of PAF;
Age 34 Assistant Clerk of CAT; Vice President,
PIMCO Funds: Pacific Investment
Management Series; Vice President and
Manager of Fund Administration, Pacific
Investment Management. Formerly, Vice
President, PIMCO Advisors Institutional
Services; Finance Director, Pacific Financial
Asset Management Company ("PFAMCO").
- ------------------------------------------------------------------------------------------------------------
Richard M. Weil Vice President Senior Vice President - Legal, PIMCO
Age 33 Advisors. Formerly, Vice President,
Bankers Trust Company; Associate,
Simpson, Thatcher & Bartlett.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
John P. Hardaway Treasurer Treasurer of PAF, CAT and PIMCO Funds:
Age 39 Pacific Investment Management Series; Vice
President and Manager of Fund Operations,
Pacific Investment Management.
- ------------------------------------------------------------------------------------------------------------
Joseph D. Hattesohl Assistant Treasurer Manager of Fund Taxation, Pacific
Age 33 Investment Management; Assistant Treasurer
of PIMCO Funds: Pacific Investment
Management Series. Formerly, Director of
Financial Reporting, Carl I. Brown & Co.;
Tax Manager, Price Waterhouse LLP.
- ------------------------------------------------------------------------------------------------------------
Garlin G. Flynn Assistant Secretary Senior Fund Administrator, Pacific
Age 50 Investment Management; Secretary of
PIMCO Funds: Pacific Investment
Management Series. Formerly, Senior
Mutual Fund Analyst, PIMCO Advisors
Institutional Services; Senior Mutual Fund
Analyst, PFAMCo.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Trustees' Compensation
Trustees other than those affiliated with PIMCO Advisors, a Portfolio
Manager, or Pacific Investment Management, receive an annual retainer of
$10,000, plus $1,000 for each Board of Trustees meeting attended, and $1,000 for
each Audit, Nominating or Policy Committee meeting attended, plus reimbursement
of related expenses. The Chairmen of the Audit and Policy Committees receive an
additional annual retainer of $1,000. Trustees do not currently receive any
pension or retirement benefits from the Trust or the Fund Complex. The Trust has
adopted a deferred compensation plan for the Trustees, which went into place
during 1997, which will permit the Trustees to elect to defer their receipt of
compensation from the Trust, at their election, in accordance with the terms of
the plan. Some of the Trustees earned deferred compensation for their services
on behalf of PAF and CAT which was carried forward under the Trust's plan.
The following table sets forth information regarding compensation
received by those Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust for the fiscal period ended June 30, 1996:
<TABLE>
<CAPTION>
------------------------------------------------------------
(1) (2) (3)
Total
Aggregate Compensation
Name of Trustee Compensation from from Trust and
Trust Fund Complex/1/
------------------------------------------------------------
<S> <C> <C>
E. Philip Cannon $0 $50,000
------------------------------------------------------------
Donald P. Carter $0 $53,500
------------------------------------------------------------
Gary A. Childress $0 $53,000
------------------------------------------------------------
Gary L. Light $0 $55,000
------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------------------------------
Richard L. Nelson $14,333.33 $14,333.33
------------------------------------------------------------
Lyman W. Porter $12,166.67 $12,166.67
------------------------------------------------------------
Alan Richards $14,333.33 $14,333.33
------------------------------------------------------------
Joel Segall $0 $59,500
------------------------------------------------------------
W. Bryant Stooks $0 $53,500
------------------------------------------------------------
Gerald M. Thorne $0 $50,000
------------------------------------------------------------
</TABLE>
/1/ The amounts listed in column (3) for Messrs. Cannon, Carter,
Childress, Light, Segall, Stooks and Thorne include total compensation
paid for their services as Trustees of PAF and CAT for PAF's and CAT's
fiscal years ended September 30, 1996. By virtue of having PIMCO
Advisors as a common investment adviser, the Trust, PAF and CAT are
considered to be part of the same "Fund Complex" for these purposes.
The amounts listed in column (3) do not include pension/retirement
benefits earned by these Trustees for their services on behalf of PAF
through its fiscal year ended September 30, 1995 pursuant to a
Trustees' Pension Plan for PAF (the "Pension Plan"). The Trustees of
PAF voted to terminate the Pension Plan as of September 28, 1995 and
received lump-sum payments in January of 1996. Of the amounts listed in
column (3), E. Philip Cannon, Donald P. Carter, Joel Segall and Gerald
M. Thorne elected to have the payment of $50,000, $38,500, $43,000, and
$50,000, respectively, deferred under a deferred compensation plan for
PAF and CAT. Aggregate deferred compensation (including the amounts
listed in the preceding sentence) earned in prior years by Trustees
under the PAF deferred compensation plan was carried forward under a
deferred compensation plan for the Trust (the "Plan") which went into
place during fiscal 1997. The compensation listed in column (3) for
Messrs. Light and Segall does not include amounts which accrued
pursuant to 1987 Deferred Fee Agreements with PAF and CAT which
terminated effective December 14, 1995. These benefits were distributed
to Messrs. Light and Segall during 1996.
Investment Adviser
PIMCO Advisors serves as investment adviser to each of the Funds
pursuant to an investment advisory agreement ("Advisory Agreement") between
PIMCO Advisors and the Trust. PIMCO Advisors was organized as a limited
partnership under Delaware law in 1987; PIMCO Partners, G.P. ("PIMCO GP"), PIMCO
Advisors's sole general partner, is a general partnership with two partners:
(i) an indirect wholly-owned subsidiary of Pacific Mutual Life; and (ii) PIMCO
Partners, L.L.C. ("LLC"), a limited liability company, all of the interests of
which are held directly by the Managing Directors of Pacific Investment
Management Company, who are William H. Gross, Dean S. Meiling, James F. Muzzy,
William F. Podlich, III, Frank B. Rabinovitch, Brent R. Harris, John L. Hague,
William S. Thompson, Jr., William C. Powers, David H. Edington and Benjamin L.
Trosky (collectively, the "Managing Directors"). PIMCO GP has substantially
delegated its management and control of PIMCO Advisors to an Equity Board and an
Operating Board of PIMCO Advisors. The activities of PIMCO Advisors are
controlled by its Operating Board, except that certain non-routine or
extraordinary actions may not be effected by the Operating Board without the
approval of PIMCO Advisors's Equity Board. The Operating Board has in turn
delegated the authority to manage day-to-day operations and policies to an
Operating Committee. The Operating Board is composed of twelve members, of which
seven (including the chairman) are designated by Pacific Investment Management,
which is a subsidiary general partnership of PIMCO Advisors. The Equity Board is
composed of twelve members including the chief executive officer of PIMCO
Advisors, three members designated by PFAMCO, the chairman of the Operating
Board, two members designated by LLC, two members designated by holders of
Series B Preferred Stock of Thomson Advisory Group Inc., the former general
partner of PIMCO
34
<PAGE>
Advisors, and three independent members. Because of the ability to designate a
majority of the Members of the Operating Board, Pacific Investment Management
and the Managing Directors could be said to control PIMCO Advisors, although the
Managing Directors disclaim such control. PIMCO Advisors and PIMCO GP are
located at 800 Newport Center Drive, Suite 100, Newport Beach, CA 92660. PIMCO
Advisors and its subsidiary partnerships had approximately $111.2 billion of
assets under management as of November 30, 1996.
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. For all of the
Funds except the Precious Metals Fund, PIMCO Advisors has engaged affiliates to
serve as Portfolio Managers.
Under the terms of the Advisory Agreement, PIMCO Advisors is obligated
to manage the Funds in accordance with applicable laws and regulations. The
investment advisory services of PIMCO Advisors to the Trust are not exclusive
under the terms of the Advisory Agreement. PIMCO Advisors is free to, and does,
render investment advisory services to others. The Advisory Agreement was last
approved by the Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Trust (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the Advisory Agreement or a party
thereto, at a meeting held on September 17, 1996.
The Advisory Agreement will continue in effect with respect to a Fund
for two years from its effective date, and thereafter on a yearly basis,
provided such continuance is approved annually (i) by the holders of a majority
of the outstanding voting securities of the Fund or by the Board of Trustees and
(ii) by a majority of the disinterested Trustees defined above. The Advisory
Agreement may be terminated without penalty by vote of the Trustees or the
shareholders of the Trust, or by the Adviser, on 60 days' written notice to the
other party and will terminate automatically in the event of its assignment. In
addition, the Advisory Agreement may be terminated with regard to the
Renaissance, Growth, Target, Opportunity, Innovation, Tax Exempt, International
and Precious Metals Funds by vote of a majority of the Trustees who are not
interested persons of PIMCO Advisors, on 60 days' written notice to PIMCO
Advisors.
The Adviser currently receives a monthly investment advisory fee from
each Fund at an annual rate based on average daily net assets of the Funds as
follows:
<TABLE>
<CAPTION>
Fund Advisory
- ---- Fee Rate
--------
<S> <C>
Tax Exempt Fund............................................. .30%
Equity Income, Value, Capital Appreciation,
Mid Cap Growth, Structured Emerging Markets,
Enhanced Equity and Balanced Funds......................... .45%
Growth Fund................................................. .50%
International and Target Funds.............................. .55%
Core Equity Fund............................................ .57%
Small Cap Value, Renaissance, Precious Metals
and International Developed Funds.......................... .60%
Mid Cap Equity Fund......................................... .63%
Opportunity and Innovation Funds............................ .65%
Emerging Markets Fund....................................... .85%
Small Cap Growth Fund....................................... 1.00%
Micro Cap Growth Fund....................................... 1.25%
</TABLE>
35
<PAGE>
For the fiscal years ended June 30, 1996, October 31, 1995, and
October 31, 1994 (the fiscal year ended June 30, 1996 being an eight-month
period) the following Funds paid the Adviser the following amounts under the
Advisory Contract:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 6/30/96 10/31/95 10/31/94
- ---- ------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $425,899 $445,739 $368,971
Value Fund 65,873 60,686 85,078
Small Cap Value Fund 156,721 203,158 214,936
Core Equity Fund 145,931 73,930 N/A
Mid Cap Equity Fund 35,315 26,276 N/A
Capital Appreciation Fund 883,498 881,358 595,724
Mid Cap Growth Fund 617,546 650,017 453,846
Micro Cap Growth Fund 669,726 609,540 251,431
Small Cap Growth Fund 426,098 594,905 456,981
Enhanced Equity Fund 274,512 319,036 267,252
Emerging Markets Fund 440,978 638,097 319,725
International Developed Fund 294,777 282,055 84,712
Balanced Fund 235,529 417,190 597,672
</TABLE>
In addition, the predecessors of the Renaissance, Growth, Target,
Opportunity, Innovation, International, Precious Metals and Tax Exempt Funds
(each of which is a former series of PAF which reorganized as the listed Fund of
the Trust on January 17, 1997) paid the Adviser the following amounts, as series
of PAF, for the fiscal years ended September 30, 1996, 1995 and 1994 under
separate management contracts between the Adviser and PAF on behalf of each such
predecessor:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 9/30/96 9/30/95 9/30/94
- ---- ------- ------- -------
<S> <C> <C> <C>
Renaissance Fund $1,627,632 $1,371,809 $1,191,587
Growth Fund 9,987,541 8,268,603 7,699,562
Target Fund 7,295,767 5,294,008 3,685,196
Opportunity Fund 6,183,575 5,000,057 4,796,571
Innovation Fund 1,063,584 265,836 N/A
International Fund 1,872,608 2,097,974 2,160,604
Precious Metals Fund 397,969 434,323 400,895
Tax Exempt Fund 333,349 369,918 489,220
</TABLE>
The Adviser received a total of $34,021,817, $26,739,075 and
$25,174,625 (including the amounts listed above) for advisory services rendered
to PAF for the fiscal years ended September 30, 1996, 1995 and 1994,
respectively. Amounts in addition to those listed above were paid by other
series of PAF which either merged into Funds of the Trust or merged
with/reorganized as series of PIMCO Funds: Pacific Investment Management Series,
an affiliated mutual fund family, in transactions which took place on
January 17, 1998.
36
<PAGE>
Portfolio Management Agreements
The Adviser employs Portfolio Managers to provide investment advisory
services to each Fund pursuant to portfolio management agreements (each a
"Portfolio Management Agreement") between the Adviser and the relevant Portfolio
Manager. Each Portfolio Manager is an affiliate of the Adviser except for Van
Eck Associates Corporation ("Van Eck"), which is an independent Portfolio
Manager that advises the Precious Metals Fund. The Adviser currently has six
subsidiary partnerships which manage the remaining Funds: Pacific Investment
Management, Parametric Portfolio Associates ("Parametric"), Cadence Capital
Management ("Cadence"), NFJ Investment Group ("NFJ"), Columbus Circle Investors
("Columbus Circle"), and Blairlogie Capital Management ("Blairlogie").
Pursuant to a Portfolio Management Agreement between the Adviser and
Pacific Investment Management, Pacific Investment Management is the Portfolio
Manager and provides investment advice and makes and implements investment
decisions with respect to the portion of the assets of the Balanced Fund
allocated by the Adviser for investment in fixed income securities. For the
services provided, the Adviser (not the Trust) pays Pacific Investment
Management a fee at an annual rate of .25% of the average daily net assets of
the portion of the Balanced Fund allocated to Pacific Investment Management for
investment in fixed income securities.
Pacific Investment Management is an investment management firm organized
as a general partnership. Pacific Investment Management has two partners: PIMCO
Advisors as the supervisory partner, and PIMCO Management, Inc. as the managing
partner. Pacific Investment Management Company, the predecessor investment
adviser to PIMCO, commenced operations in 1971. Pacific Investment Management is
located at 840 Newport Center Drive, Suite 360, Newport Beach, California 92660.
Pacific Investment Management also provides investment advisory services to the
PIMCO Funds, Harbor Fund, various funds advised by Frank Russell Investment
Management Company, Total Return Bond Portfolio and Intermediate Term Bond
Portfolio of Prudential Securities Target Portfolio Trust, Total Return Bond and
Limited Maturity Bond Portfolios of American Skandia Trust, Total Return Fund of
Fremont Mutual Fund, Inc., Managed Bond and Government Securities Series of
Pacific Select Fund, and the PaineWebber Short-Term U.S. Government Income Fund,
a series of PaineWebber Managed Investments Trust, all of which are open-end
management investment companies, to PIMCO Commercial Mortgage Securities Trust,
Inc. which is a closed-end management investment company, and to managed
accounts consisting of proceeds from pension and profit sharing plans. Pacific
Investment Management had approximately $88.8 billion of assets under management
as of November 30, 1996.
Pursuant to a Portfolio Management Agreement between the Adviser and
Parametric, Parametric is the Portfolio Manager and provides investment advisory
services to the Enhanced Equity and Structured Emerging Markets Funds. For the
services provided, the Adviser (not the Trust) pays Parametric a fee at an
annual rate based on a percentage of the average daily net assets of each of
these Funds as follows: .35% for the Enhanced Equity Fund and .35% for the
Structured Emerging Markets Fund.
Parametric is an investment management firm organized as a general
partnership. Parametric is the successor investment adviser to Parametric
Portfolio Associates, Inc., a wholly owned corporate subsidiary of PFAMCo.
Parametric has two partners: PIMCO Advisors as the supervisory partner, and
Parametric Management, Inc. as the managing partner. Parametric Portfolio
Associates, Inc., the predecessor investment adviser to Parametric, commenced
operations in 1987. Parametric is located at 7310 Columbia Center, 701 Fifth
Avenue, Seattle, Washington 98104-7090. Parametric provides investment
management services to a number of large accounts, such as employee benefit
plans, college endowment funds and foundations. Accounts managed by Parametric
had combined assets, as of November 30, 1996, of approximately $2 billion.
Pursuant to a Portfolio Management Agreement between the Adviser and
Cadence, Cadence is the Portfolio Manager and provides investment advisory
services to the Capital Appreciation Fund, the Mid Cap Growth Fund, the Micro
Cap Growth Fund, the Small Cap Growth Fund and a portion of the Balanced Fund
allocated by the Adviser for investment in common stocks. For the services
provided, the Adviser (not the Trust) pays Cadence a
37
<PAGE>
fee at an annual rate based on a percentage of the average daily net assets of
each of these Funds as follows: .35% for the Capital Appreciation Fund, the Mid
Cap Growth Fund, and the portion of the Balanced Fund allocated to Cadence for
investment in common stock, .90% for the Small Cap Growth Fund, and 1.15% for
the Micro Cap Growth Fund.
Cadence is an investment management firm organized as a general
partnership. Cadence is the successor investment adviser to Cadence Capital
Management Corporation, a wholly owned subsidiary of PFAMCo. 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. Cadence is located at Exchange Place, 53 State Street, Boston,
Massachusetts 02109. Cadence provides investment management services to a number
of large accounts, such as employee benefit plans, college endowment funds and
foundations. Accounts managed by Cadence had combined assets, as of November 30,
1996, of approximately $3.3 billion.
Pursuant to a Portfolio Management Agreement between the Adviser and
NFJ, NFJ is the Portfolio Manager and provides investment advisory services to
the Equity Income Fund, the Value Fund, the Small Cap Value Fund, and a portion
of the Balanced Fund allocated by the Adviser for investment in common stocks.
For the services provided, the Adviser (not the Trust) pays NFJ a fee at an
annual rate based on a percentage of the average daily net assets of each of
these Funds as follows: .35% for the Equity Income Fund, the Value Fund, and the
portion of the Balanced Fund allocated to NFJ for investment in common stock,
and .50% for the Small Cap Value Fund.
NFJ is an investment management firm organized as a general partnership.
NFJ is the successor investment adviser to NFJ Investment Group, Inc., a wholly
owned subsidiary of PFAMCo. 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. NFJ is located at 2121 San Jacinto, Suite 1840, Dallas,
Texas 75201. NFJ provides investment management services to a number of large
accounts, such as employee benefit plans, college endowment funds and
foundations. Accounts managed by NFJ had combined assets, as of November 30,
1996, of approximately $1.8 billion.
Pursuant to a Portfolio Management Agreement between the Adviser and
Columbus Circle, Columbus Circle is the Portfolio Manager and provides
investment advisory services to the Renaissance, Growth, Target, Opportunity,
Innovation, Tax Exempt, Core Equity and Mid Cap Equity Funds. For the services
provided, the Adviser (not the Trust) pays Columbus Circle a fee at an annual
rate based on a percentage of the average daily net assets of each of these
Funds as follows: .30% for the Tax Exempt Fund, .34% for the Growth Fund, .36%
for the Target Fund, .38% for the Renaissance Fund, .38% for the Innovation
Fund, .47% for the Core Equity Fund, .48% for the Opportunity Fund and .53% for
the Mid Cap Equity Fund.
Columbus Circle is an investment management firm organized as a general
partnership. Columbus Circle is the successor investment adviser to the Columbus
Circle Investors Division of Thomson Advisory Group L.P. ("TAG"). Columbus
Circle has two partners: PIMCO Advisors as the supervisory partner, and Columbus
Circle Investors Management, Inc. as the managing partner. Columbus Circle
Investors Division of TAG, Columbus Circle's ultimate predecessor, commenced
operations in 1975. Columbus Circle is located at Metro Center, One Station
Place, 8th Floor, Stamford, Connecticut 06902. Columbus Circle manages
discretionary accounts for institutions, such as corporate, government and union
pension and profit-sharing plans, foundations and educational institutions, as
well as the National Money Market Fund of CAT. Accounts managed by Columbus
Circle had combined assets, as of November 30, 1996, of $14.6 billion.
Pursuant to a Portfolio Management Agreement between the Adviser and
Blairlogie, Blairlogie is the Portfolio Manager and provides investment advisory
services to the International, International Developed and Emerging Markets
Funds. For the services provided, the Adviser (not the Trust) pays Blairlogie a
fee at an annual rate based on a percentage of the average daily net assets of
each of the Funds as follows: .40% for the International Fund, .50% for the
International Developed Fund and .75% for the Emerging Markets Fund.
38
<PAGE>
Blairlogie is an investment management firm, organized as a limited
partnership under the laws of Scotland, United Kingdom. Blairlogie is the
successor investment adviser to Blairlogie Capital Management Ltd., an indirect
subsidiary of PFAMCo, which commenced operations in 1992. Blairlogie has two
general partners and one limited partner. The general partners are PIMCO
Advisors, which serves as the supervisory partner, and Blairlogie Holdings
Limited, a wholly owned corporate subsidiary of PIMCO Advisors, which serves as
the managing partner. The limited partner is Blairlogie Partners L.P., a limited
partnership, the general partner of which is PFAMCo, and the limited partners of
which are the principal executive officers of Blairlogie Capital Management.
Blairlogie Partners L.P. has agreed with PIMCO Advisors that PIMCO Advisors will
acquire its 25% interest in four annual installments of 10%, 5%, 5% and 5%,
respectively, beginning December 31, 1997. Blairlogie is located at 4th Floor,
125 Princes Street, Edinburgh EH2 4AD, Scotland. Blairlogie provides investment
management services to a number of large accounts, such as employee benefit
plans, college endowment funds and foundations. Accounts managed by Blairlogie
had combined assets, as of November 30, 1996, of approximately $.7 billion.
Pursuant to a Portfolio Management Agreement between the Adviser and Van
Eck, Van Eck is the Portfolio Manager and provides investment advisory services
to the Precious Metals Fund. For the Services provided, the Adviser (not the
Trust) pays Van Eck a fee at an annual rate of .35% of the average daily net
assets of the Precious Metals Fund.
Van Eck is a Delaware corporation registered as an investment adviser
with the SEC. Van Eck, together with its affiliates, advises other mutual funds
and private accounts. Van Eck is controlled by John C. Van Eck who, along with
members of his immediate family, owns 100% of the stock of Van Eck. Van Eck is
located at 99 Park Avenue, New York, New York 10001. Accounts managed by Van Eck
had combined assets as of November 30, 1996 of approximately $1.7 billion.
PIMCO Advisors determines the allocation of the Balanced Fund's assets
among the various asset classes and types of securities, and manages the portion
of that Fund's assets allocated for investment in money market instruments.
For the fiscal years ended June 30, 1996, October 31, 1995, and
October 31, 1994 (the fiscal year ended June 30, 1996 being an eight-month
period), the amount of net portfolio management fees paid by the Adviser or its
predecessor to the applicable Portfolio Manager or its predecessor for each of
the Funds listed below was as follows:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 06/30/96 10/31/95 10/31/94
- ---- -------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $425,899 $445,739 $368,971
Value Fund 65,873 60,686 85,078
Small Cap Value Fund 156,721 203,158 214,936
Core Equity Fund 136,615 62,906 N/A
Mid Cap Equity Fund 23,814 13,832 N/A
Capital Appreciation Fund 883,498 881,358 595,724
Mid Cap Growth Fund 617,546 650,017 453,846
Micro Cap Growth Fund 669,726 609,540 251,431
Small Cap Growth Fund 426,098 594,905 456,981
Enhanced Equity Fund 274,512 319,036 267,252
Emerging Markets Fund 385,438 550,590 195,258
International Developed Fund 237,138 241,135 34,947
Balanced Fund 161,345 332,255 481,304
</TABLE>
39
<PAGE>
The Adviser paid the Portfolio Managers for the predecessors of the
Renaissance, Growth, Target, Opportunity, Innovation, International, Precious
Metals and Tax Exempt Funds (each of which is a former series of PAF which
reorganized as a Fund of the Trust on January 17, 1997) the following amounts
for the fiscal years ended September 30, 1996, 1995 and 1994 under separate
sub-adviser agreements between the Adviser and the relevant Portfolio Manager
(or its predecessor) on behalf of the predecessor series:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 09/30/96 09/30/95 09/30/94
- ---- -------- -------- --------
<S> <C> <C> <C>
Renaissance Fund $813,816.12 $ 595,500 $ N/A
Growth Fund 4,993,770.34 $3,634,403 N/A
Target Fund 3,647,883.70 2,353,106 N/A
Opportunity Fund 3,091,787.59 2,205,293 N/A
Innovation Fund 531,792.22 132,918 N/A
International Fund 936,304.11 889,339 1,080,302
Precious Metals Fund 198,984.74 217,162 200,448
Tax Exempt Fund 166,674.68 159,370 N/A
</TABLE>
Until November 1, 1994, none of the former PAF series retained
sub-advisers except for the Precious Metals and International Funds.
Sub-advisory fees for the International Fund for fiscal 1994 were paid to a
former sub-adviser to that Fund.
Fund Administrator
In addition to its services as Adviser, PIMCO Advisors serves as
administrator (and is referred to in this capacity as the "Administrator") to
the Funds pursuant to an administration agreement (the "Administration
Agreement") with the Trust. The Administrator provides or procures
administrative services to the Funds, which include clerical help and
accounting, bookkeeping, internal audit services and certain other services
required by the Funds, and preparation of reports to the Funds' shareholders and
regulatory filings. PIMCO Advisors has retained Pacific Investment Management,
as sub-administrator, to provide such services pursuant to a sub-administration
agreement (the "Sub-Administration Agreement"). PIMCO Advisors may also retain
other affiliates to provide such services. In addition, the Administrator
arranges at its own expense for the provision of legal, audit, custody, transfer
agency and other services necessary for the ordinary operation of 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. Under
the Administration Agreement, the Administrator has agreed to provide or procure
these services, and to bear these expenses, at the following annual rates for
each Fund (each expressed as a percentage of the Fund's average daily net assets
attributable to the indicated classes of shares on an annual basis):
40
<PAGE>
<TABLE>
<CAPTION>
Administrative Fee Rate
------------------------
Institutional and
Administrative Class A, Class B and
Fund Class Shares Class C Shares*
- ---- ------------ --------------
<S> <C> <C>
Emerging Markets, Structured .50% .65% of first $2.5 billion
Emerging Markets, International .60% of amounts in excess of $2.5 billion
Developed and International Funds
Precious Metals Fund .30% .45% of first $2.5 billion
.40% of amounts in excess of $2.5 billion
All Other Funds .25% .40% of first $2.5 billion
.35% of amounts in excess of $2.5 billion
</TABLE>
* For Class A, Class B and Class C shares, the Administrator receives
administrative fees based on a Fund's average daily net assets attributable
in the aggregate to the three classes.
Except for the expenses paid by the Administrator, the Trust bears all
costs of its operations. 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, Pacific Investment Management, or their subsidiaries or affiliates;
(ii) taxes and governmental fees; (iii) brokerage fees and commissions and other
portfolio transaction expenses; (iv) costs of borrowing money, including
interest expenses; (v) fees and expenses of the Trustees who are not "interested
persons" of the PIMCO Advisors, any Portfolio Manager, 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 principals; and
(viii) any expenses allocated or allocable to a specific class of shares
("Class-specific expenses").
Class-specific expenses include distribution and/or service fees payable
with respect to the Class A, Class B, Class C or Administrative Class shares and
may include certain other expenses as permitted by the Trust's Amended and
Restated Multi-Class Plan (the "Multi-Class Plan") adopted pursuant to Rule 18f-
3 under the 1940 Act, which is subject to review and approval by the Trustees.
It is not presently anticipated that any expenses other than distribution and/or
service fees will be allocated on a class-specific basis.
The Administration Agreement and Sub-Administration Agreement may be
terminated by the Trustees, PIMCO Advisors or Pacific Investment Management (as
the case may be) at any time on 60 days' written notice. In addition, the
Administration and Sub-Administration Agreements may be terminated with regard
to the Renaissance, Growth, Target, Opportunity, Innovation, Tax Exempt,
International and Precious Metals Funds by a majority of the Trustees that are
not interested persons of PIMCO Advisors or Pacific Investment Management (as
the case may be), on 60 days' written notice. Following their initial term of
two years, the Administration and Sub-Administration Agreements would continue
from year to year if approved by the Trustees.
The Administration Agreement is subject to annual approval by the Board
of Trustees, including a majority of the disinterested Trustees defined above.
The current Administration Agreement was last approved by the Board of Trustees,
including all of the disinterested Trustees, at a meeting held on September 17,
1996. In approving the Administration Agreement, the Trustees determined that:
(1) the Administration Agreement is in the best interests of the Funds and their
shareholders; (2) the services to be performed under the Administration
Agreement are services required for the operation of the Funds; (3) the
Administrator is able to provide, or to procure, services for the Funds which
are at least equal in nature and quality to services that could
41
<PAGE>
be provided by others; and (4) the fees to be charged pursuant to the
Administration Agreement are fair and reasonable in light of the usual and
customary charges made by others for services of the same nature and quality.
For the fiscal years ended June 30, 1996, October 31, 1995, and October
31, 1994 (the fiscal year ended June 30, 1996 being an eight-month period), the
aggregate amount of the administration fees paid by the Funds listed below (none
of which offered Class A, Class B or Class C shares during these periods) was as
follows:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 06/30/96 10/31/95 10/31/94
- ---- -------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $236,611 $247,633 $204,984
Value Fund 36,596 33,714 47,265
Small Cap Value Fund 65,176 84,649 89,556
Core Equity Fund 63,942 32,425 N/A
Mid Cap Equity Fund 14,011 10,427 N/A
Capital Appreciation Fund 490,803 489,643 330,958
Mid Cap Growth Fund 342,880 361,121 252,137
Micro Cap Growth Fund 133,934 121,908 50,286
Small Cap Growth Fund 106,715 148,726 114,245
Enhanced Equity Fund 151,842 177,243 148,474
Emerging Markets Fund 259,300 375,351 188,073
International Developed Fund 244,350 235,046 70,593
Balanced Fund 130,017 231,772 332,040
</TABLE>
The Renaissance, Growth, Target, Opportunity, Innovation, International,
Precious Metals and Tax Exempt Funds (each of which is a former series of PAF
which reorganized as a Fund of the Trust on January 17, 1997) received
administrative services during fiscal 1996, 1995 and 1994 under separate
management contracts between the Adviser and PAF on behalf of each such series.
See "Investment Adviser" above for the amounts paid to the Adviser under these
management contracts during fiscal 1996, 1995 and 1994.
DISTRIBUTION OF TRUST SHARES
Distributor and Multi-Class Plan
PIMCO Funds Distribution Company (the "Distributor") serves as the
distributor of each class of the Trust's shares pursuant to a distribution
contract ("Distribution Contract") with the Trust. The Distributor is a wholly
owned subsidiary of PIMCO Advisors. The Distribution Contract is terminable with
respect to a Fund or class without penalty, at any time, by the Fund or class by
not more than 60 days' nor less than 30 days' written notice to the Distributor,
or by the Distributor upon not more than 60 days' nor less than 30 days' written
notice to the Trust. The Distributor is not obligated to sell any specific
amount of Trust shares.
The Distribution Contract will continue in effect with respect to each
Fund and each class of shares thereof for successive one-year periods, provided
that each such continuance is specifically approved (i) by the vote of a
majority of the Trustees who are not interested persons of the Trust (as defined
in the 1940 Act) and who have no direct or indirect interest financial interest
in the Distribution Contract or the Distribution and/or Servicing Plans
described below and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose. If the
Distribution Contract is terminated (or not renewed) with respect to one or more
Funds or
42
<PAGE>
classes thereof, it may continue in effect with respect to any class of any Fund
as to which it has not been terminated (or has been renewed).
The Trust offers up to five classes of shares of each of the Funds:
Class A, Class B, Class C, Institutional Class and Administrative Class shares.
Class A, Class B and Class C shares of the Trust are offered through firms
("participating brokers") which are members of the National Association of
Securities Dealers, Inc. ("NASD"), and which have dealer agreements with the
Distributor, or which have agreed to act as introducing brokers for the
Distributor ("introducing brokers"). Shares of the Institutional Class are
offered primarily for direct investment by investors such as pension and profit
sharing plans, employee benefit trusts, endowments, foundations, corporations,
and high net worth individuals (Institutional Class shares may also be offered
through certain financial intermediaries that charge their customers transaction
or other fees with respect to the customers' investments in the Funds). Shares
of the Administrative Class are offered primarily through employee benefit plan
alliances, broker-dealers, and other intermediaries, and each Fund pays service
or distribution fees to such entities for services they provide to shareholders
of that class.
Under the Trust's Multi-Class Plan, shares of each class of each Fund
represent an equal pro rata interest in such Fund and, generally, have identical
voting, dividend, liquidation, and other rights preferences, powers,
restrictions, limitations, qualifications and terms and conditions, except that:
(a) each class has a different designation; (b) each class of shares bears any
class-specific expenses allocated to it; (c) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to its
distribution or service arrangements; and (d) each class has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class. In addition, each class may
have a differing sales charge structure, and differing exchange and conversion
features .
Contingent Deferred Sales Charge and Initial Sales Charge
As described in the Retail Prospectus under the caption "How to Redeem,"
a contingent deferred sales charge is imposed upon certain redemptions of Class
A, Class B and Class C shares. No contingent deferred sales charge is currently
imposed upon redemptions of Institutional Class or Administrative Class shares.
Because contingent deferred sales charges are calculated on a Fund-by-Fund
basis, shareholders should consider whether to exchange shares of one Fund for
shares of another Fund prior to redeeming an investment if such an exchange
would reduce the contingent deferred sales charge applicable to such redemption.
For the fiscal years ended September 30, 1995 and 1994, the Distributor
received an aggregate of $1,007,285 and $1,723,241, respectively, in contingent
deferred sales charges on Class C shares of series of PAF. During the fiscal
year ended September 30, 1996, the Distributor received the following amounts in
contingent deferred sales charges on Class C shares of the PAF series which
reorganized as the following Funds of the Trust: Renaissance - $12,809, Growth -
$124,264, Target - $89,334, Opportunity - $37,154, Innovation -$29,110,
International - $22,016, Precious Metals - $15,384 and Tax Exempt -$1,596. The
contingent deferred sales charge applicable to Class A and Class B shares was
not in effect through September 30, 1994 for these former series of PAF. For the
fiscal year ended September 30, 1995, the Distributor received $0 in contingent
deferred sales charges on Class A shares of series of PAF. During the fiscal
year ended September 30, 1996, the Distributor received the following amounts in
contingent deferred sales charges on Class A shares of the PAF series which
reorganized as the following Funds of the Trust: Growth - $9,168, Target -$14
and Opportunity - $4,190. For the fiscal year ended September 30, 1995, the
Distributor received an aggregate of $13,125 in contingent deferred sales
charges on Class B shares of series of PAF. During the fiscal year ended
September 30, 1996, the Distributor received the following amounts in contingent
deferred sales charges on Class B shares of the PAF series which reorganized as
the following Funds of the Trust: Renaissance - $8,722, Growth - $37,445,
Target-$31,670, Innovation - $36,477, International - $6,359, Precious Metals
- -$1,179 and Tax Exempt - $4,055.
In certain cases described in the Retail Prospectus, the contingent
deferred sales charge is waived on redemptions of Class A, Class B or Class C
shares for certain classes of individuals or entities on account of (i) the
43
<PAGE>
fact that the Trust's sales-related expenses are lower for certain of such
classes than for classes for which the contingent deferred sales charge is not
waived, (ii) waiver of the contingent deferred sales charge with respect to
certain of such classes is consistent with certain Internal Revenue Code
policies concerning the favored tax treatment of accumulations, and (iii) with
respect to certain of such cases, considerations of fairness, and competitive
and administrative factors.
As described in the Retail Prospectus under the caption "Alternative
Purchase Arrangements - Initial Sales Charge Alternative - Class A Shares,"
Class A shares of the Trust are sold pursuant to an initial sales charge, which
declines as the amount of the purchase reaches certain defined levels. For the
fiscal years ended September 30, 1995 and 1994, the Distributor received an
aggregate of $3,708,105 and $3,920,611, respectively, and retained an aggregate
of $366,062 and $371,079, respectively, in initial sales charges paid by
shareholders of series of PAF. During the fiscal year ended September 30, 1996,
the Distributor received the following amounts in initial sales charges paid by
shareholders of the PAF series which reorganized as the following Funds of the
Trust: Renaissance - $205,419, Growth - 549,330, Target - $852,363, Opportunity
- - $176,391, Innovation - $685,093, International - $91,177, Precious Metals -
$72,503 and Tax Exempt - $37,180, and retained the following amounts:
Renaissance - $27,477, Growth - $83,657, Target - $126,693, Opportunity -
$29,605, Innovation - $114,091, International - $13,871, Precious Metals -
$7,738 and Tax Exempt - $3,140.
Distribution and Servicing Plans for Class A, Class B and Class C Shares
As stated in the text of the Retail Prospectus under the caption
"Distributor and Distribution and Servicing Plans," Class A, Class B and Class C
shares of the Trust are continuously offered through participating brokers which
are members of the NASD and which have dealer agreements with the Distributor,
or which have agreed to act as introducing brokers.
Pursuant to separate Distribution and Servicing Plans for Class A,
Class B and Class C shares (the "Retail Plans"), as described in the Retail
Prospectus, the Distributor receives (i) in connection with the distribution of
Class B and Class C shares of the Trust, certain distribution fees from the
Trust, and (ii) in connection with personal services rendered to Class A, Class
B and Class C shareholders of the Trust and the maintenance of shareholder
accounts, certain servicing fees from the Trust. Subject to the percentage
limitations on these distribution and servicing fees set forth in the Retail
Prospectus, the distribution and servicing fees may be paid with respect to
services rendered and expenses borne in the past with respect to Class A, Class
B and Class C shares as to which no distribution and servicing fees were paid on
account of such limitations. As described in the Retail Prospectus, the
Distributor pays (i) all or a portion of the distribution fees it receives from
the Trust to participating and introducing brokers, and (ii) all or a portion of
the servicing fees it receives from the Trust to participating and introducing
brokers, certain banks and other financial intermediaries.
Each Retail Plan may be terminated with respect to any Fund to which
the Plan relates by vote of a majority of the Trustees who are not interested
persons of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or the Distribution
Contract ("disinterested Retail Plan Trustees"), or by vote of a majority of the
outstanding voting securities of the relevant class of that Fund. Any change in
any Retail Plan that would materially increase the cost to the class of shares
of any Fund to which the Plan relates requires approval by the affected class of
shareholders of that Fund. The Trustees review quarterly written reports of such
costs and the purposes for which such costs have been incurred. Each Retail Plan
may be amended by vote of the Trustees, including a majority of the
disinterested Retail Plan Trustees, cast in person at a meeting called for the
purpose. As long as the Retail Plans are in effect, selection and nomination of
those Trustees who are not interested persons of the Trust shall be committed to
the discretion of such disinterested Trustees.
The Retail Plans will continue in effect with respect to each Fund and
each class of shares thereof for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of a majority of the
disinterested Retail Plan Trustees and (ii) by the vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that purpose.
44
<PAGE>
If a Retail Plan is terminated (or not renewed) with respect to one or
more Funds, it may continue in effect with respect to any class of any Fund as
to which it has not been terminated (or has been renewed).
The Retail Plans went into effect for the Funds in January 1997 and no
payments were made thereunder prior to the date of this Statement of Additional
Information.
For the fiscal years ended September 30, 1996, 1995 and 1994, PAF paid
the Distributor an aggregate of $41,704,155, $34,667,013, and $33,696,037,
respectively, pursuant to a similar Distribution and Servicing Plan (the "PAF
Class C Plan") applicable to the Class C shares of PAF. Such payments were
allocated among the predecessors of the following Funds (each of which was
formerly a PAF Fund which reorganized as a series of the Trust on January 17,
1997) as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Renaissance $ 1,965,449 $ 1,694,012 $ 1,475,042
Growth 13,593,775 11,397,447 10,702,536
Target 8,684,223 6,402,149 4,419,960
Opportunity 7,455,633 5,976,316 5,720,431
Innovation 899,377 229,411 N/A
International 1,858,512 2,422,761 2,493,832
Precious Metals 430,849 490,116 455,351
Tax Exempt 499,738 589,843 786,687
</TABLE>
The remainder of the total payments made under the PAF Class C Plan
for such fiscal years was allocated among other series of PAF which either
merged with Funds of the Trust or merged with/reorganized as series of PIMCO
Funds: Pacific Investment Management Series, an affiliated mutual fund family,
in transactions which took place on January 17, 1997.
During the fiscal year ended September 30, 1996, the amounts collected
pursuant to the PAF Class C Plan and the contingent deferred sales charge
imposed on Class C shares of the former PAF Funds were used as follows by the
Distributor: sales commissions and other compensation to sales personnel,
$32,453,000; preparing, printing and distributing sales material and advertising
(including preparing, printing and distributing prospectuses to non-
shareholders), and other expenses (including data processing, legal and
operations), $8,605,000. The total, if allocated among the predecessors of the
Funds listed below, based on the net assets attributable to their Class C shares
at September 30, 1996, would have been as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
------------ -------------- -----
<S> <C> <C> <C>
Renaissance $1,613,000 $428,000 $2,041,000
Growth 10,170,000 2,697,000 12,867,000
Target 6,837,000 1,813,000 8,650,000
Opportunity 5,612,000 1,488,000 7,100,000
Innovation 966,000 256,000 1,222,000
International 1,427,000 379,000 1,806,000
Precious Metals 264,000 70,000 334,000
Tax Exempt 330,000 88,000 418,000
</TABLE>
45
<PAGE>
During the fiscal year ended September 30, 1996, unreimbursed expenses
of PAF's principal underwriter under the PAF Class C Plan were reduced from
$4,191,000 to $2,822,000.
For the fiscal years ended September 30, 1996, 1995 and 1994, PAF paid
the Distributor an aggregate of $1,556,119, $1,064,958 and $868,789,
respectively, pursuant to a Distribution and Servicing Plan applicable to the
Class A shares of PAF (the "PAF Class A Plan"), which is similar to the Class A
Retail Plan of the Trust. Such payments were allocated among the predecessors of
the following Funds (each of which was formerly a PAF Fund which reorganized as
a series of the Trust on January 17, 1997) as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Renaissance $ 38,973 $ 33,249 $ 28,435
Growth 351,506 289,263 247,275
Target 338,598 251,511 175,437
Opportunity 308,794 255,940 247,239
Innovation 88,089 28,918 N/A
International 42,411 49,788 51,731
Precious Metals 21,416 22,178 19,794
Tax Exempt 10,288 6,485 7,170
</TABLE>
The remainder of the total payments made under the PAF Class A Plan
for such fiscal years was allocated among other series of PAF which either
merged with Funds of the Trust or merged with/reorganized as series of PIMCO
Funds: Pacific Investment Management Series, an affiliated mutual fund family,
in transactions which took place on January 17, 1997.
During the fiscal year ended September 30, 1996, the amounts collected
pursuant to the PAF Class A Plan were used as follows: commissions and other
compensation to dealers, $1,786,000; preparing, printing and distributing
materials to shareholders, and other expenses (including data processing, legal
and operations), $2,483,000. The total, if allocated among the predecessors of
the Funds listed below, based on the net assets attributable to their Class A
shares at September 30, 1996, would have been as follows:
<TABLE>
<CAPTION>
Distribution
of Materials
and Other
Compensation Expenses Total
------------ ------------ -----
<S> <C> <C> <C>
Renaissance $49,000 $68,000 $117,000
Growth 359,000 499,000 858,000
Target 370,000 515,000 885,000
Opportunity 320,000 445,000 765,000
Innovation 119,000 165,000 284,000
International 48,000 66,000 114,000
Precious Metals 15,000 21,000 36,000
Tax Exempt 14,000 19,000 33,000
</TABLE>
46
<PAGE>
For the fiscal years ended September 30, 1996 and 1995, PAF paid the
Distributor an aggregate of $1,839,931 and $87,552, respectively, pursuant to a
Distribution and Servicing Plan applicable to the Class B shares of PAF (the
"PAF Class B Plan") which is similar to the Class B Retail Plan of the Trust.
Such payments were allocated among the predecessors of the following Funds (each
of which was formerly a PAF Fund which reorganized as a series of the Trust on
January 17, 1997) as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
Renaissance $ 62,195 $ 2,071
Growth 211,778 12,583
Target 241,125 11,816
Opportunity N/A N/A
Innovation 166,747 9,364
International 289,719 555
Precious Metals 14,083 270
Tax Exempt 14,673 745
</TABLE>
The remainder of the total payments made under the PAF Class B Plan
for such fiscal years was allocated among other series of PAF which either
merged with Funds of the Trust or merged with/reorganized as series of PIMCO
Funds: Pacific Investment Management Series, an affiliated mutual fund family,
in transactions which took place on January 17, 1997.
During the fiscal year ended September 30, 1996, the amounts collected
pursuant to the PAF Class B Plan and the contingent deferred sales charge
imposed on Class B shares of the former PAF Funds were used as follows by the
Distributor: sales commissions and other compensation to sales personnel,
$8,961,000; preparing, printing and distributing sales material and advertising
(including preparing, printing and distributing prospectuses to non-
shareholders), and other expenses (including data processing, legal and
operations), $2,003,000. The total, if allocated among the predecessors of the
Funds listed below, based on the net assets attributable to their Class B shares
at September 30, 1996, would have been as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
------------ -------- -----
<S> <C> <C> <C>
Renaissance $488,000 $109,000 $597,000
Growth 1,158,000 259,000 1,417,000
Target 1,549,000 346,000 1,895,000
Opportunity 0 0 0
Innovation 1,050,000 235,000 1,285,000
International 183,000 41,000 224,000
Precious Metals 69,000 15,000 84,000
Tax Exempt 70,000 16,000 86,000
</TABLE>
The Trustees believe that the Retail Plans will provide benefits to
the Trust. In this regard, the Trustees believe that the Retail Plans will
result in greater sales and/or fewer redemptions of Trust shares, although it is
47
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impossible to know for certain the level of sales and redemptions of Trust
shares that would occur in the absence of the Retail Plans or under alternative
distribution schemes. Although the Funds' expenses are essentially fixed, the
Trustees believe that the effect of the Retail Plans on sales and/or redemptions
may benefit the Trust by reducing Fund expense ratios and/or by affording
greater flexibility to Portfolio Managers. From time to time, expenses of the
Distributor incurred in connection with the sale of Class B and Class C shares
of the Funds, and in connection with the servicing of Class B and Class C
shareholders of the Funds and the maintenance of shareholder accounts, may
exceed the distribution and servicing fees collected by the Distributor. The
Trustees consider such unreimbursed amounts, among other factors, in determining
whether to cause the Funds to continue payments of distribution and servicing
fees in the future with respect to Class B and Class C shares.
Distribution and Administrative Services Plans for Administrative Class Shares
The Trust has adopted an Administrative Services Plan with respect to
the Administrative Class shares of each Fund and a Distribution Plan (together
with the Administrative Services Plan, the "Administrative Plans") with respect
to the Administrative Class shares of each Fund except the Emerging Markets,
Capital Appreciation and Mid Cap Growth Funds, which are not subject to such
Distribution Plan. Under the terms of each Administrative Plan, the Trust is
permitted to reimburse, out of the assets attributable to the Administrative
Class shares of each applicable Fund, in an amount up to 0.25% on an annual
basis of the average daily net assets of that class, financial intermediaries
that provide services in connection with the distribution of Administrative
Class shares or administration of plans or programs that use Administrative
Class shares of the Funds as their funding medium, and to reimburse certain
other distribution related expenses. Under the terms of the Administrative Class
Distribution Plan, these services may include, but are not limited to, the
following: providing facilities to answer questions from prospective investors
about a Fund; receiving and answering correspondence, including requests for
prospectuses and statements of additional information; preparing, printing and
delivering prospectuses and shareholder reports to prospective shareholders;
complying with federal and state securities laws pertaining to the sale of
Administrative Class shares; and assisting investors in completing application
forms and selecting dividend and other account options.
Under the terms of the Administrative Services Plan, the services may
include, but are not limited to, the following: receiving, aggregating and
processing shareholder orders; furnishing shareholder sub-accounting; providing
and maintaining elective shareholder services such as check writing and wire
transfer services; providing and maintaining pre-authorized investment plans;
communicating periodically with shareholders; acting as the sole shareholder of
record and nominee for shareholders; maintaining accounting records for
shareholders; answering questions and handling correspondence from shareholders
about their accounts; and performing similar account administrative services.
The same entity may be the recipient of fees under both the
Administrative Class Distribution Plan and the Administrative Services Plan, but
may not receive fees under both plans with respect to the same assets.
Each Administrative Plan provides that it may not be amended to
materially increase the costs which Administrative Class shareholders may bear
under the Plan without the approval of a majority of the outstanding voting
securities of the Administrative Class, and by vote of a majority of both (i)
the Trustees of the Trust and (ii) those Trustees ("disinterested Administrative
Plan Trustees") who are not "interested persons" of the Trust (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of the Plan or any agreements related to it, cast in person at a meeting called
for the purpose of voting on the Plan and any related amendments.
Each Administrative Plan provides that it may not take effect until
approved by vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Administrative Plan Trustees. The Administrative Class
Distribution Plan further provides that it may not take effect unless approved
by the vote of a majority of the outstanding voting securities of the
Administrative Class. The Administrative Plans were approved by the Trustees,
including the disinterested Trustees, at a meeting held on September 17, 1996.
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Each Administrative Plan provides that it shall continue in effect so
long as such continuance is specifically approved at least annually by the
Trustees and the disinterested Administrative Plan Trustees. Each Administrative
Plan provides that any person authorized to direct the disposition of monies
paid or payable by a class pursuant to the Plan or any related agreement shall
provide to the Trustees, and the Board shall review at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
Each Administrative Plan provides that expenses payable under the Plan
may be carried forward for reimbursement for up to twelve months beyond the date
in which the expense is incurred, subject to the limit that not more than 0.25%
of the average daily net assets of Administrative Class shares may be used in
any month to pay expenses under the Plan. Each Plan requires that Administrative
Class shares incur no interest or carrying charges.
Rules of the NASD limit the amount of distribution fees that may be paid
by mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to both Administrative Plans will qualify as
"service fees" and therefore will not be limited by NASD rules.
The Administrative Plans were not in effect prior to the date of this
Statement of Additional Information and no payments were made thereunder in
prior fiscal periods.
Purchases, Exchanges and Redemptions
Purchases, exchanges and redemptions of Class A, Class B and Class C
shares are discussed in the Retail Prospectus under the headings "How to Buy
Shares," "Exchange Privilege," and "How to Redeem," and that information is
incorporated herein by reference. Purchases, exchanges and redemptions of
Institutional Class and Administrative Class shares are discussed in the
Institutional Prospectus under the headings "Purchase of Shares," "Redemption of
Shares," and "Net Asset Value," and that information is incorporated herein by
reference.
Certain clients of the Adviser or a Portfolio Manager whose assets would
be eligible for purchase by one or more of the Funds may purchase shares of the
Trust with such assets. Assets so purchased by a Fund will be valued in
accordance with procedures adopted by the Board of Trustees.
One or more classes of shares of the Funds may not be qualified or
registered for sale in all States. Prospective investors should inquire as to
whether shares of a particular Fund or class are available for offer and sale in
their state of domicile or residence. Shares of a Fund may not be offered or
sold in any State unless registered or qualified in that jurisdiction, unless an
exemption from registration or qualification is available.
As described in the Retail Prospectus under the caption "Exchange
Privilege," and in the Institutional Prospectus under the caption "Redemption of
Shares," a shareholder may exchange shares of any Fund for shares of any other
Fund of the Trust that is available for investment or any series of PIMCO Funds:
Pacific Investment Management Series, a mutual fund family advised by Pacific
Investment Management, within the same class on the basis of their respective
net asset values. The original purchase date(s) of shares exchanged for purposes
of calculating any contingent deferred sales charge will carry over to the
investment in the new Fund. For example, if a shareholder invests in the Class C
shares of one Fund and 6 months later (when the contingent deferred sales charge
upon redemption would normally be 1%) exchanges his shares for Class C shares of
another Fund, no sales charge would be imposed upon the exchange but the
investment in the other Fund would be subject to the 1% contingent deferred
sales charge until one year after the date of the shareholder's investment in
the first Fund as described in the Retail Prospectus under "Alternative Purchase
Arrangements." With respect to Class B or Class C shares, or Class A shares
subject to a contingent deferred sales charge, if less than all of an investment
is exchanged, any portion of the investment attributable to capital appreciation
and/or reinvested dividends or capital gains distributions will be exchanged
first, and thereafter any portions exchanged will be from the earliest
investment made in the Fund from which the exchange was made.
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Orders for exchanges accepted prior to the close of regular trading on
the New York Stock Exchange on any day the Trust is open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after the close of regular
trading on the New York Stock Exchange on any business day will be executed at
the respective net asset values determined at the close of the next business
day.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to adopt a policy of terminating the exchange privilege of any
shareholder who makes more than a specified number of exchanges in a 12-month
period or in any calendar quarter. The Trust reserves the right to modify or
discontinue the exchange privilege at any time.
The Trust reserves the right to suspend or postpone redemptions during
any period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed for other than customary
weekend and holiday closings; (b) the SEC has by order permitted such
suspension; or (c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
Due to the relatively high cost of maintaining smaller accounts, the
Trust reserves the right to redeem Institutional Class or Administrative Class
shares in any account for their then-current value (which will be promptly paid
to the investor) if at any time, due to shareholder redemption, the shares in
the account do not have a value of at least $100,000. An investor will be
notified that the value of the account is less than the minimum and allowed at
least 30 days to bring the value of the account up to at least $100,000 before
the redemption is processed. The Trust's Agreement and Declaration of Trust, as
amended and restated (the "Declaration of Trust"), also authorizes the Trust to
redeem shares under certain other circumstances as may be specified by the Board
of Trustees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions
Investment decisions for the Trust and for the other investment
advisory clients of the Adviser and Portfolio Managers are made with a view to
achieving their respective investment objectives. Investment decisions are the
product of many factors in addition to basic suitability for the particular
client involved (including the Trust). Thus, a particular security may be bought
or sold for certain clients even though it could have been bought or sold for
other clients at the same time. Likewise, a particular security may be bought
for one or more clients when one or more clients are selling the security. In
some instances, one client may sell a particular security to another client. It
also sometimes happens that two or more clients simultaneously purchase or sell
the same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in the Adviser's or the Portfolio Manager's opinion is equitable
to each and in accordance with the amount being purchased or sold by each. There
may be circumstances when purchases or sales of portfolio securities for one or
more clients will have an adverse effect on other clients.
Brokerage and Research Services
There is generally no stated commission in the case of fixed income
securities, which are traded in the over-the-counter markets, but the price paid
by the Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Trust of negotiated brokerage commissions. Such commissions vary among different
brokers. Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of
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the transaction. Transactions in foreign securities generally involve the
payment of fixed brokerage commissions, which are generally higher than those in
the United States.
The Adviser and each Portfolio Manager places orders for the purchase
and sale of portfolio securities, options and futures contracts for the relevant
Fund and buys and sells such securities, options and futures for the Trust
through a substantial number of brokers and dealers. In so doing, the Adviser or
a Portfolio Manager uses its best efforts to obtain for the Trust the most
favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions as described below. In seeking the
most favorable price and execution, the Adviser or Portfolio Manager, having in
mind the Trust's best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealer involved and the quality
of service rendered by the broker-dealer in other transactions.
For the fiscal years ended June 30, 1996, October 31, 1995, and October
31, 1994 (the fiscal year ended June 30, 1996 being an eight-month period), the
following amounts of brokerage commissions were paid by the Funds listed below:
<TABLE>
<CAPTION>
Year Year Year
Fund Ended Ended Ended
- ---- 6/30/96 10/31/95 10/31/94
------- -------- ---------
<S> <C> <C> <C>
Equity Income Fund $221,694 $170,712 $172,646
Value Fund 65,062 39,801 39,671
Small Cap Value Fund 74,170 74,739 115,477
Capital Appreciation Fund 467,569 411,595 368,018
Mid Cap Growth Fund 382,764 332,045 258,765
Micro Cap Growth Fund 124,194 202,678 118,750
Small Cap Growth Fund 76,333 111,918 87,362
Enhanced Equity Fund 114,363 47,226 106,389
Emerging Markets Fund 622,328 1,061,823 618,574
International Developed Fund 306,741 301,313 150,878
Balanced Fund 95,606 32,346 108,394
Core Equity Fund 57,047 40,203 N/A
Mid Cap Equity Fund 16,961 20,084 N/A
</TABLE>
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For the fiscal years ended September 30, 1996, 1995 and 1994, the
following amounts of brokerage commissions were paid by the predecessors of the
Funds listed below (each of which was a series of PAF during such periods and
reorganized as a Fund of the Trust on January 17, 1997):
<TABLE>
<CAPTION>
Year Year Year
Fund Ended Ended Ended
- ---- 9/30/96 9/30/95 9/30/94
------- ------- -------
<S> <C> <C> <C>
Renaissance Fund $993,617 $605,124 $420,738
Growth Fund 2,985,777 3,500,524 3,317,272
Target Fund 3,080,238 2,289,076 2,156,801
Opportunity Fund 1,757,263 1,728,282 1,130,760
Innovation Fund 228,473 84,173 N/A
International Fund 1,530,476 2,727,326 1,277,327
Precious Metals Fund 79,838 48,592 124,474
Tax Exempt Fund 0 0 0
</TABLE>
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Adviser and Portfolio Managers receive research services from many
broker-dealers with which the Adviser and Portfolio Managers place the Trust's
portfolio transactions. These services, which in some cases may also be
purchased for cash, include such matters as general economic and security market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services are of value to the Adviser and Portfolio Managers in advising various
of their clients (including the Trust), although not all of these services are
necessarily useful and of value in managing the Trust. The advisory fees paid by
the Trust are not reduced because the Adviser and Portfolio Managers receive
such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), the Adviser or Portfolio Manager may cause the
Trust to pay a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to the Adviser or Portfolio Manager an amount of
disclosed commission for effecting a securities transaction for the Trust in
excess of the commission which another broker-dealer would have charged for
effecting that transaction.
Consistent with the Rules of the NASD and subject to seeking the most
favorable price and execution available and such other policies as the Trustees
may determine, the Adviser or Portfolio Manager may also consider sales of
shares of the Trust as a factor in the selection of broker-dealers to execute
portfolio transactions for the Trust.
The Adviser or a Portfolio Manager may place orders for the purchase
and sale of exchange-listed portfolio securities with a broker-dealer that is an
affiliate of the Adviser or Portfolio Manager where, in the judgment of the
Adviser or Portfolio Manager, such firm will be able to obtain a price and
execution at least as favorable as other qualified broker-dealers.
Pursuant to rules of the SEC, a broker-dealer that is an affiliate of
the Adviser or a Portfolio Manager may receive and retain compensation for
effecting portfolio transactions for a Fund on a national securities exchange of
which the broker-dealer is a member if the transaction is "executed" on the
floor of the exchange by another broker
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<PAGE>
which is not an "associated person" of the affiliated broker-dealer, and if
there is in effect a written contract between the Adviser or Portfolio Manager
and the Trust expressly permitting the affiliated broker-dealer to receive and
retain such compensation.
SEC rules further require that commissions paid to such an affiliated
broker-dealer, the Adviser, or Portfolio Manager by a Fund on exchange
transactions not exceed "usual and customary brokerage commissions." The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time."
Portfolio Turnover
The Adviser and Portfolio Managers manage the portfolios of the Funds
without regard generally to restrictions on portfolio turnover, except those
imposed on their ability to engage in short-term trading by provisions of the
federal tax laws, see "Taxation." The use of futures contracts and other
derivative instruments with relatively short maturities may tend to exaggerate
the portfolio turnover rate for some of the Funds. Trading in fixed income
securities does not generally involve the payment of brokerage commissions, but
does involve indirect transaction costs. The use of futures contracts may
involve the payment of commissions to futures commission merchants. The higher
the rate of portfolio turnover of a Fund, the higher these transaction costs
borne by the Fund generally will be.
The portfolio turnover rate of a Fund is calculated by dividing (a) the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by (b) the monthly average of the value of the portfolio securities owned
by the Fund during the particular fiscal year. In calculating the rate of
portfolio turnover, there is excluded from both (a) and (b) all securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less.
NET ASSET VALUE
As indicated in the Retail Prospectus under the heading "How Net Asset
Value is Determined" and in the Institutional Prospectus under the heading "Net
Asset Value," the Trust's net asset value per share for the purpose of pricing
purchase and redemption orders is determined at 4:00 p.m. (Eastern time) on each
day the New York Stock Exchange is open for trading. Net asset value will not be
determined on the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
The value of portfolio securities that are traded on stock exchanges
outside the United States is based upon the price on the exchange as of the
close of business of the exchange immediately preceding the time of valuation.
Securities traded in over-the-counter markets in European and Pacific Basin
countries are normally completed well before 4:00 p.m. (Eastern time). In
addition, European and Pacific Basin securities trading may not take place on
all business days in New York. Furthermore, trading takes place in Japanese
markets on certain Saturdays and in various foreign markets on days which are
not business days in New York and on which net asset value of these Funds is not
calculated. The calculation of the net asset value of certain Funds that invest
in foreign securities may not take place contemporaneously with the
determination of the prices of portfolio securities used in such calculation. If
events materially affecting the values of portfolio securities occur between the
time their prices are determined and 4:00 p.m. (Eastern time), then these
securities will be valued at fair value as determined by the management and
approved in good faith by the Board of Trustees.
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<PAGE>
TAXATION
The following discussion is general in nature and should not be
regarded as an exhaustive presentation of all possible tax ramifications. All
shareholders should consult a qualified tax adviser regarding their investment
in a Fund.
Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). To qualify as a regulated investment company,
each Fund generally must, among other things, (a) derive in each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies ("Qualifying
Income Test"); (b) derive in each taxable year less than 30% of its gross income
from the sale or other disposition of certain assets held less than three
months, namely (1) stocks or securities, (2) options, futures, or forward
contracts (other than those on foreign currencies), and (3) foreign currencies
(or options, futures, and forward contracts on foreign currencies) not directly
related to the Fund's principal business of investing in stock or securities;
(c) diversify its holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of the Fund's assets is represented
by cash, U.S. Government securities, securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer or of
two or more issuers which the Fund controls and which are engaged in the same,
similar or related trades or businesses; and (d) distribute each taxable year
the sum of (i) at least 90% of its investment company taxable income (which
includes dividends, interest and net short-term capital gains in excess of any
net long-term capital losses) and (ii) 90% of its tax exempt interest, net of
expenses allocable thereto. Under the 30% of gross income test described above,
the Fund will be restricted from selling certain assets held (or considered
under Code rules to have been held) for less than three months, and in engaging
in certain hedging transactions (including hedging transactions in futures and
options) that in some circumstances could cause certain Fund assets to be
treated as held for less than three months. By so qualifying, each Fund will not
be subject to federal income taxes to the extent that its net investment income,
net realized short-term capital gains and net realized long-term capital gains
are distributed. In addition, the Treasury Department is authorized to
promulgate regulations under which gains from foreign currencies (and options,
futures, and forward contracts on foreign currency) would constitute qualifying
income for purposes of the Qualifying Income Test only if such gains are
directly relating to investing in securities.
To date, such regulations have not been issued.
The Tax Exempt Fund must have at least 50% of its total assets invested
in Tax Exempt Bonds at the end of each calendar quarter so that dividends
derived from its net interest income on Tax Exempt Bonds and so designated by
the Fund will be "exempt-interest dividends," which are exempt from federal
income tax when received by an investor. Certain exempt-interest dividends, as
described in the Retail Prospectus, may increase alternative minimum taxable
income for purposes of determining a shareholder's liability for the alternative
minimum tax. In addition, exempt-interest dividends allocable to interest from
certain "private activity bonds" will not be tax exempt for purposes of the
regular income tax to shareholders who are "substantial users" of the facilities
financed by such obligations or "related persons" of such "substantial users."
The tax-exempt portion of dividends paid for a calendar year constituting
"exempt-interest dividends" will be designated after the end of that year and
will be based upon the ratio of net tax-exempt income to total net income earned
by the Fund during the entire year. That ratio may be substantially different
than the ratio of net tax-exempt income to total net income earned during a
portion of the year. Thus, an investor who holds shares for only a part of the
year may be allocated more or less tax-exempt interest dividends than would be
the case if the allocation were based on the ratio of net tax-exempt income to
total net income actually earned by the Fund while the investor was a
shareholder. All or a portion of interest on indebtedness incurred or continued
by a shareholder to purchase or carry shares of the Tax Exempt Fund will not be
deductible by the shareholder. The portion of interest that is not deductible is
equal to the total interest paid or accrued on the
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indebtedness multiplied by the percentage of the Fund's total distributions (not
including distributions of the excess of net long-term capital gains over net
short-term capital losses) paid to the shareholder that are exempt-interest
dividends. Under rules used by the Internal Revenue Service for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to have been made
with borrowed funds even though such funds are not directly traceable to the
purchase of shares.
Shareholders of the Tax Exempt Fund receiving social security or
railroad retirement benefits may be taxed on a portion of those benefits as a
result of receiving tax exempt income (including exempt-interest dividends
distributed by the Fund). The tax may be imposed on up to 50% of a recipient's
benefits in cases where the sum of the recipient's adjusted gross income (with
certain adjustments, including tax-exempt interest), exceeds a base amount. In
addition, up to 85% of a recipient's benefits may be subject to tax if the
recipient's adjusted gross income (with certain adjustments, including
tax-exempt interest), exceeds a higher base amount. Shareholders receiving
social security or railroad retirement benefits should consult with their tax
advisors.
In years when a Fund distributes amounts in excess of its earnings and
profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of reducing
the shareholder's basis in the shares. Since certain of the Tax Exempt Fund's
expenses attributable to earning tax-exempt income do not reduce such Fund's
current earnings and profits, it is possible that distributions, if any, in
excess of such Fund's net tax-exempt and taxable income will be treated as
taxable dividends to the extent of such Fund's remaining earnings and profits
(i.e., the amount of such expenses).
The proper tax treatment of income or loss realized by the Precious
Metals Fund from the retirement or sale of a Metal-Indexed Note is unclear. The
Precious Metals Fund will report such income or loss as capital or ordinary
income or loss in a manner consistent with any Internal Revenue Service position
on the subject following the publication of such a position. Gain or loss from
the sale or exchange of preferred stock indexed to the price of a natural
resource is expected to be capital gain or loss to the Precious Metals Fund.
Distributions
As a regulated investment company, a Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income and net
capital gains (any net long-term capital gains in excess of the sum of net
short-term capital losses and capital loss carryovers from prior years)
designated by the Fund as capital gain dividends, if any, that it distributes to
shareholders on a timely basis. Each Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and any net capital gains. In addition, amounts not distributed
by a Fund on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To avoid the tax, a
Fund must distribute during each calendar year an amount equal to the sum of (1)
at least 98% of its ordinary income (not taking into account any capital gains
or losses) for the calendar year, (2) at least 98% of its capital gains in
excess of its capital losses (and adjusted for certain ordinary losses) for the
twelve month period ending on October 31 of the calendar year, and (3) all
ordinary income and capital gains for previous years that were not distributed
during such years. A distribution will be treated as paid on December 31 of the
calendar year if it is declared by a Fund in October, November or December of
that year to shareholders of record on a date in such a month and paid by the
Fund during January of the following year. Such distributions will be taxable to
shareholders (other than those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received. To avoid application of the excise
tax, each Fund intends to make its distributions in accordance with the calendar
year distribution requirement.
The tax status of each Fund and the distributions which it may make are
summarized in the Retail Prospectus under the captions "Distributions" and
"Taxes" and in the Institutional Prospectus under the caption "Dividends,
Distributions and Taxes." Except for exempt-interest dividends paid by the Tax
Exempt Fund, all dividends and distributions of a Fund, whether received in
shares or cash, are taxable and must be reported on each shareholder's federal
income tax return. Distributions received by tax-exempt shareholders will not be
subject to
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federal income tax to the extent permitted under the applicable tax exemption. A
dividend or capital gains distribution received after the purchase of a Fund's
shares reduces the net asset value of the shares by the amount of the dividend
or distribution and will be subject to federal income taxes.
A portion of the dividends paid by Funds that invest in stock of U.S.
corporations may qualify for the deduction for dividends received by
corporations. Dividends paid by the other Funds generally are not expected to
qualify for the deduction for dividends received by corporations. Distributions
of net capital gains, if any, designated as capital gain dividends, are taxable
as long-term capital gains, regardless of how long the shareholder has held a
Fund's shares and are not eligible for the dividends received deduction. Any
distributions that are not from a Fund's investment company taxable income or
net realized capital gains may be characterized as a return of capital to
shareholders or, in some cases, as capital gain. The tax treatment of dividends
and distributions will be the same whether a shareholder reinvests them in
additional shares or elects to receive them in cash.
Sales of Shares
Upon the disposition of shares of a Fund (whether by redemption, sale
or exchange), a shareholder will realize a gain or loss. Such gain or loss will
be capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Any loss realized on a disposition
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a
disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.
Backup Withholding
A Fund may be required to withhold 31% of all taxable distributions
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code generally are exempt from such backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal tax liability.
Options, Futures, Forward Contracts and Swap Agreements
Some of the options, futures contracts, forward contracts, and swap
agreements used by the Funds may be "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally considered 60% long-term and 40%
short-term capital gains or losses ("60/40") although certain foreign currency
gains and losses from such contracts may be treated as ordinary in character.
Also, section 1256 contracts held by a Fund at the end of each taxable year
(and, for purposes of the 4% excise tax, on certain other dates as prescribed
under the Code) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as ordinary or 60/40 gain or loss.
Generally, the hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by a Fund, may result in
"straddles" for U.S. federal income tax purposes. In some cases, the straddle
rules also could apply in connection with swap agreements. The straddle rules
may affect the character of gains (or losses) realized by a Fund. In addition,
losses realized by a Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures,
forward contracts, and swap agreements
56
<PAGE>
to a Fund are not entirely clear. The transactions may increase the amount of
short-term capital gain realized by a Fund which is taxed as ordinary income
when distributed to shareholders.
A Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
Rules governing the tax aspects of swap agreements are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Emerging Markets, Structured Emerging Markets, International Developed and
Balanced Funds intend to account for such transactions in a manner they deem to
be appropriate, the Internal Revenue Service might not accept such treatment. If
it did not, the status of a Fund as a regulated investment company might be
affected. The Trust intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for a Fund to qualify as a
regulated investment company may limit the extent to which a Fund will be able
to engage in swap agreements.
The 30% limit on gains from the disposition of certain options,
futures, forward contracts, and swap agreements held less than three months and
the qualifying income and diversification requirements applicable to a Fund's
assets may limit the extent to which a Fund will be able to engage in
transactions in options, futures contracts, forward contracts, and swap
agreements.
Passive Foreign Investment Companies
Certain Funds may invest in the stock of foreign corporations which may
be classified under the Code as passive foreign investment companies ("PFICs").
In general, a foreign corporation is classified as a PFC. for a taxable year if
at least one-half of its assets constitute investment-type assets or 75% or more
of its gross income is investment-type income. If a Fund receives a so-called
"excess distribution" with respect to PFIC stock, the Fund itself may be subject
to tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to stockholders.
In general, under the PFIC rules, an excess distribution is treated as
having been realized ratably over the period during which the Fund held the PFIC
stock. A Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior taxable years and an interest factor
will be added to the tax, as if the tax had been payable in such prior taxable
years. Certain distributions from a PFIC as well as gain from the sale of PFIC
stock are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect
to PFIC stock. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules discussed above relating to the taxation of excess
distributions would not apply. In addition, another election may be available
that would involve marking to market a Fund's PFIC shares at the end of each
taxable year (and on certain other dates prescribed in the Code), with the
result that unrealized gains are treated as though they were realized. If this
election were made, tax at the Fund level under the PFIC rules would generally
be eliminated, but the Fund could, in limited circumstances, incur
57
<PAGE>
nondeductible interest charges. A Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains and the amount of gain or loss and the timing of
the recognition of income with respect to PFIC shares, and may subject a Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders and will be taxed to shareholders as ordinary income
or long-term capital gain may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
Foreign Currency Transactions
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain other instruments, gains or losses attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains or losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders
as ordinary income.
Foreign Taxation
Income received by the Funds from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Adviser and each Portfolio Manager intends to manage the
Funds with the intention of minimizing foreign taxation in cases where it is
deemed prudent to do so. If more than 50% of the value of a Fund's total assets
at the close of its taxable year consists of securities of foreign corporations,
such Fund will be eligible to elect to "pass-through" to the Fund's shareholders
the amount of foreign income and similar taxes paid by the Fund. If this
election is made, a shareholder generally subject to tax will be required to
include in gross income (in addition to taxable dividends actually received) his
pro rata share of the foreign taxes paid by the Fund, and may be entitled either
to deduct (as an itemized deduction) his or her pro rata share of foreign taxes
in computing his taxable income or to use it (subject to limitations) as a
foreign tax credit against his or her U.S. federal income tax liability. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Each shareholder will be notified within 60 days after the close of
the Fund's taxable year whether the foreign taxes paid by the Fund will
"pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that
it may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the pass-through election is
made, the source of the electing Fund's income will flow through to shareholders
of the Trust. With respect to such Funds, gains from the sale of securities will
be treated as derived from U.S. sources and certain currency fluctuation gains,
including fluctuation gains from foreign currency-denominated debt securities,
receivables and payables will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, and to certain other types of income.
Shareholders may be unable to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by the Fund. The foreign tax
credit can be used to offset only 90% of the revised alternative minimum tax
imposed on corporations and individuals and foreign taxes generally are not
deductible in computing alternative minimum taxable income.
Original Issue Discount
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by a Fund may be
treated as debt securities that are issued originally at a discount. Generally,
58
<PAGE>
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. A portion of the OID includable in income with respect to
certain high-yield corporate debt securities may be treated as a dividend for
Federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by a Fund in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. A Fund may make one or more of the elections applicable to debt
securities having market discount, which could affect the character and timing
of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by a Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
A Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
Other Taxation
Pursuant to Treasury Department regulations, certain expenses of
nonpublicly offered regulated investment companies, including advisory fees, are
not deductible by those regulated investment companies for purposes of
calculating the income of certain shareholders, generally including individuals
and entities that compute their taxable income in the same manner as an
individual (thus, for example, a qualified pension plan is not subject to this
rule). The shareholder's pro rata portion of such expenses will be treated as
income to the shareholder and will be deductible by the shareholder, subject to
the 2% "floor" on miscellaneous itemized deductions and other limitations on
itemized deductions set forth in the Code. A regulated investment company
generally will be classified as nonpublicly offered unless it either has 500
shareholders at all times during a taxable year or continuously offers shares
pursuant to a public offering. However, because of a lack of guidance in this
area, there can be no assurance that the Internal Revenue Service will agree
with this treatment with respect to the Micro Cap Growth Fund which has
limitations on contributed capital with respect to purchases of its
Institutional and Administrative Class shares. If these Funds are regarded as
nonpublicly offered regulated investment companies, shareholders of these Funds
that are subject to this rule could be subject to income tax adjustments.
Distributions also may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation. Under the
laws of various states, distributions of investment company taxable income
generally are taxable to shareholders even though all or a substantial portion
of such distributions may be derived from interest on certain federal
obligations which, if the interest were received directly by a resident of such
state, would be exempt from such state's income tax ("qualifying federal
obligations"). However, some states may exempt all or a portion of such
distributions from income tax to the extent the shareholder is able to establish
that the distribution is derived from qualifying federal obligations. Moreover,
for state income tax purposes, interest on some federal obligations generally is
not exempt from taxation, whether received directly by a shareholder or through
distributions of investment company taxable income (for example, interest on
FNMA Certificates and GNMA Certificates). Each Fund will provide information
annually to shareholders indicating the amount and percentage of a Fund's
dividend distribution which is attributable to interest on federal obligations,
and will indicate
59
<PAGE>
to the extent possible from what types of federal obligations such dividends are
derived. The Trust is organized as a Massachusetts business trust. Under current
law, so long as each Fund qualifies for the federal income tax treatment
described above, it is believed that neither the Trust nor any Fund will be
liable for any income or franchise tax imposed by Massachusetts. Shareholders,
in any event, are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under an
Agreement and Declaration of Trust as amended and restated on January 14, 1997.
The capitalization of the Trust consists solely of an unlimited number of shares
of beneficial interest. The Board of Trustees may establish additional series
(with different investment objectives and fundamental policies) at any time in
the future. Establishment and offering of additional series will not alter the
rights of the Trust's shareholders. When issued, shares are fully paid,
non-assessable, redeemable and freely transferable. Shares do not have
preemptive rights or subscription rights. In liquidation of a Fund, each
shareholder is entitled to receive his pro rata share of the net assets of that
Fund.
Performance Information
Performance information is computed separately for each class of a
Fund's shares. Each Fund may from time to time include the total return of each
class of its shares in advertisements or in information furnished to present or
prospective shareholders. As noted below, in accordance with SEC rules and
informal guidance, total return presentations for periods prior to the inception
date of a particular class of a Fund are based on the historical performance of
an older class of the Fund (specified below) restated to reflect the current
sales charges (if any) of the newer class, but not reflecting any higher
operating expenses such as distribution and servicing fees and administrative
fees associated with the newer class. All other things being equal, such higher
expenses would have adversely affected (i.e., reduced) total return for the
newer classes (i.e., if they had been offered since the inception of the Fund)
by the amount of such higher expenses compounded over the relevant periods. The
Tax Exempt, Renaissance and Balanced Funds may from time to time include the
yield and total return of each class of their shares in advertisements or
information furnished to present or prospective shareholders. Each Fund may from
time to time include in advertisements the total return of each class (and yield
of each class in the case of the Tax Exempt and Balanced Funds) and the ranking
of those performance figures relative to such figures for groups of mutual funds
categorized by Lipper Analytical Services as having the same investment
objectives. Information provided to any newspaper or similar listing of the
Fund's net asset values and public offering prices will separately present each
class of shares. The Funds also may compute current distribution rates and use
this information in their prospectuses and statement of additional information,
in reports to current shareholders, or in certain types of sales literature
provided to prospective investors.
Calculation of Yield
Quotations of yield for certain of the Funds will be based on all
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 are computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2[( a-b + 1)/6/ -1]
---
cd
where a = dividends and interest earned during the period,
60
<PAGE>
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of
the period.
For the one month period ended June 30, 1996, the yield of the Balanced
Fund was 3.0%. For the one month period ended September 30, 1996, the yield of
the Tax Exempt and Renaissance Funds (each of which was a series of PAF for such
period and reorganized as a Fund of the Trust on January 17, 1997) was 4.1% and
1.3%, respectively.
The yield of the Tax Exempt Fund will vary from time to time depending
upon market conditions, the composition of the Fund's portfolio and operating
expenses of the Trust allocated to the Fund or its classes of shares. These
factors, possible differences in the methods used in calculating yield and the
tax exempt status of distributions should be considered when comparing the Tax
Exempt Fund's yield to yields published for other investment companies and other
investment vehicles. Yield should also be considered relative to changes in the
value of the Fund's various classes of shares. These yields do not take into
account any applicable contingent deferred sales charges.
The Tax Exempt Fund may advertise a tax equivalent yield of each class
of its shares, calculated as described above except that, for any given tax
bracket, net investment income of each class will be calculated using as gross
investment income an amount equal to the sum of (i) any taxable income of each
class of the Fund plus (ii) the tax exempt income of each class of the Fund
divided by the difference between 1 and the effective federal income tax rates
for taxpayers in that tax bracket. For example, taxpayers with the marginal
federal income tax rates indicated in the following table would have to earn the
tax equivalent yields shown in order to realize an after-tax return equal to the
corresponding tax-exempt yield shown.
<TABLE>
<CAPTION>
Filing Status Marginal tax rate* A tax-exempt yield of
Single Married filing jointly 3% 4% 5% 6% 7%
is equivalent to a taxable yield of
Taxable income
<S> <C> <C> <C> <C> <C> <C> <C>
$23,350 or less $39,000 or less 15% 3.53% 4.71% 5.88% 7.06% 8.24%
Over $23,350 but Over $39,000 but 28% 4.17% 5.56% 6.94% 8.33% 9.72 %
not over $56,550 not over $94,250
Over $56,550 but Over $94,250 but 31% 4.35% 5.80% 7.25% 8.70% 10.14%
not over $117,950 not over $143,600
Over $117,950 but Over $143,600 but 36% 4.69% 6.25% 7.81% 9.38% 10.94%
not over $256,500 not over $256,500
Over $256,500 Over $256,500 39.6% 4.97% 6.62% 8.28% 9.93% 11.59%
- -------------------
</TABLE>
* These marginal tax rates do not take into account the effect of the
phaseout of itemized deductions and personal exemptions.
As is shown in the above table, the advantage of tax-exempt investing
becomes more advantageous to an investor as his or her marginal tax rate
increases.
The Trust, in its advertisements, may refer to pending legislation from
time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time in
the future, yields and total return may be higher or lower than past yields and
there can be no assurance that any historical results will continue.
61
<PAGE>
Calculation of Total Return
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), calculated pursuant to the following
formula: P (1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T
= the average annual total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period. Except as noted below, all total return figures reflect the deduction of
a proportional share of Fund or class expenses on an annual basis, and assume
that (i) the maximum sales load (or other charges deducted from payments) is
deducted from the initial $1,000 payment and that the maximum contingent
deferred sales charge, if any, is deducted at the times, in the amounts, and
under the terms disclosed in the Prospectuses and (ii) all dividend and
distributions are reinvested when paid. Quotations of total return may also be
shown for other periods. Funds also may, with respect to certain periods of less
than one year, provide total return information for that period that is
unannualized. Any such information would be accompanied by standardized total
return information.
The table below sets forth the average annual total return of each
class of shares of the following Funds for the periods ended June 30, 1996. As
noted below, consistent with SEC rules and informal guidance, total return
presentations for periods prior to the inception date of a particular class are
based on the historical performance of Institutional Class shares restated to
reflect the current sales charges (if any) of the newer class, but not
reflecting any higher operating expenses such as 12b-1 distribution and
servicing fees, which are paid by all classes except the Institutional Class (at
a maximum rate of 1.00% per annum), and the higher administrative fee charges
associated with Class A, Class B and Class C shares (a maximum differential of
.15% per annum). All other things being equal, such higher expenses would have
adversely affected (i.e., reduced) total return for the newer classes (i.e., if
they had been offered since the inception of the Fund) by the amount of such
higher expenses, compounded over the relevant period.
<TABLE>
<CAPTION>
Total Return for Periods Ended June 30, 1996*
- -------------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
Fund Class** 1 Year 5 Years of Fund Date of Date of
(Annualized) Fund Class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Institutional 24.86% 15.21% 14.89% 03/08/91 03/08/91
Administrative 24.47% 15.10% 14.77% 11/30/94
Class A 17.99% 13.91% 13.67% 1/17/97
Class B 19.86% 14.98% 14.79% 1/17/97
Class C 23.86% 15.21% 14.89% 1/17/97
- -------------------------------------------------------------------------------------------------------------
Value Institutional 26.66% N/A 15.71% 12/30/91 12/30/91
Administrative 26.66% 15.71% 1/17/97
Class A 19.69% 14.26% 1/17/97
Class B 21.66% 15.44% 1/17/97
Class C 25.66% 15.71% 1/17/97
- -------------------------------------------------------------------------------------------------------------
Small Cap Institutional 21.99% N/A 14.83% 10/1/91 10/1/91
Value Administrative 21.25% 14.66% 11/1/95
Class A 15.28% 13.46% 1/17/97
Class B 16.99% 14.57% 1/17/97
Class C 20.99% 14.83% 1/17/97
- -------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Total Return for Periods Ended June 30, 1996*
- -------------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
Fund Class** 1 Year 5 Years of Fund Date of Date of
(Annualized) Fund Class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital Institutional 24.67% 18.20% 16.74% 3/8/91 3/8/91
Appreciation Administrative 24.67% 18.20% 16.74% 1/17/97
Class A 17.81% 16.87% 15.51% 1/17/97
Class B 19.67% 17.99% 16.65% 1/17/97
Class C 23.67% 18.20% 16.74% 1/17/97
- -------------------------------------------------------------------------------------------------------------
Mid Cap Institutional 21.56% N/A 16.10% 8/26/91 8/26/91
Growth Administrative 21.25% 15.98% 11/30/94
Class A 14.88% 14.75% 1/17/97
Class B 16.56% 15.87% 1/17/97
Class C 20.56% 16.10% 1/17/97
- -------------------------------------------------------------------------------------------------------------
Micro Cap Institutional 36.19% N/A 23.52% 6/25/93 6/25/93
Growth Administrative 21.25% 15.98% 4/1/96
Class A 28.70% 21.19% 1/17/97
Class B 31.19% 22.84% 1/17/97
Class C 35.19% 23.52% 1/17/97
- -------------------------------------------------------------------------------------------------------------
Small Cap Institutional 17.33% 18.11% 22.47% 1/7/91 1/7/91
Growth Administrative 17.28% 18.10% 22.44% 9/27/95
Class A 10.87% 16.78% 21.20% 1/17/97
Class B 12.33% 17.90% 22.38% 1/17/97
Class C 16.33% 18.11% 22.47% 1/17/97
- -------------------------------------------------------------------------------------------------------------
Enhanced Institutional 22.72% 13.45% 12.82% 2/11/91 2/11/91
Equity Administrative 22.72% 13.45% 12.82% 1/17/97
Class A 15.97% 12.18% 11.63% 1/17/97
Class B 17.72% 13.21% 12.69% 1/17/97
Class C 21.72% 13.45% 12.82% 1/17/97
- -------------------------------------------------------------------------------------------------------------
Emerging Institutional 7.70% N/A 11.41% 6/1/93 6/1/93
Markets Administrative 7.53% 11.33% 11/1/94
Class A 1.78% 9.43% 1/17/97
Class B 2.70% 10.68% 1/17/97
Class C 6.70% 11.41% 1/17/97
- -------------------------------------------------------------------------------------------------------------
International Institutional 18.48% N/A 11.67% 6/8/93 6/8/93
Developed Administrative 18.13% 11.43% 11/30/94
Class A 11.96% 9.55% 1/17/97
Class B 13.48% 10.80% 1/17/97
Class C 17.48% 11.67% 1/17/97
- -------------------------------------------------------------------------------------------------------------
Balanced Institutional 15.13% N/A 11.13% 6/25/92 6/25/92
Administrative 15.13% 11.13% 6/25/92
Class A 8.80% 9.57% 1/17/97
Class B 10.13% 10.76% 1/17/97
Class C 14.13% 11.13% 1/17/97
- -------------------------------------------------------------------------------------------------------------
Core Equity Institutional 18.02% N/A 25.06% 12/28/94 12/28/94
Administrative 17.81% 24.81% 5/31/95
Class A 11.53% 20.37% 1/17/97
Class B 13.02% 22.60% 1/17/97
Class C 17.02% 25.06% 1/17/97
- -------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Total Return for Periods Ended June 30, 1996*
- -------------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
Fund Class** 1 Year 5 Years of Fund Date of Date of
(Annualized) Fund Class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mid Cap Institutional 29.04% N/A 31.57% 12/28/94 12/28/94
Equity Administrative 29.04% 31.57% 1/17/97
Class A 21.94% 26.62% 1/17/97
Class B 24.04% 29.15% 1/17/97
Class C 28.04% 31.57% 1/17/97
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of
shares assume payment of current maximum sales charge (if any)
applicable to that class at the time of purchase and assume that the
maximum CDSC (if any) for Class A, Class B and Class C shares was
deducted at the times, in the amounts, and under the terms discussed in
the Retail Prospectus.
** For all Funds, consistent with SEC rules and informal guidance, Class
A, Class B, Class C and Administrative Class total return presentations
for periods prior to the Inception Date of a particular class reflect
the prior performance of Institutional Class shares of the Fund adjusted
to reflect the actual sales charges (none in the case of the
Administrative Class) of the newer class. The adjusted Institutional
Class performance does not, however, reflect the higher Fund operating
expenses applicable to Class A, Class B, Class C and Administrative
Class shares, such as 12b-1 distribution and servicing fees, which are
paid by all classes except the Institutional Class (at a maximum rate of
1.00% per annum), and the higher administrative fee charges associated
with Class A, Class B and Class C shares (a maximum differential of .15%
per annum). All other things being equal, such higher expenses would
have adversely affected (i.e., reduced) total return for the newer
classes by the amount of such higher expenses, compounded over the
relevant period.
The table below sets forth the average annual total return of each
class of shares of the following Funds (each of which was a series of PAF prior
to its reorganization as a Fund of the Trust on January 17, 1997) for the
periods ended September 30, 1996. Consistent with SEC rules and informal
guidance, total return presentations for periods prior to the inception date of
a particular class are based on the historical performance of Class A or Class C
shares (the particular class used in each case is noted below) restated to
reflect the current sales charges (if any) of the newer class, but not
reflecting possibly lower operating expenses such as 12b-1 distribution and
servicing fees or administrative fee charges associated with the newer class.
<TABLE>
<CAPTION>
Total Return for Periods Ended September 30, 1996*
- ------------------------------------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
Fund Class*** 1 5 Years 10 Years of Fund Date of Date of
Year (Annualized) Fund Class
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Renaissance** Class A 15.64% 13.57% N/A 10.68% 4/18/88 2/1/91
Class B 16.54% 13.76% 10.90% 5/22/95
Class C 20.52% 14.00% 10.90% 4/18/88
Institutional 21.52% 14.00% 10.90% 1/17/97
Administrative 21.52% 14.00% 10.90% 1/17/97
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Class A 9.73% 11.74% 13.61% 16.02% 2/24/84 10/26/90
Class B 10.22% 11.92% 14.26% 16.16% 5/23/95
Class C 14.22% 12.18% 14.26% 16.16% 2/24/84
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Total Return for Periods Ended September 30, 1996*
- ------------------------------------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
Fund Class*** 1 5 Years 10 Years of Fund Date of Date of
Year (Annualized) Fund Class
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Target Class A 10.08% N/A N/A 17.58% 12/17/92 12/17/92
Class B 10.58% 17.94% 5/22/95
Class C 19.66% 18.45% 12/17/92
- ------------------------------------------------------------------------------------------------------------------------------------
Opportunity Class A 11.84% 24.74% 21.08% 20.14% 2/24/84 12/17/90
Class C 16.47% 25.23% 21.28% 20.11% 2/24/84
- ------------------------------------------------------------------------------------------------------------------------------------
Innovation Class A 13.26% N/A N/A 33.54% 12/22/94 12/22/94
Class B 13.99% 35.03% 5/22/95
Class C 18.08% 36.89% 12/22/94
Institutional 19.86% 37.87% 1/17/97
Administrative 19.86% 37.87% 1/17/97
- ------------------------------------------------------------------------------------------------------------------------------------
International** Class A 1.01% 5.87% 6.57% 6.20% 8/25/86 2/1/91
Class B 1.21% 5.97% 7.18% 6.78% 5/22/95
Class C 7.12% 6.28% 7.18% 6.78% 8/25/86
- ------------------------------------------------------------------------------------------------------------------------------------
Precious Class A -7.11% 8.81% N/A 1.73% 10/10/88 2/1/91
Metals** Class B -7.24% 8.99% 1.92% 6/15/95
Class C -3.33% 9.27% 1.92% 10/10/88
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Exempt Class A 0.48% 5.60% 5.78% 7.50% 11/1/85 3/14/91
Class B -0.46% 5.45% 6.27% 7.63% 5/30/95
Class C 3.46% 5.77% 6.27% 7.63% 11/1/85
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of
shares assume payment of current maximum sales charge (if any)
applicable to that class at the time of purchase and assume that the
maximum CDSC (if any) for Class A, B and C shares was deducted at the
times, in the amounts, and under the terms discussed in the Retail
Prospectus.
** The investment objective and policies of the Renaissance Fund and
International Fund were changed effective February 1, 1992 and September
1, 1992, respectively. The investment objective and policies of the
Precious Metals Fund were changed effective on November 15, 1994.
Performance information for prior periods does not necessarily represent
results that would have been obtained had the current investment
objective and policies then been in effect.
*** With the exception of the Target Fund and Innovation Fund, Class A,
Class B, Institutional Class and Administrative Class total return
presentations for these Funds for periods prior to the Inception Date of
the particular class reflect the prior performance of Class C shares of
the former PAF Fund adjusted to reflect the actual sales charges (or no
sales charges in the case of Administrative and Institutional Class
shares) of the newer class. The adjusted performance does not, however,
reflect possibly lower operating expenses such as 12b-1 distribution and
servicing fees or administrative fee charges associated with the newer
class. For the Target (for Class B only) and Innovation Funds, (i)
Institutional and Administrative Class total return presentations for
periods prior to the Inception Date of a particular class reflect the
prior performance of Class A shares of the former PAF Fund adjusted in
the manner described above and (ii) Class B total return presentations
for periods prior to the Inception Date of that class reflect the prior
performance of Class C shares of the former PAF Fund adjusted in the
manner described above. Note also that, prior to January 17, 1997, Class
A, Class B and Class C shares of the former PAF Funds were subject to a
variable level of expenses for such services as legal, audit, custody
and transfer agency services. As described in the Retail Prospectus, for
periods subsequent to January 17, 1997, Class A, Class B and Class C
shares of the Trust are subject to a fee structure which essentially
fixes these expenses (along with other administrative expenses)
65
<PAGE>
under a single administrative fee based on the average daily net assets of
a Fund attributable to Class A, Class B and Class C shares. Under the
current fee structure, the Growth Fund, Target Fund, Opportunity Fund and
International Fund are expected to have higher total Fund operating
expenses (as compared to expenses for the fiscal year ended September 30,
1996) than their predecessors had under the fee structure for PAF. All
other things being equal, such higher expenses should adversely affect
future total return performance for these Funds compared to historical
periods.
Performance information for a Fund may also be compared to: (i) the
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Morgan Stanley Capital International EAFE (Europe, Australasia, Far
East) Index, the Morgan Stanley Capital International Emerging Markets Free
Index, the International Finance Corporation Emerging Markets Index, the Baring
Emerging Markets 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 for administrative and management costs or
expenses. The Adviser and any of the Portfolio Managers may also report to
shareholders or to the public in advertisements concerning the performance of
the Adviser and/or the Portfolio Managers as advisers to clients other than the
Trust, and on the comparative performance or standing of the Adviser and/or the
Portfolio Managers 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 Portfolio Managers, should be considered in light of the
Funds' 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.
The total return of each class (and yield of each class in the case of
the Tax Exempt, Renaissance and Balanced Funds) may be used to compare the
performance of each class of a Fund's shares against certain widely acknowledged
standards or indexes for stock and bond market performance, against interest
rates on certificates of deposit and bank accounts, against the yield on money
market funds, against the cost of living (inflation) index, and against
hypothetical results based on a fixed rate of return.
The S&P's Composite Index of 500 Stocks (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 385 industrial, 15 transportation, 45 utilities and 55
financial services concerns. The S&P 500 represents about 77% of the market
value of all issues traded on the New York Stock Exchange.
The S&P's 400 Mid-Cap Index (the "S&P 400 Mid-Cap Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 400 stocks of companies whose capitalization range from $100 million to
over $5 billion and which represent a wide range of industries. As of December
31, 1995, approximately 26% of the 400 stocks were stocks listed on the National
Association of Securities Dealers Automated Quotations ("NASDAQ") system, 72%
were stocks listed on the New York Stock Exchange and 2% were stocks listed on
the American Stock Exchange. The Standard & Poor's Midcap 400 Index P/TR
consists of 400 domestic stocks chosen for market size (median market
capitalization of $676 million), liquidity and industry group representation. It
is a market-value weighted index (stock price times shares outstanding), with
each stock affecting the index in proportion to its market value. The index is
comprised of industrials, utilities, financials and transportation, in size
order.
66
<PAGE>
The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the NASDAQ system. Only
those over-the-counter stocks having only one market maker or traded on
exchanges are excluded.
The Russell 2000 Small Stock Index is an unmanaged index of the 2000
smallest securities in the Russell 3000 Index, representing approximately 7% of
the Russell 3000 Index. The Russell 3000 Index represents approximately 98% of
the U.S. equity market by capitalization. The Russell 1000 Index is composed of
the 1,000 largest companies in the Russell 3000 Index. The Russell 1000 Index
represents the universe of stocks from which most active money managers
typically select. This large cap index is highly correlated with the S&P 500.
The Russell 1000 Value Index contains stocks from the Russell 1000 Index with a
less-than-average growth orientation. It represents the universe of stocks from
which value managers typically select.
The Lehman Government Bond Index (the "SL Government Index") is a measure
of the market value of all public obligations of the U.S. Treasury; all publicly
issued debt of all agencies of the U.S. Government and all quasi-federal
corporations; and all corporate debt guaranteed by the U.S. Government. Mortgage
backed securities, flower bonds and foreign targeted issues are not included in
the SL Government Index.
The Lehman Government/Corporate Bond Index (the "SL Government/Corporate
Index") is a measure of the market value of approximately 5,000 bonds. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher by an NRSRO.
The Merrill Lynch U.S. Treasury Intermediate-term Index is an unmanaged
index of ten U.S. Treasury securities with maturities ranging from 10 to 14.99
years. Over the ten year period from December 31, 1985 to December 31, 1995,
according to the Merrill Lynch U.S. Treasury Intermediate-term Index, 18% of
total return was derived from price appreciation and 82% of total return was
derived from income.
BanXquote Money Market, a service of Masterfund Inc., provides the
average rate of return paid on 3 month certificates of deposit offered by major
banks and the average rate paid by major banks on bank money market funds. The
Donoghue Organization, Inc. a subsidiary of IBC USA Inc., publishes the Money
Fund Report which lists the 7 day average yield paid on money market funds.
From time to time, the Trust may use, in its advertisements or
information furnished to present or prospective shareholders, data concerning
the performance and ranking of certain countries' stock markets, including
performance and ranking data based on annualized returns over one-, three-,
five- and ten-year periods. The Trust may also use data about the portion of
world equity capitalization represented by U.S. securities. As of December 31,
1995, the U.S. equity market capitalization represented approximately 30% of the
equity market capitalization of all the world's markets. This compares with 52%
in 1980 and 70% in 1972.
67
<PAGE>
From time to time, the Trust may use, in its advertisements and other
information relating to certain of the Funds, data concerning the performance of
stocks relative to that of fixed income investments and relative to the cost of
living over various periods of time. The table below sets forth the annual
returns for each calendar year from 1971 through 1995 (as well as a cumulative
return and average annual return for that 25 year period) for the S&P 500 and
Treasury bills (using the formula set forth after the table) as well as the
rates of inflation (based on the Consumer Price Index) during such periods.
<TABLE>
<CAPTION>
Consumer Price
Period S&P 500 Treasury Bills Index
- ------ ------- -------------- --------------
<S> <C> <C> <C>
1971 14.3% 4.4% 3.4%
1972 18.9 3.8 3.4
1973 -14.7 6.9 8.8
1974 -26.5 8.0 12.2
1975 37.2 5.8 7.0
1976 23.8 5.0 4.8
1977 -7.2 5.1 6.8
1978 6.5 7.2 9.0
1979 18.4 10.4 13.3
1980 32.4 11.2 12.4
1981 -4.9 14.7 8.9
1982 21.4 10.5 3.8
1983 22.5 8.8 3.8
1984 6.3 9.9 3.9
1985 32.2 7.7 3.8
1986 18.5 6.1 1.1
1987 5.2 5.5 4.4
1988 16.8 6.3 4.4
1989 31.5 8.4 4.6
1990 -3.2 7.8 6.1
1991 30.5 5.6 3.1
1992 7.7 3.5 2.9
1993 10.1 2.9 2.7
1994 1.3 3.9 2.7
1995 37.4 5.6 2.7
- ---------------------------------------------------------------------------------------------------------------
Cumulative Return
1971-1995 1683.3 % 439.5% 286.1%
- ---------------------------------------------------------------------------------------------------------------
Average Annual Return
1971-1995 12.2% 7.2% 5.6%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The average returns for Treasury bills were computed using the
following method. For each month during a period, the Treasury bill having the
shortest remaining maturity (but not less than one month ) was selected. (Only
the remaining maturity was considered; the bill's original maturity was not
considered). The return for the selected Treasury bill was computed based on the
price of the bill as of the last trading day of the previous month and the price
on the last trading day of the current month. The price of the bill (P) at each
time (t) is given by
Pt = |1- rd |
| 360 |
where,
r = decimal yield on the bill at time t (the average of
bid and ask quotes); and
d = the number of days to maturity as of time t.
68
<PAGE>
Advertisements and information relating to the Target Fund may use data
comparing the performance of stocks of medium-sized companies to that of other
companies. The following table sets forth the annual returns for each year from
March 1981 (inception of Mid-Cap Index) through 1996 (as well as a cumulative
return and average annual return for this period) for stocks of medium-sized
companies (based on the Standard & Poor's Mid-Cap Index), stocks of small
companies (based on the Russell 2000 Index) and stocks of larger companies
(based on the S&P 500).
<TABLE>
<CAPTION>
Small Mid-Sized Large
Period Companies Companies Companies
- ------ --------- --------- ---------
<S> <C> <C> <C>
1981 (2/28 -12/31) 1.8 10.6 -2.5
1982 25.0 22.7 21.4
1983 29.1 26.1 22.5
1984 -7.3 1.2 6.3
1985 31.1 36.0 32.2
1986 5.7 16.2 18.5
1987 -8.8 -2.0 5.2
1988 24.9 20.9 16.8
1989 16.2 35.6 31.5
1990 -19.5 -5.1 -3.2
1991 46.1 50.1 30.5
1992 18.4 11.9 7.7
1993 18.9 14.0 10.1
1994 -1.8 -3.6 1.3
1995 28.4 30.9 37.6
1996 16.5 19.2 22.9
- --------------------------------------------------------------------------------------------------------
Cumulative Return
2/28/81-12/31/96 579.7% 1096.3% 901.3%
- --------------------------------------------------------------------------------------------------------
Average Annual Return
2/28/81-12/31/96 12.9% 17.0% 15.7%
- --------------------------------------------------------------------------------------------------------
</TABLE>
From time to time, the Trust may use, in its advertisements and other
information relating to the Precious Metals Fund, data concerning the relevant
performance and volatility of portfolios consisting of all stocks, portfolios
consisting of all bonds and portfolios consisting of stocks and bonds blended
with stocks of companies engaged in the extraction, processing, distribution or
marketing of gold and other precious metals. The following table shows the
annual returns for each calendar year from 1971 through 1995 (as well as
cumulative return and average annual return for that 25 year period) for an
all-stock portfolio (using the S&P 500), an all-bond portfolio (using the
Salomon Brothers Long Term Corporate Bond Index), and for a hypothetical
portfolio with 45% of its assets in stocks comprising the S&P 500, 45% in bonds
comprising the Salomon Brothers Long Term Corporate Bond Index and 10% in stocks
comprising the Morgan Stanley Capital International Gold Mining Index.
(Information for the calendar year ended 1996 was not available on the date of
this Statement of Additional Information).
69
<PAGE>
<TABLE>
<CAPTION>
Stocks 45%
All All Bonds 45%
Period Stocks Bonds Gold Stocks 10%
- ------ ------ ----- ---------------
<S> <C> <C> <C>
1971 14.3 11.0 10.4
1972 19.0 7.3 15.5
1973 -14.7 1.1 4.2
1974 -26.5 -3.1 -10.9
1975 37.5 14.6 20.4
1976 23.8 18.6 15.0
1977 -7.2 1.7 .5
1978 6.5 0.00 3.4
1979 18.4 -4.2 21.3
1980 32.4 -2.6 19.3
1981 -4.9 -0.1 -6.0
1982 21.4 43.8 33.9
1983 22.5 4.7 12.0
1984 6.3 16.4 7.2
1985 32.2 30.9 26.2
1986 18.5 19.8 18.5
1987 5.2 -0.02 6.6
1988 16.8 10.7 9.1
1989 31.5 16.2 26.4
1990 -3.2 6.8 -1.0
1991 30.5 19.9 21.8
1992 7.7 9.4 4.9
1993 10.1 13.2 23.5
1994 1.3 -5.8 -3.1
1995 37.4 27.2 29.7
- --------------------------------------------------------------------------------------------------------
Cumulative Return
1971-1995 1683.3% 899.6% 1504.3%
- --------------------------------------------------------------------------------------------------------
Average Annual Return
1971-1995 12.2% 9.6% 11.7%
- --------------------------------------------------------------------------------------------------------
</TABLE>
The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
1993/1994 costs of college and an assumed rate of increase for such costs. For
example, the table below sets forth the projected cost of four years of college
at a public college and a private college assuming a steady increase in both
cases of 7% per year. In presenting this information, the Trust is making no
prediction regarding what will be the actual growth rate in the cost of a
college education, which may be greater or less than 7% per year and may vary
significantly from year to year. The Trust makes no representation that an
investment in any of the Funds will grow at or above the rate of growth of the
cost of a college education.
70
<PAGE>
<TABLE>
<CAPTION>
Potential College Cost Table
Start Public Private Start Public Private
Year College College Year College College
- ---- ------- ------- ---- ------- -------
<S> <C> <C> <C> <C> <C>
1996 $33,761 $ 86,035 2004 $58,007 $147,817
1997 $36,124 $ 92,057 2005 $62,067 $158,165
1998 $38,653 $ 98,501 2006 $66,412 $169,237
1999 $41,358 $105,396 2007 $71,061 $181,084
2000 $44,253 $112,774 2008 $76,035 $193,761
2001 $47,351 $120,668 2009 $81,357 $207,325
2002 $50,665 $129,115 2010 $87,051 $221,838
2003 $54,212 $138,146 2011 $93,143 $237,367
</TABLE>
Costs assume a steady increase in the annual cost of college of 7% per year from
a 1993-94 base year amount. Actual rates of increase may be more or less than 7%
and may vary.
In its advertisements and other materials, the Trust may compare the
returns over periods of time of investments in stocks, bonds and treasury bills
to each other and to the general rate of inflation. For example, the average
annual return of each during the 25 years from 1972 to 1995 was:
*Stocks: 12.2%
Bonds: 9.6%
T-Bills: 7.2%
Inflation: 5.6%
*Returns of unmanaged indexes do not reflect past or future
performance of any of the Funds of PIMCO Funds: Multi-Manager Series.
Stocks is represented by Ibbotson's Common Stock Total Return Index.
Bonds are represented by Ibbotson's Long-term Corporate Bond Index.
Treasury bills are represented by Ibbotson's Treasury Bill Index and
Inflation is represented by the Cost of Living Index. These are all
unmanaged indexes, which can not be invested in directly. While
Treasury bills are insured and offer a fixed rate of return, both the
principal and yield of investment securities will fluctuate with
changes in market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989, updated in
Stocks, Bonds, Bills and Inflation 1996 Yearbook, Ibbotson Associates,
Chicago. All rights reserved.
The Trust may also compare the relative historic returns and range of
returns for an investment in each of common stocks, bonds and treasury bills to
a portfolio that blends all three investments. For example, over the 25 years
from 1972-1995, the average annual return of stocks comprising the Ibbotson's
Common Stock Total Return Index ranged from -26.5% to 37.4% while the annual
return of a hypothetical portfolio comprised 40% of such common stocks, 40% of
bonds comprising the Ibbotson's Long-term Corporate bond Index and 20% of
Treasury bills comprising the Ibbottson's Treasury Bill Index (a "mixed
portfolio") would have ranged from -10.2% to 28.2% over the same period. The
average annual returns of each investment for each of the years from 1972
through 1995 is set forth in the following table.
<TABLE>
<CAPTION>
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- ---- ------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1972 18.98% 7.26% 3.84% 3.41% 11.26%
1973 -14.66% 1.14% 6.93% 8.80% -4.02%
1974 -26.47% -3.06% 8.00% 12.26% -10.21%
</TABLE>
71
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1975 37.20% 14.64% 5.80% 7.01% 21.90%
1976 23.84% 18.65% 5.08% 4.81% 18.01%
1977 -7.18% 1.71% 5.12% 6.77% -1.17%
1978 6.56% -0.07% 7.18% 9.03% 4.03%
1979 18.44% -4.18% 10.38% 13.31% 7.78%
1980 32.42% 2.61% 11.24% 12.40% 14.17%
1981 -4.91% -0.96% 14.71% 8.94% 0.59%
1982 21.41% 43.79% 10.54% 3.87% 28.19%
1983 22.51% 4.70% 8.80% 3.80% 12.64%
1984 6.27% 16.39% 9.85% 3.95% 11.03%
1985 32.16% 30.90% 7.72% 3.77% 26.77%
1986 18.47% 19.85% 6.16% 1.13% 16.56%
1987 5.23% -0.27% 5.46% 4.41% 3.08%
1988 16.81% 10.70% 6.35% 4.42% 12.28%
1989 31.49% 16.23% 8.37% 4.65% 20.76%
1990 -3.17% 6.87% 7.52% 6.11% 2.98%
1991 30.55% 19.79% 5.88% 3.06% 21.31%
1992 7.67% 9.39% 3.51% 2.90% 7.53%
1993 10.06% 13.17% 2.89% 2.75% 9.84%
1994 1.31% -5.76% 3.90% 2.67% -1.00%
1995 37.40% 27.20% 5.60% 2.70% 26.90%
</TABLE>
Returns of unmanaged indexes do not reflect past or future performance of
any of the Funds of PIMCO Funds: Multi-Manager Series. Stocks are
represented by Ibbotson's Common Stock Total Return Index. Bonds are
represented by Ibbotson's Long-term Corporate Bond Index. Treasury bills
are represented by Ibbotson's Treasury Bill Index and Inflation is
represented by the Cost of Living Index. Treasury bills are all unmanaged
indexes, which can not be invested in directly. While Treasury bills are
insured and offer a fixed rate of return, both the principal and yield of
investment securities will fluctuate with changes in market conditions.
Source: Ibbotson, Roger G., and Rex A. Sinquefiled, Stocks, Bonds, Bill and
Inflation (SBBI), 1989, updated in Stocks, Bonds, Bills and Inflation 1996
Yearbook, Ibbotson Associates, Chicago. All rights reserved.
The Trust may use in its advertisements and other materials examples
designed to demonstrate the effect of compounding when an investment is
maintained over several or many years. For example, the following table shows
the annual and total contributions necessary to accumulate $200,000 of savings
(assuming a fixed rate of return) over various periods of time:
<TABLE>
<CAPTION>
Investment Annual Total Total
Period Contribution Contribution Saved
------ ------------ ------------ -----
<S> <C> <C> <C>
30 Years $1,979 $59,370 $200,000
25 Years $2,955 $73,875 $200,000
20 Years $4,559 $91,180 $200,000
15 Years $7,438 $111,570 $200,000
10 Years $13,529 $135,290 $200,000
</TABLE>
This hypothetical example assumes a fixed 7% return compounded
annually and a guaranteed return of principal. The example is
intended to show the benefits of a long-term, regular investment
program, and is in no way representative of any past or future
performance of a Fund of PIMCO Funds: Multi-Manager Series. There can
be no guarantee that you will be able to find an investment
72
<PAGE>
that would provide such a return at the times you invest and an
investor in any of the Funds of PIMCO Funds: Multi-Manager Series
should be aware that certain of the Funds of PIMCO Funds: Multi-Manager
Series have experienced periods of negative growth in the past and may
again in the future.
The Trust may set forth in its advertisements and other materials
information regarding the relative reliance in recent years on personal savings
for retirement income versus reliance on Social Security benefits and company
sponsored retirement plans. For example, the following table offers such
information for 1990:
<TABLE>
<CAPTION>
% of Income for Individuals
Aged 65 Years and Older in 1990*
-------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
<S> <C> <C>
1990 38% 62%
</TABLE>
* For individuals with an annual income of at least $51,000. Other includes
personal savings, earnings and other undisclosed sources of income. Source:
Social Security Administration.
Articles or reports which include information relating to performance,
rankings and other characteristics of the Funds may appear in various national
publications and services including, but not limited to: The Wall Street
Journal, Barron's, Pensions and Investments, Forbes, Smart Money, Mutual Fund
Magazine, The New York Times, Kiplinger's Personal Finance, Fortune, Money
Magazine, Morningstar's Mutual Fund Values, CDA Investment Technologies and The
Donoghue Organization. Some or all of these publications or reports may publish
their own rankings or performance reviews of mutual funds, including the Funds,
and may provide information relating to the Adviser and the Portfolio Managers,
including descriptions of assets under management and client base, and opinions
of the author(s) regarding the skills of personnel and employees of the Adviser
or the Portfolio Managers who have portfolio management responsibility. From
time to time, the Trust may include references to or reprints of such
publications or reports in its advertisements and other information relating to
the Funds.
From time to time, the Trust may set forth in its advertisements and
other materials information about the growth of a certain dollar-amount invested
in one or more of the Funds over a specified period of time and may use charts
and graphs to display that growth.
Ibbotson Associates ("Ibbotson") has analyzed the risk and returns of
the Funds and relevant benchmark market indexes in a variety of market
conditions. Based on its independent research and analysis, Ibbotson has
developed model portfolios of the Funds and series of PIMCO Funds: Pacific
Investment Management Series ("PIMS") which indicate how, in Ibbotson's opinion,
a hypothetical investor with a 5+ year investment horizon might allocate his or
her assets among the Funds and series of PIMS. Ibbotson bases its model
portfolios on five levels of investor risk tolerance which it developed and
defines as ranging from "Very Conservative" (low volatility; emphasis on capital
preservation, with some growth potential) to "Very Aggressive" (high volatility;
emphasis on long-term growth potential). However, neither Ibbotson nor the Trust
offers Ibbotson's model portfolios as investments. Moreover, neither the Trust,
the Adviser, the Portfolio Managers nor Ibbotson represent or guarantee that
investors who allocate their assets according to Ibbotson's models will achieve
their desired investment results.
73
<PAGE>
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Trust shareholders to elect Trustees or for other purposes.
It is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. Shareholders may remove a person
serving as Trustee either by declaration in writing or at a meeting called for
such purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust. In the event that such a request was made, the Trust has represented that
it would assist with any necessary shareholder communications. Shareholders of a
class of shares have different voting rights with respect to matters that affect
only that class.
All classes of shares of the Funds have identical voting rights except
that each class of shares has exclusive voting rights on any matter submitted to
shareholders that relates solely to that class, and has separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class. These shares are entitled to vote
at meetings of shareholders. Matters submitted to shareholder vote must be
approved by each Fund separately except (i) when required by the 1940 Act shares
shall be voted together and (ii) when the Trustees have determined that the
matter does not affect all Funds, then only shareholders of the Fund or Funds
affected shall be entitled to vote on the matter. All classes of shares of a
Fund will vote together, except with respect to the Distribution and Servicing
Plan applicable to Class A, Class B or Class C shares, to the Distribution or
Administrative Services Plans applicable to Administrative Class shares or when
a class vote is required as specified above or otherwise by the 1940 Act.
The Trust's shares do not have cumulative voting rights, so that the
holder of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
74
<PAGE>
Certain Ownership of Trust Shares
As of December 31, 1996, the Trust believes that the Trustees and
officers of the Trust, as a group, owned less than one percent of each class of
each Fund and of the Trust as a whole, except that such Trustees and officers,
as a group, owned 1.6% of the outstanding Class A Shares of the PIMCO Advisors
Equity Income Fund (which reorganized as the Trust's Renaissance Fund on January
17, 1997).
As of December 17, 1996, the Trust believes that the following persons
owned of record or beneficially 5% or more of the shares of the noted class of
the following Funds:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Income Pacific Mutual Life Insurance Company Institutional 1,579,852.835 19.40%
Fund FBO PM RISP
700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
NBD Bank NA as Trustee for Institutional 1,509,11.427 18.53%
AM Castle & Company Employee Pension
P.O. Box 77975
Detroit, Michigan 48277-0975
- --------------------------------------------------------------------------------------------------------------------------
Santa Barbara Foundation Institutional 901,689.448 11.07%
15 East Carillo Street
Santa Barbara, California 93101-2780
- --------------------------------------------------------------------------------------------------------------------------
Hazlehurst & Associates Institutional 474,478.864 5.83%
400 Perimeter Center Terrace, Suite 850
Atlanta, Georgia 30346
- --------------------------------------------------------------------------------------------------------------------------
Bank of America NT & SA as Trustee Institutional 417,206.306 5.12%
for Mazda Motor of America
P.O. Box 2788
Los Angeles, CA 90051-0788
- --------------------------------------------------------------------------------------------------------------------------
First Union National Bank Administrative 476,962.731 96.85%*
401 S. Tyron Street, FRB-3
Charlotte, North Carolina 28288-1151
- --------------------------------------------------------------------------------------------------------------------------
Value Fund**** Pacific Mutual Life Insurance Company Institutional 2,083,327.831 42.86%*
FBO PM Retirement Plan
700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
Great Lakes Chemical Corporation Institutional 896,832.411 18.45%
Route 52 Northwest
P.O. Box 2200
Lafayette, Indiana 47906
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Fund**** Pacific Mutual Life Insurance Company Institutional 594,018.931 12.22%
(cont.) FBO CMTA-GMPP & Allied Worked
Pension
700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
BAC Local 19 Pension Trust Fund Institutional 319,348.666 6.57%
777 Davis Street
San Francisco, California 94126-2500
- --------------------------------------------------------------------------------------------------------------------------
PM Charitable Foundation Institutional 273,175.247 5.62%
700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith A 113,020.000 14.63%
Inc.**
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith B 389,693.240 28.35%
Inc.**
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** C 405,866.608 13.54%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------------------------------
FTC & Co. C 200,242.393 6.68%
#022
Attn: Datalynx
P.O. Box 5508
Denver, CO 80217
- --------------------------------------------------------------------------------------------------------------------------
Small Cap Pacific Mutual Life Insurance Company Institutional 518,591.890 22.44%
Value Fund FBO PM Retirement Plan
700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
Sheet Metal Workers' Local Unions Institutional 353,998.575 15.32%
and Councils Pension Fund
601 N. Fairfax Street, Suite 500
Alexandria, Virginia 22314-2054
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Cap Victoria Bank and Trust Company, Institutional 268,816.710 11.63%
Value Fund Structural Metals, Inc. Pension Plan
(cont.) One O'Connor Plaza, 6th Floor
Victoria, Texas 77901-65497
- --------------------------------------------------------------------------------------------------------------------------
Mellon Bank, NA FBO Institutional 127,473.047 5.52%
Mac & Co
P.O. Box 320
Pittsburgh, Pennsylvania 15230-0320
- --------------------------------------------------------------------------------------------------------------------------
First Union National Bank Administrative 347,831.290 100.00%*
401 South Tyron Street, FRB-3
Charlotte, North Carolina 28202-1911
- --------------------------------------------------------------------------------------------------------------------------
Capital Donaldson Lufkin & Jenrette** Institutional 4,523,965.341 19.74%
Appreciation Pershing Division
Fund P.O. Box 2052
Jersey City, New Jersey 07303-2052
- --------------------------------------------------------------------------------------------------------------------------
Coopers & Lybrand L.L.P. Institutional 3,295,851.869 14.38%
1251 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 1,472,747.512 6.43%
FBO PM Retirement Plan
700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
Amsouth Bank as Trustee for Institutional 1,152,168.141 5.03%
Infirmary Health Systems
P.O. Box 11426
Birmingham, Alabama 35202-1426
- --------------------------------------------------------------------------------------------------------------------------
FIIOC as Agent for Administrative 66,443.361 97.39%*
Certain Employee Benefits Plan
100 Magetian KWIC
Covington, Kentucky 41015
- --------------------------------------------------------------------------------------------------------------------------
Mid Cap State Street Bank & Trust Co. as Trustee for Institutional 2,682,606.870 21.29%
Growth Dayton Hudson Retirement Savings Plan
Fund**** One Enterprise Drive
North Quincy, Massachusetts 02171
- --------------------------------------------------------------------------------------------------------------------------
Caremark International, Inc. Institutional 1,118,405.465 8.87%
2215 Sanders Road
Northbrook, Illinois 60062
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mid Cap Berklee College of Music, Inc. Institutional 840,814.302 6.67%
Growth 1140 Boylston Street
Fund**** Boston, Massachusetts 02215-3693
(cont.)
- --------------------------------------------------------------------------------------------------------------------------
Staff Retirement Plan of the Institutional 668,608.087 5.31%
International Telecommunications
Satellite Organization
3400 International Drive, N.W.
Washington, D.C. 20008-3006
- --------------------------------------------------------------------------------------------------------------------------
First Interstate Bank FBO Administrative 62,467.812 82.75%*
Choicemaster
5808 East Telephone Road, 2nd Floor
Ventura, California 93003
- --------------------------------------------------------------------------------------------------------------------------
The Sandra Hogue Living Trust Administrative 6,378.522 8.45%
Sandra Hogue Trustee
112 East Victoria Street
Santa Barbara, California 93109-2115
- --------------------------------------------------------------------------------------------------------------------------
FIIOC as Agent for Administrative 5,403.528 7.16%
Certain Employee Benefits Plan
100 Magetian KWIC
Covington, Kentucky 41015
- --------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** A 151,032.000 16.22%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** B 653,431.837 36.71%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** C 657,987.000 20.50%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- --------------------------------------------------------------------------------------------------------------------------
Micro Cap Charles Schwab & Co., Inc.** Institutional 1,418,971.914 22.95%
Growth Fund The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Micro Cap Dominion Resources, Inc. Institutional 954,701.588 15.44%
Growth Fund 701 East Byrd Street
(cont.) P.O. Box 26532
Richmond, Virginia 23261
- --------------------------------------------------------------------------------------------------------------------------
University of Southern California Institutional 907,986.469 14.68%
Treasurer's Office
University Park, BKS 402
Los Angeles, California 90089-2541
- --------------------------------------------------------------------------------------------------------------------------
Oberlin College Institutional 606,761.440 9.81%
Oberlin College Investment Office
173 West Lorain Street
Oberlin, Ohio 44074
- --------------------------------------------------------------------------------------------------------------------------
Toyota Motor Sales, USA, Inc. Institutional 430,683.004 6.96%
19001 South Western Avenue
P.O. Box 2991
Torrance, California 90509-2991
- --------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 361,010.830 5.84%
700 Newport Center Drive
Newport Beach, California 92660-6397
- --------------------------------------------------------------------------------------------------------------------------
Baptist Sunday School Board Administrative 66,875.864 100.00%*
1279th Avenue N, MSN 187
Nashville, Tennessee 37234
- --------------------------------------------------------------------------------------------------------------------------
Small Cap The Jewish Federation of Institutional 809,070.615 30.18%*
Growth Fund Metropolitan Chicago
One South Franklin Street
Room 625
Chicago, Illinois 60606-4609
- --------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 295,576.977 11.02%
FBO PM Retirement Plan
700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
Auburn Theological Seminary Institutional 276,865.871 10.33%
3041 Broadway
New York, New York 10027-5710
- --------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 260,281.104 9.71%
700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Cap ESOR & Co. Institutional 197,355.259 7.36%
Growth Fund Associated Bank Green Bay
(cont.) Trust Operations Department
P.O. Box 19006
Green Bay, Wisconsin 54307-9006
- --------------------------------------------------------------------------------------------------------------------------
Bessemer Trust Company for Institutional 99,453.008 7.08%
Naidot & Co.
100 Woodbridge Center Drive
Woodbridge, New Jersey 07095
- --------------------------------------------------------------------------------------------------------------------------
FTC & Co. Administrative 1,752.864 100.00%*
First Trust (Multi-Financial Group)
P.O. Box 173736
Denver, Colorado 80217-3736
- --------------------------------------------------------------------------------------------------------------------------
Core Equity Pacific Mutual Life Insurance Company Institutional 428,426.396 53.61%*
Fund 700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Charitable Foundation Institutional 129,569.184 16.21%
700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
Union Bank as Trustee for Institutional 98,185.970 12.29%
Pacific Corinthian Life Insurance Company
Pension Plan
10241 Wateridge Circle
San Diego, California 92121-2733
- --------------------------------------------------------------------------------------------------------------------------
Melville Corporation Administrative 1,996,528.589 80.85%*
One Theall Road
Rye, New York, 10580-1404
- --------------------------------------------------------------------------------------------------------------------------
The Bank of New York as Trustee for Administrative 374,308.300 15.16%
Marshalls Association 401(k) Trust
One Wall Street
MT/MC 12th Floor
New York, New York 10286-0001
- --------------------------------------------------------------------------------------------------------------------------
Mid Cap Equity Pacific Mutual Life Insurance Company Institutional 439,316.239 73.09%
Fund 700 Newport Center Drive
Newport Beach, California 92660
- --------------------------------------------------------------------------------------------------------------------------
John W. Barnum Institutional 59,999.929 9.98%
5175 Tilden Street, N.W.
Washington, DC 20016-1961
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Mid Cap Equity Pacific Mutual Charitable Foundation Institutional 34,047.362 5.66%
Fund 700 Newport Center Drive
(cont.) Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Enhanced First Interstate Bank of CA, Institutional 2,364,869.001 40.76%*
Equity Fund Custodian S.F. BART
P.O. Box 9800
Calabasas, California 91372-0800
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 1,031,127.455 18.20%*
FBO PM Retirement Plan
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 739,159.296 12.74%
FBO CMTA-GMPP & Allied Workers
Pension
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Santa Clara Mission Institutional 377,566.842 6.51%
The Rector-Nobili Hall
Santa Clara University
Santa Clara, California 00009-5053
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Charles Schwab & Co., Inc.** Institutional 2,123,101.153 42.41%*
Markets Fund 101 Montgomery Street
San Francisco, California 94104-4122
- ------------------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette** Institutional 586,410.766 11.71%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 575,190.664 11.49%
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 405,478.644 8.10%
FBO PM Retirement Plan
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
FTC & Co. Administrative 12,856.817 99.40%*
First Trust (Multi-Financial Group)
P.O. Box 173736
Denver, Colorado 80217-3736
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
International Pacific Financial Asset Institutional 1,158,760.796 16.12%
Developed Fund Management Corporation
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Atlanta Gas Light Company Institutional 1,069,185.946 14.88%
One Peachtree Center
303 Peachtree Street, N.E., 4th Floor
Atlanta, Georgia 30308
- ------------------------------------------------------------------------------------------------------------------------------
Nissan Motor Corporation USA Institutional 724,581.330 10.08%
P.O. Box 191
Gardena, California 90248-0191
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 795,944.075 11.08%
FBO PM Retirement Plan
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. ** Institutional 623,900.749 8.68%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
- ------------------------------------------------------------------------------------------------------------------------------
First Interstate Bank as Trustee for Institutional 565,468.770 7.87%
Cadence Design System Inc.
P.O. Box 9800
Calabasas, California 91372-0800
- ------------------------------------------------------------------------------------------------------------------------------
FTC & Co. Administrative 264,634.635 57.08%*
First Trust (Multi-Financial Group)
P.O. Box 173736
Denver, Colorado 80217-3736
- ------------------------------------------------------------------------------------------------------------------------------
Baptist Sunday School Board Administrative 195,699.881 42.21%
1279th Avenue N, MSN 187
Nashville, Tennessee 37234
- ------------------------------------------------------------------------------------------------------------------------------
Balanced Fund Pacific Mutual Life Insurance Company Institutional 1,353,889.627 22.21%
FBO California Race Track Association
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 1,183,538.060 19.42%
FBO PM RISP
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Balanced Fund Pacific Mutual Life Insurance Company Institutional 742,119.907 12.18%
(cont.) FBO WESCOM Credit Union
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Trustees of the Redlands Community Institutional 740,698.456 12.15%
Hospital Retirement Plan
350 Terracina Blvd.
Redlands, California 92373-4850
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 721,580.954 11.84%
FBO California Hardware Company
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company Institutional 516,750.946 8.48%
FBO Dominguez Water Corporation Pension
Fund
700 Newport Center Drive
Newport Beach, California 92660
- ------------------------------------------------------------------------------------------------------------------------------
Target*** Merrill Lynch Pierce Fenner & Smith Inc.** A 1,847,898.482 20.84%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
J.C. Bradford & Company A 478,974.346 5.40%
FBO RCIP Limited Partnership I
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** B 1,314,329.183 41.85%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** C 19,051,280.977 32.44%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Precious Merrill Lynch Pierce Fenner & Smith Inc.** A 108,868.000 23.39%
Metals*** Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** B 42,955.000 21.73%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Precious Merrill Lynch Pierce Fenner & Smith Inc.** C 647,256.269 20.00%
Metals*** Attn: Book Entry Department
(cont.) 4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Renaissance*** Merrill Lynch Pierce Fenner & Smith Inc.** A 241,534.061 18.40%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** B 352,974.446 32.89%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** C 2,694,343.078 18.52%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Tax Exempt*** Dain Bosworth, Inc. FBO A 140,258.827 28.49%
Kermit K. Kinsey
2801 NE 14th Street
Fort Lauderdale, FL 33304
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** A 122,145.000 24.81%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Donaldson Lufkin Jenrette Securities A 86,190.394 17.50%
Corporation, Inc.**
P.O. Box 2052
Jersey City, NJ 07303-9998
- ------------------------------------------------------------------------------------------------------------------------------
Dain Bosworth Inc. FBO B 38,916.791 20.43%
Kermit K. Kinsey
2801 NE 14th Street
Ft. Lauderdale, FL 33304
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** B 25,698.000 13.49%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Tax Exempt*** Paine Webber FBO B 17,043.832 8.94%
(cont.) William H. Hoehn
2906 S.W. 130th Terr.
Archer, FL 32618-2124
- ------------------------------------------------------------------------------------------------------------------------------
Herman Wertz Revocable Trust FBO B 14,909.045 7.82%
Herman Wertz
239 Franklin Avenue
Palmerton, PA 18071-1509
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** C 508,543.855 12.89%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Growth*** Merrill Lynch Pierce Fenner & Smith Inc.** A 484,061.173 8.44%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** B 574,892.405 38.17%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** C 8,495,865.976 14.92%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Opportunity*** Boston Safe Deposit & Trust Co. A 805,900.094 22.29%
TWA Pilots Directed Account
Plan UA January 1, 1986
1 Cabot Road
Medford, MA 02155-5158
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** A 556,200.000 15.38%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
American Express Trust Company A 329,860.684 9.12%
Wesco Distribution, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** C 6,376,442.353 28.15%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Percentage of
Class of No. of Shares Outstanding
Fund Beneficial or Record Owner Shares Owned Owned Shares of Class
Owned
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Innovation*** Merrill Lynch Pierce Fenner & Smith Inc.** A 487,182.584 16.74%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** B 613,048.188 28.79%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** C 1,384,905.341 16.75%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
International*** Society National Bank A 227,473.042 14.19%
FBO RPM Retirement Plan
P.O. Box 6147
Cleveland, OH 44101-1147
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** A 207,546.455 12.94%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** B 163,186.227 33.45%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith Inc.** C 3,004,023.822 18.47%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, FL 32246-6484
- ------------------------------------------------------------------------------------------------------------------------------
</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.
** Shares are believed to be held only as nominee.
*** Represents ownership of Class A, Class B or Class C shares as of December
31, 1996 of former series of PAF which reorganized as the listed Funds of the
Trust on January 17, 1997.
**** Represents ownership of Class A, Class B or Class C shares as of December
31, 1996 of former series of PAF which merged with the listed Funds of the Trust
on January 17, 1997.
86
<PAGE>
Custodian
Investors Fiduciary Trust Company ("IFTC"), 127 West 10th Street,
Kansas City, Missouri 64105, serves as custodian for assets of all Funds.
Pursuant to a sub-custody agreement between IFTC and The Chase Manhattan Bank,
N.A. ("Chase"), Chase serves as subcustodian of the Trust for the custody of the
foreign securities acquired by those Funds that invest in foreign securities.
Under the agreement, Chase may hold the foreign securities at its principal
office at One Chase Manhattan Plaza, New York, New York 10081, and at Chase's
branches, and subject to approval by the Board of Trustees, at a foreign branch
of a qualified U.S. bank, with an eligible foreign subcustodian, or with an
eligible foreign securities depository.
Pursuant to rules or other exemptions under the 1940 Act, the Trust may
maintain foreign securities and cash in the custody of certain eligible foreign
banks and securities depositories. Selection of these foreign custodial
institutions is made by the Board of Trustees following a consideration of a
number of factors, including (but not limited to) the reliability and financial
stability of the institution; the ability of the institution to perform capably
custodial services for the Trust; the reputation of the institution in its
national market; the political and economic stability of the country in which
the institution is located; and further risks of potential nationalization or
expropriation of Trust assets. The Board of Trustees reviews annually the
continuance of foreign custodial arrangements for the Trust. No assurance can be
given that the Trustees' appraisal of the risks in connection with foreign
custodial arrangements will always be correct or that expropriation,
nationalization, freezes, or confiscation of assets that would impact assets of
the Funds will not occur, and shareholders bear the risk of losses arising from
these or other events.
Independent Accountants
Price Waterhouse LLP, 1055 Broadway, Kansas City, Missouri 64105,
serves as the independent public accountants for the Funds. Price Waterhouse LLP
provides audit services, accounting assistance, and consultation in connection
with SEC filings. As described below under "Financial Statements," Coopers &
Lybrand L.L.P., 1301 Avenue of the Americas, New York, New York 10019, served as
independent public accountants for former series of PAF which reorganized as
series of the Trust on January 17, 1997.
Registration Statement
This Statement of Additional Information and the Prospectuses do not
contain all of the information included in the Trust's registration statements
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statements, including the exhibits
filed therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectuses as to the contents
of any contract or other documents referred to are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the relevant registration statement, each such
statement being qualified in all respects by such reference.
Financial Statements
Financial statements for Institutional Class and Administrative Class
shares (if applicable) of the Equity Income, Value, Enhanced Equity, Capital
Appreciation, Mid Cap Growth, Small Cap Value, Small Cap Growth, Micro Cap
Growth, International Developed, Emerging Markets, Core Equity, Mid Cap Equity
and Balanced Funds of the Trust, as of June 30, 1996, for these Funds' fiscal
years then ended, including notes thereto, and the report of Price Waterhouse
LLP thereon dated August 12, 1996, are incorporated by reference from the
Trust's 1996 Annual Report. (As of such dates, these Funds were known as the NFJ
Equity Income, NFJ Diversified Low
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P/E, Parametric Enhanced Equity, Cadence Capital Appreciation, Cadence Mid Cap
Growth, NFJ Small Cap Value, Cadence Small Cap Growth, Cadence Micro Cap Growth,
Blairlogie International Active, Blairlogie Emerging Markets, Columbus Circle
Investors Core Equity, Columbus Circle Investors Mid Cap Equity and Balanced
Funds, respectively.) Financial statements for Class A, Class B (except for the
Opportunity Fund) and Class C shares of the Renaissance, Growth, Target,
Opportunity, Innovation, Tax Exempt, International and Precious Metals Funds
(prior to January 17, 1997, the Equity Income, Growth, Target, Opportunity,
Innovation, Tax Exempt, International, and Precious Metals Funds of PAF,
respectively) as of September 30, 1996, for these Funds' fiscal years then
ended, including notes thereto, and the report of Coopers & Lybrand LLP thereon
dated November 22, 1996, are incorporated by reference from PAF's 1996 Annual
Report. The Trust's and PAF's 1996 Annual Reports are on file with the SEC.
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Certain of the Funds make use of average portfolio credit quality
standards to assist institutional investors whose own investment guidelines
limit their investments accordingly. In determining a Fund's overall
dollar-weighted average quality, unrated securities are treated as if rated,
based on the Adviser's view of their comparability to rated securities. A Fund's
use of average quality criteria is intended to be a guide for those
institutional investors whose investment guidelines require that assets be
invested according to comparable criteria. Reference to an overall average
quality rating for a Fund does not mean that all securities held by the Fund
will be rated in that category or higher. A Fund's investments may range in
quality from securities rated in the lowest category in which the Fund is
permitted to invest to securities rated in the highest category (as rated by
Moody's or S&P or, if unrated, determined by the Adviser to be of comparable
quality). The percentage of a Fund's assets invested in securities in a
particular rating category will vary. Following is a description of Moody's and
S&P's ratings applicable to fixed income securities.
Moody's Investors Service, Inc.
Corporate and Municipal Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than with Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
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C: Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classified from Aa through B in its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Corporate Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as letters
of credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the
Prime rating categories.
Standard & Poor's Corporation
Corporate and Municipal Bond Ratings
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA: Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.
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A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions, or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest
is being paid.
D: Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating will also be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This
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rating, however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
r: The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
Commercial Paper Rating Definitions
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity of no
more than 365 days. Ratings are graded into several categories, ranging from A
for the highest quality obligations to D for the lowest. These categories are as
follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated B are regarded as having only speculative capacity
for timely payment.
C: This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell
or hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to Standard & Poor's by the issuer or obtained from other
sources it considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information.
A-4
