<PAGE>
PIMCO Funds Prospectus
Multi-Manager STOCK AND BOND FUNDS
Series: Class Balanced Fund
A,B,C, Shares
July 13, 1998
STOCK FUNDS
Equity Income Fund Growth Fund
Value Fund Value 25 Fund
Renaissance Fund Mid-Cap Growth Fund
Tax-Efficient Equity Fund Target Fund
Capital Appreciation Fund
AGGRESSIVE STOCK FUNDS
Small-Cap Value Fund Opportunity Fund
INTERNATIONAL STOCK FUNDS
International Developed Fund Emerging Markets Fund
International Fund
SPECIALIZED STOCK FUNDS
Innovation Fund Precious Metals Fund
P I M C O
---------
F U N D S
<PAGE>
PIMCO Funds: Multi-Manager Series
Prospectus
July 13, 1998
PIMCO Funds: Multi-Manager Series (the "Trust") is an open-end
series management investment company offering seventeen separate
diversified investment portfolios (each a "Fund") in this
Prospectus, 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 offer
Class B shares. Through separate prospectuses, certain Funds may
offer up to three additional classes of shares, Class D,
Institutional Class 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 July 13, 1998, as
amended or supplemented from time to time, is available free of
charge by writing to PIMCO Funds Distributors LLC (the
"Distributor"), 2187 Atlantic Street, Stamford, Connecticut 06902,
or by telephoning 800-426-0107. The Statement of Additional
Information, 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. The Securities
and Exchange Commission maintains an Internet World Wide Web site
(at http://www.sec.gov) which contains the Statement of Additional
Information, materials that are incorporated by reference into this
Prospectus and the Statement of Additional Information, and other
information about the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, AND THE SHARES
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
TABLE OF CONTENTS
PIMCO Funds Overview...........................................................3
Schedule of Fees...............................................................4
Financial Highlights...........................................................8
Investment Objectives and Policies............................................18
Characteristics and Risks of Securities and Investment Techniques.............27
Performance Information.......................................................40
How to Buy Shares.............................................................41
Alternative Purchase Arrangements ............................................46
Exchange Privilege............................................................54
How to Redeem.................................................................55
Distributor and Distribution and Servicing Plans..............................59
How Net Asset Value Is Determined.............................................62
Distributions.................................................................63
Taxes.........................................................................64
Management of the Trust.......................................................65
Description of the Trust......................................................70
Mailings to Shareholders......................................................72
2 PIMCO Funds: Multi-Manager Series
<PAGE>
PIMCO Funds Overview
PIMCO Advisors L.P. ("PIMCO Advisors" or the "Advisor") is the in-
vestment advisor of all the Funds. PIMCO Advisors is one of the
largest investment management firms in the U.S. As of May 31,
1998, PIMCO Advisors and its subsidiary partnerships had approxi-
mately $223.2 billion in assets under management. Each of the
Funds also has a sub-advisor (each a "Portfolio Manager") respon-
sible for portfolio investment decisions. All of the Funds' Port-
folio Managers are affiliates of PIMCO Advisors except for Van Eck
Associates Corporation ("Van Eck"), an independent Portfolio Man-
ager that advises the Precious Metals Fund. The affiliated Portfo-
lio Managers are listed below.
<TABLE>
<CAPTION>
INVESTMENT SPECIALTY
-----------------------------------------------------------------------------------------------------
<C> <S>
COLUMBUS CIRCLE INVESTORS ("Columbus Circle") Stocks, using its "Positive Momentum & Positive
Surprise" discipline
------------------------------------------------------
CADENCE CAPITAL MANAGEMENT ("Cadence") Stocks of growth companies that the Portfolio Manager
believes are trading at a reasonable price
------------------------------------------------------
NFJ INVESTMENT GROUP ("NFJ") Value stocks that the Portfolio Manager believes are
undervalued and/or offer above-average dividend yields
------------------------------------------------------
BLAIRLOGIE CAPITAL MANAGEMENT ("Blairlogie") International stocks using Scottish standards of
prudent investment management with modern quantitative
analytical tools
------------------------------------------------------
PACIFIC INVESTMENT MANAGEMENT COMPANY All sectors of the bond market using its total return
("Pacific Investment Management") philosophy--seeking both yield and capital
appreciation
------------------------------------------------------
PARAMETRIC PORTFOLIO ASSOCIATES ("Parametric") Stocks, using quantitatively-driven fundamental
analysis and economic methods, with a specialty in
tax-efficient products
</TABLE>
<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE PRIMARY INVESTMENTS (/1/) PORTFOLIO MANAGER
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FUND STOCK & Balanced Total return consistent Common stocks, fixed Cadence, NFJ and Pacific
PROFILES BOND FUNDS with prudent investment income securities and Investment Management
management money market instruments
-------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------
Value Long-term growth of Common stocks with below- NFJ
capital and income average price to earnings
ratios relative to their
industry groups
-------------------------------------------------------------------------------------------------
Renaissance Long-term growth of Common stocks with below- Columbus Circle
capital and income average valuations that
have improving business
fundamentals
-------------------------------------------------------------------------------------------------
Tax-Efficient Maximum after-tax growth A broadly diversified Parametric
Equity of capital portfolio of at least 250
common stocks of companies
with larger
market capitalizations
-------------------------------------------------------------------------------------------------
Capital Growth of capital Common stocks of companies Cadence
Appreciation with market
capitalizations of at
least $1 billion 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
-------------------------------------------------------------------------------------------------
Value 25 Long-term growth of Approximately 25 common NFJ
capital and income stocks of companies with
medium market
capitalizations and that
have below-average price
to earnings ratios
relative to their industry
groups
-------------------------------------------------------------------------------------------------
Mid-Cap Growth of capital Common stocks of companies Cadence
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
-------------------------------------------------------------------------------------------------------------
AGGRESSIVE Small-Cap Long-term growth of Common stocks of companies NFJ
STOCK FUNDS 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 market
income capitalizations of less
than $2 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)
</TABLE>
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--Re-
strictions on Sales of and Exchanges for Shares of the Opportunity
Fund," the Opportunity Fund is closed to new investors.
July 13, 1998 Prospectus 3
<PAGE>
Schedule of Fees
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES/(1)/ SHARES
------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER MAXIMUM INITIAL SALES CHARGE
TRANSACTION IMPOSED ON PURCHASES
EXPENSES (as a percentage of offering
price at time of purchase) 5.50% None None
------------------------------------------------------------------
MAXIMUM SALES CHARGE IMPOSED
ON REINVESTED DIVIDENDS
(as a percentage of net as-
set value at time of pur-
chase) 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:
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>
BALANCED .45% .40% .25% 1.10% $66 $88 $112 $182
CLASS A --------------------------------------------------------------------------------------------
SHARES EQUITY INCOME .45 .40 .25 1.10 66 88 112 182
--------------------------------------------------------------------------------------------
VALUE .45 .40 .25 1.10 66 88 112 182
--------------------------------------------------------------------------------------------
RENAISSANCE .60 .40 .25 1.25 67 92 120 198
--------------------------------------------------------------------------------------------
TAX-EFFICIENT
EQUITY .45 .40 .25 1.10 66 88 -- --
--------------------------------------------------------------------------------------------
CAPITAL
APPRECIATION .45 .40 .25 1.10 66 88 112 182
--------------------------------------------------------------------------------------------
GROWTH .50 .40 .25 1.15 66 90 115 187
--------------------------------------------------------------------------------------------
VALUE 25 .50 .40 .25 1.15 66 90 -- --
--------------------------------------------------------------------------------------------
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
<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>
BALANCED $66 $88 $112 $182
CLASS A --------------------------------------------------------------------
SHARES EQUITY INCOME 66 88 112 182
--------------------------------------------------------------------
VALUE 66 88 112 182
--------------------------------------------------------------------
RENAISSANCE 67 92 120 198
--------------------------------------------------------------------
TAX-EFFICIENT
EQUITY 66 88 -- --
--------------------------------------------------------------------
CAPITAL
APPRECIATION 66 88 112 182
--------------------------------------------------------------------
GROWTH 66 90 115 187
--------------------------------------------------------------------
VALUE 25 66 90 -- --
--------------------------------------------------------------------
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 72 107 145 250
MARKETS
--------------------------------------------------------------------
INNOVATION 68 94 122 203
--------------------------------------------------------------------
PRECIOUS 68 94 122 203
METALS
</TABLE>
1. The Administrative Fees for each Fund are subject to reduction
to the extent that the average net assets attributable in the ag-
gregate to the Fund's Class A, Class B and Class C shares exceed
$2.5 billion. See "Management of the Trust -- Advisory and Admin-
istrative 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 Distribu-
tion 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%
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>
BALANCED .45% .40% 1.00% 1.85% $69 $88 $120 $188
- ---------------------------------------------------------------------------------------------------------
EQUITY INCOME .45 .40 1.00 1.85 69 88 120 188
- ---------------------------------------------------------------------------------------------------------
VALUE .45 .40 1.00 1.85 69 88 120 188
- ---------------------------------------------------------------------------------------------------------
RENAISSANCE .60 .40 1.00 2.00 70 93 128 204
- ---------------------------------------------------------------------------------------------------------
TAX-EFFICIENT
EQUITY .45 .40 1.00 1.85 69 88 -- --
- ---------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION .45 .40 1.00 1.85 69 88 120 188
- ---------------------------------------------------------------------------------------------------------
GROWTH .50 .40 1.00 1.90 69 90 123 193
- ---------------------------------------------------------------------------------------------------------
VALUE 25 .50 .40 1.00 1.90 69 90 -- --
- ---------------------------------------------------------------------------------------------------------
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
<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>
BALANCED $19 $58 $100 $188
- ----------------------------------------------------------
EQUITY INCOME 19 58 100 188
- ----------------------------------------------------------
VALUE 19 58 100 188
- ----------------------------------------------------------
RENAISSANCE 20 63 108 204
- ----------------------------------------------------------
TAX-EFFICIENT
EQUITY 19 58 -- --
- ----------------------------------------------------------
CAPITAL APPRECIATION 19 58 100 188
- ----------------------------------------------------------
GROWTH 19 60 103 193
- ----------------------------------------------------------
VALUE 25 19 60 -- --
- ----------------------------------------------------------
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
</TABLE>
CLASS B
SHARES
1. The Administrative Fees for each Fund are subject to reduction
to the extent that the average net assets attributable in the ag-
gregate to the Fund's Class A, Class B and Class C shares exceed
$2.5 billion. See "Management of the Trust--Advisory and Adminis-
trative Fees."
2. 12b-1 fees which are equal to .25% represent servicing fees
which are paid annually to the Distributor and repaid to partici-
pating 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."
July 13, 1998 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:
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>
BALANCED .45% .40% 1.00% 1.85% $29 $58 $100 $217
- ------------------------------------------------------------------------------------------------------
EQUITY INCOME .45 .40 1.00 1.85 29 58 100 217
- ------------------------------------------------------------------------------------------------------
VALUE .45 .40 1.00 1.85 29 58 100 217
- ------------------------------------------------------------------------------------------------------
RENAISSANCE .60 .40 1.00 2.00 30 63 108 233
- ------------------------------------------------------------------------------------------------------
TAX-EFFICIENT
EQUITY .45 .40 1.00 1.85 29 58 -- --
- ------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION .45 .40 1.00 1.85 29 58 100 217
- ------------------------------------------------------------------------------------------------------
GROWTH .50 .40 1.00 1.90 29 60 103 222
- ------------------------------------------------------------------------------------------------------
VALUE 25 .50 .40 1.00 1.90 29 60 -- --
- ------------------------------------------------------------------------------------------------------
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
<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>
BALANCED $19 $58 $100 $217
- ----------------------------------------------------------
EQUITY INCOME 19 58 100 217
- ----------------------------------------------------------
VALUE 19 58 100 217
- ----------------------------------------------------------
RENAISSANCE 20 63 108 233
- ----------------------------------------------------------
TAX-EFFICIENT
EQUITY 19 58 -- --
- ----------------------------------------------------------
CAPITAL APPRECIATION 19 58 100 217
- ----------------------------------------------------------
GROWTH 19 60 103 222
- ----------------------------------------------------------
VALUE 25 19 60 -- --
- ----------------------------------------------------------
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
</TABLE>
CLASS C
SHARES
1. The Administrative Fees for each Fund are subject to reduction
to the extent that the average net assets attributable in the ag-
gregate to the Fund's Class A, Class B and Class C shares exceed
$2.5 billion. See "Management of the Trust--Advisory and Adminis-
trative Fees."
2. 12b-1 fees which are equal to .25% represent servicing fees
which are paid annually to the Distributor and repaid to partici-
pating 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 un-
derstanding 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. The information is based upon each
Fund's current fees and expenses. 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 B or Class C shareholder of the Trust may, depend-
ing on the length of time the shares are held, pay more than the
economic equivalent of the maximum front-end sales charges permit-
ted 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 EX-
PENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS
THAN SHOWN.
6 PIMCO Funds: Multi-Manager Series
<PAGE>
(This page left blank intentionally)
July 13, 1998 Prospectus 7
<PAGE>
Financial Highlights
The financial highlights set forth on the following pages present certain in-
formation and ratios as well as performance information for the Funds that
were operational during the periods listed. Information provided below for pe-
riods through June 30, 1997 is included in the June 30, 1997 PIMCO Funds An-
nual Report (relating to Class A, B and C shares) and, except as noted below,
has been audited by Price Waterhouse LLP, independent accountants, whose re-
port thereon is also included in such Annual Report. Information for the peri-
ods ended December 31, 1997 is included in the Trust's December 31, 1997 Semi-
Annual Report and is unaudited. The Annual Report and Semi-Annual Report are
incorporated by reference in the Statement of Additional Information and may
be obtained without charge from the Distributor. Financial Statements and re-
lated notes are also incorporated by reference in the Statement of Additional
Information.
<TABLE>
<CAPTION>
NET REALIZED/ DIVIDENDS DIVIDENDS IN DISTRIBUTIONS
Selected Per Share Data NET ASSET VALUE NET UNREALIZED TOTAL INCOME FROM NET EXCESS OF NET FROM NET
for the Period Ended: BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT INVESTMENT INVESTMENT REALIZED CAPITAL
OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME INCOME GAINS
--------------- ------------- -------------- --------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCED FUND
Class A
12/31/97 + $ 11.40 $ 0.01 (a) $ 1.12 (a) $ 1.13 $ (0.18) $ 0.00 $ (1.09)
01/20/97-06/30/97 10.77 0.21 0.58 0.79 (0.16) 0.00 0.00
Class B
12/31/97 + 11.39 0.11 (a) 0.98 (a) 1.09 (0.16) 0.00 (1.09)
01/20/97-06/30/97 10.77 0.19 0.58 0.77 (0.15) 0.00 0.00
Class C
12/31/97 + 11.39 0.11 (a) 0.99 (a) 1.10 (0.16) 0.00 (1.09)
01/20/97-06/30/97 10.77 0.18 0.58 0.76 (0.14) 0.00 0.00
EQUITY INCOME
FUND
Class A
12/31/97 + $ 15.39 $ 0.22 (a) $ 1.90 (a) $ 2.12 $ (0.23) $ 0.00 $ (2.09)
01/20/97-06/30/97 13.94 0.15 1.48 1.63 (0.18) 0.00 0.00
Class B
12/31/97 + 15.37 0.14 (a) 1.91 (a) 2.05 (0.18) 0.00 (2.09)
01/20/97-06/30/97 13.94 0.11 1.48 1.59 (0.16) 0.00 0.00
Class C
12/31/97 + 15.37 0.14 (a) 1.91 (a) 2.05 (0.17) 0.00 (2.09)
01/20/97-06/30/97 13.94 0.11 1.48 1.59 (0.16) 0.00 0.00
VALUE FUND
Class A
12/31/97 + $ 14.80 $ 0.09 (a) $ 1.38 (a) $ 1.47 $ (0.10) $ 0.00 $ (1.63)
01/13/97-06/30/97 13.17 0.47 1.26 1.73 (0.10) 0.00 0.00
Class B
12/31/97 + 14.80 0.03 (a) 1.38 (a) 1.41 (0.05) 0.00 (1.63)
01/13/97-06/30/97 13.16 0.44 1.26 1.70 (0.06) 0.00 0.00
Class C
12/31/97 + 14.80 0.03 (a) 1.37 (a) 1.40 (0.05) 0.00 (1.63)
01/13/97-06/30/97 13.15 0.43 1.28 1.71 (0.06) 0.00 0.00
RENAISSANCE
FUND (I)
Class A
12/31/97 + $ 17.73 $ 0.06 (a) $ 2.76 (a) $ 2.82 $ (0.08) $ 0.00 $ (3.53)
10/01/96-06/30/97 16.08 0.12 (a) 3.90 (a) 4.02 (0.12) 0.00 (2.25)
9/30/96 14.14 0.23 2.79 3.02 (0.23) (0.07) (0.78)
9/30/95 12.50 0.36 1.61 1.97 (0.33) 0.00 0.00
9/30/94 12.88 0.34 (0.17) 0.17 (0.33) 0.00 (0.22)
9/30/93 10.57 0.33 2.30 2.63 (0.32) 0.00 0.00
9/30/92 9.92 0.34 0.71 1.05 (0.40) 0.00 0.00
2/1/91-9/30/91 8.38 0.28 1.54 1.82 (0.28) 0.00 0.00
Class B
12/31/97 + 17.77 (0.01)(a) 2.75 (a) 2.74 (0.02) 0.00 (3.53)
10/01/96-06/30/97 16.12 0.03 (a) 3.92 (a) 3.95 (0.05) 0.00 (2.25)
9/30/96 14.13 0.09 2.83 2.92 (0.11) (0.04) (0.78)
5/22/95-9/30/95 12.55 0.11 1.55 1.66 (0.08) 0.00 0.00
<CAPTION>
DISTRIBUTIONS
Selected Per Share Data IN EXCESS OF
for the Period Ended: NET REALIZED
CAPITAL GAINS
-------------
<S> <C>
BALANCED FUND
Class A
12/31/97 + $ 0.00
01/20/97-06/30/97 0.00
Class B
12/31/97 + 0.00
01/20/97-06/30/97 0.00
Class C
12/31/97 + 0.00
01/20/97-06/30/97 0.00
EQUITY INCOME
FUND
Class A
12/31/97 + $ 0.00
01/20/97-06/30/97 0.00
Class B
12/31/97 + 0.00
01/20/97-06/30/97 0.00
Class C
12/31/97 + 0.00
01/20/97-06/30/97 0.00
VALUE FUND
Class A
12/31/97 + $ 0.00
01/13/97-06/30/97 0.00
Class B
12/31/97 + 0.00
01/13/97-06/30/97 0.00
Class C
12/31/97 + 0.00
01/13/97-06/30/97 0.00
RENAISSANCE
FUND (I)
Class A
12/31/97 + $ 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
2/1/91-9/30/91 0.00
Class B
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
5/22/95-9/30/95 0.00
</TABLE>
*Annualized
+Unaudited
(a) Per share amounts based upon average number of shares outstanding during
the period.
(i) Formerly, the PIMCO Advisors Equity Income Fund. The information provided
reflects results of operations under the Fund's former investment
objective and policies through January 31, 1992; such results would not
necessarily have been achieved had the Fund's current objective and
policies then been in effect.
8 PIMCO Funds: Multi-Manager Series
<PAGE>
The information provided for each of the Renaissance, Growth, Target, Opportu-
nity, International, Innovation and Precious Metals Funds reflects the opera-
tional history of a corresponding series of PIMCO Advisors Funds which reorga-
nized as a series of the Trust on January 17, 1997. In connection with the re-
organizations, these Funds changed their fiscal year ends from September 30 to
June 30. The information provided for these Funds for each of the five fiscal
periods ended prior to October 1, 1996 has been audited by other independent
accountants. The expense ratios provided for these Funds reflect fee arrange-
ments of PIMCO Advisors Funds in effect prior to January 17, 1997 which differ
from the current fee arrangements of the Trust.
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
DISTRIBUTIONS TAX BASIS NET ASSET EXPENSES TO INCOME TO
FROM RETURN OF TOTAL VALUE END OF NET ASSETS END AVERAGE NET AVERAGE NET PORTFOLIO
EQUALIZATION CAPITAL DISTRIBUTIONS PERIOD TOTAL RETURN OF PERIOD (000S) ASSETS ASSETS TURNOVER RATE
- ------------- --------- ------------- ------------ ------------ ---------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ (1.27) $ 11.26 9.91% $ 6,065 1.11%* 2.62%* 85%
0.00 0.00 (0.16) 11.40 7.42 366 1.15* 3.01* 199
0.00 0.00 (1.25) 11.23 9.51 3,931 1.85* 1.88* 85
0.00 0.00 (0.15) 11.39 7.15 1,124 1.90* 2.28* 199
0.00 0.00 (1.25) 11.24 9.62 4,146 1.85* 1.87* 85
0.00 0.00 (0.14) 11.39 7.12 921 1.90* 2.26* 199
$ 0.00 $ 0.00 $ (2.32) $ 15.19 13.92% $ 9,494 1.11%* 2.73%* 17%
0.00 0.00 (0.18) 15.39 11.77 1,756 1.13* 2.85* 45
0.00 0.00 (2.27) 15.15 13.45 6,932 1.85* 1.77* 17
0.00 0.00 (0.16) 15.37 11.45 2,561 1.87* 2.11* 45
0.00 0.00 (2.26) 15.16 13.46 12,430 1.85* 1.73* 17
0.00 0.00 (0.16) 15.37 11.42 6,624 1.87* 2.15* 45
$ 0.00 $ 0.00 $ (1.73) $ 14.54 9.98% $ 18,436 1.10%* 1.17%* 33%
0.00 0.00 (0.10) 14.80 13.19 15,648 1.11* 1.71* 71
0.00 0.00 (1.68) 14.53 9.55 30,370 1.86* 0.43* 33
0.00 0.00 (0.06) 14.80 12.93 25,433 1.86* 0.96* 71
0.00 0.00 (1.68) 14.52 9.48 76,988 1.86* 0.43* 33
0.00 0.00 (0.06) 14.80 13.02 64,110 1.86* 0.97* 71
$ 0.00 $ 0.00 $ (3.61) $ 16.94 16.17% $ 45,857 1.26%* 0.64%* 105%
0.00 0.00 (2.37) 17.73 27.53 33,606 1.23* 0.95* 131
0.00 0.00 (1.08) 16.08 22.37 20,631 1.25 1.60 203
0.00 0.00 (0.33) 14.14 16.10 12,933 1.30 2.90 177
0.00 0.00 (0.55) 12.50 1.40 14,942 1.30 2.70 175
0.00 0.00 (0.32) 12.88 25.30 6,328 1.30 2.90 168
0.00 0.00 (0.40) 10.57 10.70 2,593 1.40 3.30 149
0.00 0.00 (0.28) 9.92 34.80 15 1.60* 4.40* 143
0.00 0.00 (3.55) 16.96 15.67 53,661 2.01* (0.11)* 105
0.00 0.00 (2.30) 17.77 26.88 37,253 1.97* 0.20* 131
0.00 0.00 (0.93) 16.12 21.54 15,693 2.00 0.85 203
0.00 0.00 (0.08) 14.13 13.30 1,760 2.10* 2.20* 177
<CAPTION>
AVERAGE
COMMISSION RATE
- ---------------
<S>
$ 0.06
0.06
0.06
0.06
0.06
0.06
$ 0.06
0.06
0.06
0.06
0.06
0.06
$ 0.06
0.06
0.06
0.06
0.06
0.06
$ 0.06
0.06
0.06
0.06
0.06
0.06
</TABLE>
July 13, 1998 Prospectus 9
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
NET REALIZED/ DIVIDENDS DIVIDENDS IN DISTRIBUTIONS
Selected Per Share Data NET ASSET VALUE NET UNREALIZED TOTAL INCOME FROM NET EXCESS OF NET FROM NET
for the Period Ended: BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT INVESTMENT INVESTMENT REALIZED CAPITAL
OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME INCOME GAINS
--------------- ------------- -------------- --------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
RENAISSANCE FUND
(CONT.)
Class C
12/31/97 + $ 17.69 $(0.01)(a) $ 2.73 (a) $ 2.72 $ (0.01) $ 0.00 $ (3.53)
10/01/96-06/30/97 16.05 0.03 (a) 3.90 (a) 3.93 (0.04) 0.00 (2.25)
9/30/96 14.09 0.12 2.78 2.90 (0.13) (0.03) (0.78)
9/30/95 12.47 0.27 1.59 1.86 (0.24) 0.00 0.00
9/30/94 12.85 0.24 (0.16) 0.08 (0.24) 0.00 (0.22)
9/30/93 10.56 0.25 2.29 2.54 (0.25) 0.00 0.00
9/30/92 9.91 0.29 0.68 0.97 (0.32) 0.00 0.00
9/30/91 8.16 0.36 1.75 2.11 (0.36) 0.00 0.00
9/30/90 11.17 0.49 (2.32) (1.83) (0.49) 0.00 (0.69)
9/30/89 10.05 0.55 1.19 1.74 (0.62) 0.00 0.00
4/18/88-9/30/88 10.00 0.24 (0.05) 0.19 (0.14) 0.00 0.00
CAPITAL APPRECI-
ATION FUND
Class A
12/31/97 + $ 21.16 $ 0.02 (a) $ 3.36 (a) $ 3.38 $ (0.09) $ 0.00 $ (1.68)
01/20/97-06/30/97 19.31 0.09 1.76 1.85 0.00 0.00 0.00
Class B
12/31/97 + 21.10 (0.06)(a) 3.34 (a) 3.28 (0.07) 0.00 (1.68)
01/20/97-06/30/97 19.31 0.01 1.78 1.79 0.00 0.00 0.00
Class C
12/31/97 + 21.10 (0.06)(a) 3.34 (a) 3.28 (0.05) 0.00 (1.68)
01/20/97-06/30/97 19.31 0.02 1.77 1.79 0.00 0.00 0.00
GROWTH FUND
Class A
12/31/97 + $ 27.03 $(0.04)(a) $ 2.93 (a) $ 2.89 $ 0.00 $ 0.00 $ (4.32)
10/01/96-06/30/97 26.58 0.69 3.27 3.96 0.00 0.00 (3.51)
9/30/96 25.73 0.06 3.72 3.78 0.00 0.00 (2.93)
9/30/95 22.01 0.12 4.79 4.91 0.00 0.00 (1.19)
9/30/94 23.64 0.12 0.12 0.24 0.00 0.00 (1.87)
9/30/93 20.76 0.09 3.53 3.62 0.00 0.00 (0.74)
9/30/92 20.63 0.14 1.38 1.52 (0.14) 0.00 (1.25)
10/26/90-9/30/91 16.99 0.21 5.28 5.49 (0.19) 0.00 (1.66)
Class B
12/31/97 + 25.59 (0.14)(a) 2.77 (a) 2.63 0.00 0.00 (4.32)
10/01/96-06/30/97 25.46 0.35 3.29 3.64 0.00 0.00 (3.51)
9/30/96 24.94 (0.07) 3.52 3.45 0.00 0.00 (2.93)
5/23/95-9/30/95 22.63 (0.03) 2.34 2.31 0.00 0.00 0.00
Class C
12/31/97 + 25.58 (0.14)(a) 2.77 (a) 2.63 0.00 0.00 (4.32)
10/01/96-06/30/97 25.46 0.45 3.18 3.63 0.00 0.00 (3.51)
9/30/96 24.94 (0.12) 3.57 3.45 0.00 0.00 (2.93)
9/30/95 21.52 (0.04) 4.65 4.61 0.00 0.00 (1.19)
9/30/94 23.32 (0.04) 0.11 0.07 0.00 0.00 (1.87)
9/30/93 20.64 (0.07) 3.49 3.42 0.00 0.00 (0.74)
9/30/92 20.54 (0.01) 1.37 1.36 (0.01) 0.00 (1.25)
9/30/91 16.93 0.12 5.32 5.44 (0.17) 0.00 (1.66)
9/30/90 19.71 0.19 (1.67) (1.48) (0.18) 0.00 (1.12)
9/30/89 13.93 0.11 5.77 5.88 (0.10) 0.00 0.00
9/30/88 18.04 0.09 (2.96) (2.87) (0.11) 0.00 (1.13)
MID-CAP GROWTH
FUND
Class A
12/31/97 + $ 20.24 $ 0.01 (a) $ 3.57 (a) $ 3.58 $ (0.04) $ 0.00 $ (1.33)
01/13/97-06/30/97 18.14 (0.04) 2.14 2.10 0.00 0.00 0.00
Class B
12/31/97 + 20.17 (0.08)(a) 3.57 (a) 3.49 0.00 0.00 (1.33)
01/13/97-06/30/97 18.14 (0.11) 2.14 2.03 0.00 0.00 0.00
Class C
12/31/97 + 20.18 (0.08)(a) 3.56 (a) 3.48 0.00 0.00 (1.33)
01/13/97-06/30/97 18.14 (0.10) 2.14 2.04 0.00 0.00 0.00
<CAPTION>
DISTRIBUTIONS
Selected Per Share Data IN EXCESS OF
for the Period Ended: NET REALIZED
CAPITAL GAINS
-------------
<S> <C>
RENAISSANCE FUND
(CONT.)
Class C
12/31/97 + $ 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
9/30/91 0.00
9/30/90 0.00
9/30/89 0.00
4/18/88-9/30/88 0.00
CAPITAL APPRECI-
ATION FUND
Class A
12/31/97 + $ 0.00
01/20/97-06/30/97 0.00
Class B
12/31/97 + 0.00
01/20/97-06/30/97 0.00
Class C
12/31/97 + 0.00
01/20/97-06/30/97 0.00
GROWTH FUND
Class A
12/31/97 + $ 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
10/26/90-9/30/91 0.00
Class B
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
5/23/95-9/30/95 0.00
Class C
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
9/30/91 0.00
9/30/90 0.00
9/30/89 0.00
9/30/88 0.00
MID-CAP GROWTH
FUND
Class A
12/31/97 + $ 0.00
01/13/97-06/30/97 0.00
Class B
12/31/97 + 0.00
01/13/97-06/30/97 0.00
Class C
12/31/97 + 0.00
01/13/97-06/30/97 0.00
</TABLE>
*Annualized
+Unaudited
(a)Per share amounts based upon average number of shares outstanding during
the period.
10 PIMCO Funds: Multi-Manager Series
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
DISTRIBUTIONS TAX BASIS NET ASSET EXPENSES TO INCOME TO
FROM RETURN OF TOTAL VALUE END OF NET ASSETS END AVERAGE NET AVERAGE NET PORTFOLIO
EQUALIZATION CAPITAL DISTRIBUTIONS PERIOD TOTAL RETURN OF PERIOD (000S) ASSETS ASSETS TURNOVER RATE
- ------------- --------- ------------- ------------ ------------ ---------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ (3.54) $ 16.87 15.65% $ 370,999 2.01%* (0.12)%* 105%
0.00 0.00 (2.29) 17.69 26.86 313,226 1.97* 0.21* 131
0.00 0.00 (0.94) 16.05 21.52 230,058 2.00 0.85 203
0.00 0.00 (0.24) 14.09 15.20 174,316 2.10 2.10 177
0.00 0.00 (0.46) 12.47 0.70 178,892 2.00 2.00 175
0.00 0.00 (0.25) 12.85 24.40 94,247 2.10 2.20 168
0.00 0.00 (0.32) 10.56 9.90 45,101 2.10 2.70 149
0.00 0.00 (0.36) 9.91 26.50 22,651 2.20 4.20 143
0.00 0.00 (1.18) 8.16 (18.00) 25,758 2.00 5.10 70
0.00 0.00 (0.62) 11.17 17.90 45,168 1.90 5.20 85
0.00 0.00 (0.14) 10.05 4.30 47,118 2.00* 5.40* 23
$ 0.00 $ 0.00 $ (1.77) $ 22.77 15.90% $ 14,771 1.10%* 0.19%* 25%
0.00 0.00 0.00 21.16 9.58 6,534 1.11* 0.59* 87
0.00 0.00 (1.75) 22.63 15.47 12,836 1.84* (0.54)* 25
0.00 0.00 0.00 21.10 9.27 3,022 1.85* (0.26)* 87
0.00 0.00 (1.73) 22.65 15.45 38,243 1.84* (0.55)* 25
0.00 0.00 0.00 21.10 9.27 13,093 1.86* (0.23)* 87
$ 0.00 $ 0.00 $ (4.32) $ 25.60 10.68% $ 159,976 1.16%* (0.27)%* 76%
0.00 0.00 (3.51) 27.03 15.93 147,276 1.11* 0.13* 94
0.00 0.00 (2.93) 26.58 16.11 151,103 1.11 0.24 104
0.00 0.00 (1.19) 25.73 23.70 134,819 1.10 0.50 111
0.00 0.00 (1.87) 22.01 1.30 107,269 1.10 0.60 115
0.00 0.00 (0.74) 23.64 17.70 97,509 1.10 0.40 110
0.00 0.00 (1.39) 20.76 7.70 71,209 1.10 0.70 92
0.00 0.00 (1.85) 20.63 38.60 17,064 1.20* 0.90* 95
0.00 0.00 (4.32) 23.90 10.26 63,052 1.91* (1.01)* 76
0.00 0.00 (3.51) 25.59 15.32 55,626 1.86* (0.62)* 94
0.00 0.00 (2.93) 25.46 15.22 37,256 1.86 (0.51) 104
0.00 0.00 0.00 24.94 10.20 7,671 1.90* (0.40)* 111
0.00 0.00 (4.32) 23.89 10.26 1,554,136 1.86* (1.02)* 76
0.00 0.00 (3.51) 25.58 15.27 1,514,432 1.86* (0.61)* 94
0.00 0.00 (2.93) 25.46 15.22 1,450,216 1.86 (0.51) 104
0.00 0.00 (1.19) 24.94 22.80 1,290,152 1.90 (0.20) 111
0.00 0.00 (1.87) 21.52 0.50 1,085,427 1.90 (0.20) 115
0.00 0.00 (0.74) 23.32 16.90 1,077,490 1.90 (0.30) 110
0.00 0.00 (1.26) 20.64 6.90 853,121 1.90 (0.10) 92
0.00 0.00 (1.83) 20.54 35.10 564,398 1.80 0.60 95
0.00 0.00 (1.30) 16.93 (8.00) 314,075 1.70 1.00 89
0.00 0.00 (0.10) 19.71 42.40 373,490 1.70 0.70 83
0.00 0.00 (1.24) 13.93 (14.80) 338,493 1.80 0.60 104
$ 0.00 $ 0.00 $ (1.37) $ 22.45 17.60% $ 24,043 1.11%* 0.07%* 29%
0.00 0.00 0.00 20.24 11.58 12,184 1.11* 0.17* 82
0.00 0.00 (1.33) 22.33 17.20 49,941 1.85* (0.68)* 29
0.00 0.00 0.00 20.17 11.19 28,259 1.85* (0.58)* 82
0.00 0.00 (1.33) 22.33 17.15 93,258 1.85* (0.68)* 29
0.00 0.00 0.00 20.18 11.25 53,686 1.86* (0.58)* 82
<CAPTION>
AVERAGE
COMMISSION RATE
- ---------------
<S>
$ 0.06
0.06
0.06
$ 0.05
0.06
0.05
0.06
0.05
0.06
$ 0.06
0.05
0.07
0.06
0.05
0.07
0.06
0.05
0.07
$ 0.05
0.06
0.05
0.06
0.05
0.06
</TABLE>
July 13, 1998 Prospectus 11
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
NET REALIZED/ DIVIDENDS DIVIDENDS IN DISTRIBUTIONS
Selected Per Share Data NET ASSET VALUE NET UNREALIZED TOTAL INCOME FROM NET EXCESS OF NET FROM NET
for the Period Ended: BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT INVESTMENT INVESTMENT REALIZED CAPITAL
OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME INCOME GAINS
--------------- ------------- -------------- --------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
TARGET FUND
Class A
12/31/97 + $ 16.82 $(0.04)(a) $ 1.53 (a) $ 1.49 $ 0.00 $ 0.00 $ (4.45)
10/01/96-06/30/97 17.11 (0.04)(a) 1.82 (a) 1.78 0.00 0.00 (2.07)
9/30/96 16.40 (0.05) 2.54 2.49 0.00 0.00 (1.78)
9/30/95 13.13 (0.02) 3.45 3.43 0.00 0.00 (0.16)
9/30/94 12.72 (0.04) 0.57 0.53 0.00 0.00 (0.12)
12/17/92-9/30/93 10.00 (0.02) 2.74 2.72 0.00 0.00 0.00
Class B
12/31/97 + 16.14 (0.10)(a) 1.46 (a) 1.36 0.00 0.00 (4.45)
10/01/96-06/30/97 16.58 (0.12)(a) 1.75 (a) 1.63 0.00 0.00 (2.07)
9/30/96 16.06 (0.09) 2.39 2.30 0.00 0.00 (1.78)
5/22/95-9/30/95 13.93 (0.05) 2.18 2.13 0.00 0.00 0.00
Class C
12/31/97 + 16.13 (0.10)(a) 1.47 (a) 1.37 0.00 0.00 (4.45)
10/01/96-06/30/97 16.58 (0.12)(a) 1.74 (a) 1.62 0.00 0.00 (2.07)
9/30/96 16.05 (0.16) 2.47 2.31 0.00 0.00 (1.78)
9/30/95 12.95 (0.12) 3.38 3.26 0.00 0.00 (0.16)
9/30/94 12.65 (0.14) 0.56 0.42 0.00 0.00 (0.12)
12/17/92-9/30/93 10.00 (0.09) 2.74 2.65 0.00 0.00 0.00
SMALL-CAP VALUE
FUND
Class A
12/31/97 + $ 15.75 $ 0.13 (a) $ 2.59 (a) $ 2.72 $ (0.13) $ 0.00 $ (0.76)
01/20/97-06/30/97 14.02 0.10 1.63 1.73 0.00 0.00 0.00
Class B
12/31/97 + 15.71 0.07 (a) 2.56 (a) 2.63 (0.09) 0.00 (0.76)
01/20/97-06/30/97 14.02 0.08 1.61 1.69 0.00 0.00 0.00
Class C
12/31/97 + 15.71 0.07 (a) 2.57 (a) 2.64 (0.09) 0.00 (0.76)
01/20/97-06/30/97 14.02 0.08 1.61 1.69 0.00 0.00 0.00
OPPORTUNITY FUND
Class A
12/31/97 + $ 29.35 $(0.13)(a) $ 1.20 (a) $ 1.07 $ 0.00 $ 0.00 $ (1.94)
10/01/96-06/30/97 37.36 0.00 (3.10) (3.10) 0.00 0.00 (4.91)
9/30/96 39.08 (0.11) 6.12 6.01 0.00 0.00 (7.73)
9/30/95 28.87 (0.11) 11.19 11.08 0.00 0.00 (0.87)
9/30/94 33.43 (0.17) (2.02) (2.19) 0.00 0.00 (2.26)
9/30/93 19.84 (0.15) 14.00 13.85 0.00 0.00 (0.26)
9/30/92 17.95 (0.04) 3.61 3.57 0.00 0.00 (1.68)
12/17/90-9/30/91 11.78 (0.03) 6.20 6.17 0.00 0.00 0.00
Class C
12/31/97 + 27.38 (0.23)(a) 1.13 (a) 0.90 0.00 0.00 (1.94)
10/01/96-06/30/97 35.38 (0.04) (3.05) (3.09) 0.00 0.00 (4.91)
9/30/96 37.64 (0.35) 5.82 5.47 0.00 0.00 (7.73)
9/30/95 28.04 (0.34) 10.81 10.47 0.00 0.00 (0.87)
9/30/94 32.77 (0.38) (1.98) (2.36) 0.00 0.00 (2.26)
9/30/93 19.60 (0.34) 13.77 13.43 0.00 0.00 (0.26)
9/30/92 17.87 (0.18) 3.59 3.41 0.00 0.00 (1.68)
9/30/91 11.93 (0.11) 6.42 6.31 0.00 0.00 (0.37)
9/30/90 15.78 (0.01) (2.13) (2.14) 0.00 0.00 (1.71)
9/30/89 11.84 (0.03) 3.97 3.94 0.00 0.00 0.00
9/30/88 16.73 0.03 (2.34) (2.31) (0.03) 0.00 (2.55)
INTERNATIONAL
DEVELOPED FUND
Class A
12/31/97 + $ 13.08 $ 0.01 (a) $(0.95)(a) $ (0.94) $ (0.10) $ 0.00 $ (0.58)
01/20/97-06/30/97 11.71 0.09 (a) 1.28 (a) 1.37 0.00 0.00 0.00
Class B
12/31/97 + 13.06 (0.04)(a) (0.95)(a) (0.99) (0.06) 0.00 (0.58)
01/20/97-06/30/97 11.71 0.06 (a) 1.29 (a) 1.35 0.00 0.00 0.00
<CAPTION>
DISTRIBUTIONS
Selected Per Share Data IN EXCESS OF
for the Period Ended: NET REALIZED
CAPITAL GAINS
-------------
<S> <C>
TARGET FUND
Class A
12/31/97 + $ 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
12/17/92-9/30/93 0.00
Class B
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
5/22/95-9/30/95 0.00
Class C
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
12/17/92-9/30/93 0.00
SMALL-CAP VALUE
FUND
Class A
12/31/97 + $ 0.00
01/20/97-06/30/97 0.00
Class B
12/31/97 + 0.00
01/20/97-06/30/97 0.00
Class C
12/31/97 + 0.00
01/20/97-06/30/97 0.00
OPPORTUNITY FUND
Class A
12/31/97 + $ 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
12/17/90-9/30/91 0.00
Class C
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
9/30/91 0.00
9/30/90 0.00
9/30/89 0.00
9/30/88 0.00
INTERNATIONAL
DEVELOPED FUND
Class A
12/31/97 + $ 0.00
01/20/97-06/30/97 0.00
Class B
12/31/97 + 0.00
01/20/97-06/30/97 0.00
</TABLE>
*Annualized
+Unaudited
(a) Per share amounts based upon average number of shares outstanding during
the period.
12 PIMCO Funds: Multi-Manager Series
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
DISTRIBUTIONS TAX BASIS NET ASSET EXPENSES TO INCOME TO
FROM RETURN OF TOTAL VALUE END OF NET ASSETS END AVERAGE NET AVERAGE NET PORTFOLIO
EQUALIZATION CAPITAL DISTRIBUTIONS PERIOD TOTAL RETURN OF PERIOD (000S) ASSETS ASSETS TURNOVER RATE
- ------------- --------- ------------- ------------ ------------ ---------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ (4.45) $ 13.86 8.07% $158,794 1.21%* (0.40)%* 121%
0.00 0.00 (2.07) 16.82 11.19 150,689 1.20* (0.31)* 145
0.00 0.00 (1.78) 17.11 16.50 156,027 1.18 (0.34) 141
0.00 0.00 (0.16) 16.40 26.50 121,915 1.20 (0.10) 128
0.00 0.00 (0.12) 13.13 4.20 90,527 1.20 (0.30) 104
0.00 0.00 0.00 12.72 27.20 48,787 1.30* (0.30)* 76
0.00 0.00 (4.45) 13.05 7.58 70,531 1.96* (1.16)* 121
0.00 0.00 (2.07) 16.14 10.58 67,531 1.94* (1.05)* 145
0.00 0.00 (1.78) 16.58 15.58 49,851 1.93 (1.09) 141
0.00 0.00 0.00 16.06 15.30 7,554 2.00* (0.90)* 128
0.00 0.00 (4.45) 13.05 7.64 942,036 1.96* (1.16)* 121
0.00 0.00 (2.07) 16.13 10.52 969,317 1.94* (1.06)* 145
0.00 0.00 (1.78) 16.58 15.66 974,948 1.93 (1.09) 141
0.00 0.00 (0.16) 16.05 25.60 780,355 2.00 (0.90) 128
0.00 0.00 (0.12) 12.95 3.40 556,043 2.00 (1.10) 104
0.00 0.00 0.00 12.65 26.50 298,238 2.00* (1.00)* 76
$ 0.00 $ 0.00 $ (0.89) $ 17.58 17.33% $ 32,115 1.26%* 1.48%* 18%
0.00 0.00 0.00 15.75 12.34 6,563 1.30* 1.94* 48
0.00 0.00 (0.85) 17.49 16.80 60,582 2.01* 0.75* 18
0.00 0.00 0.00 15.71 12.05 11,077 2.04* 1.23* 48
0.00 0.00 (0.85) 17.50 16.82 86,913 2.01* 0.75* 18
0.00 0.00 0.00 15.71 12.05 20,637 2.05* 1.13* 48
$ 0.00 $ 0.00 $ (1.94) $ 28.48 3.51% $200,463 1.31%* (0.85)%* 37%
0.00 0.00 (4.91) 29.35 (8.87) 213,484 1.25* (0.12)* 69
0.00 0.00 (7.73) 37.36 18.35 134,859 1.13 (0.32) 91
0.00 0.00 (0.87) 39.08 39.70 120,830 1.20 (0.40) 102
0.00 (0.11) (2.37) 28.87 (6.70) 95,261 1.10 (0.60) 78
0.00 0.00 (0.26) 33.43 70.40 106,666 1.20 (0.60) 105
0.00 0.00 (1.68) 19.84 21.60 22,454 1.30 (0.20) 94
0.00 0.00 0.00 17.95 70.90 1,623 1.40* (0.50)* 145
0.00 0.00 (1.94) 26.34 3.14 561,851 2.06* (1.60)* 37
0.00 0.00 (4.91) 27.38 (9.40) 629,446 1.97* (0.95)* 69
0.00 0.00 (7.73) 35.38 17.47 800,250 1.88 (1.07) 91
0.00 0.00 (0.87) 37.64 38.60 715,191 1.90 (1.10) 102
0.00 (0.11) (2.37) 28.04 (7.40) 553,460 1.90 (1.40) 78
0.00 0.00 (0.26) 32.77 69.10 618,193 2.00 (1.30) 105
0.00 0.00 (1.68) 19.60 20.80 179,081 2.00 (1.00) 94
0.00 0.00 (0.37) 17.87 54.40 58,656 2.00 (0.80) 145
0.00 0.00 (1.71) 11.93 (14.80) 33,472 1.90 (0.10) 106
0.00 0.00 0.00 15.78 33.30 51,680 1.90 (0.20) 153
0.00 0.00 (2.58) 11.84 (9.00) 51,062 2.00 (0.30) 125
$ 0.00 $ 0.00 $ (0.68) $ 11.46 (7.19)% $ 487 1.51%* 0.10%* 37%
0.00 0.00 0.00 13.08 11.70 318 1.54* 1.74* 77
0.00 0.00 (0.64) 11.43 (7.59) 2,102 2.26* (0.60)* 37
0.00 0.00 0.00 13.06 11.53 1,123 2.28* 1.08* 77
<CAPTION>
AVERAGE
COMMISSION RATE
- ---------------
<S>
$ 0.06
0.04
0.06
0.06
0.04
0.06
0.06
0.04
0.06
$ 0.06
0.06
0.06
0.06
0.06
0.06
$ 0.05
0.06
0.07
0.05
0.06
0.07
$ 0.03
0.03
0.03
0.03
</TABLE>
July 13, 1998 Prospectus 13
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
NET REALIZED/ DIVIDENDS DIVIDENDS IN DISTRIBUTIONS
Selected Per Share Data NET ASSET VALUE NET UNREALIZED TOTAL INCOME FROM NET EXCESS OF NET FROM NET
for the Period Ended: BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT INVESTMENT INVESTMENT REALIZED CAPITAL
OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME INCOME GAINS
--------------- ------------- -------------- --------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL
DEVELOPED FUND
(CONT.)
Class C
12/31/97 + $ 13.06 $(0.04)(a) $(0.95)(a) $ (0.99) $ (0.06) $ 0.00 $ (0.58)
01/20/97-06/30/97 11.71 0.06 (a) 1.29 (a) 1.35 0.00 0.00 0.00
INTERNATIONAL
FUND (II)
Class A
12/31/97 + $ 14.26 $(0.03)(a) $(1.15)(a) $ (1.18) $ 0.00 $ 0.00 $ (1.12)
10/01/96-06/30/97 13.03 0.29 1.33 1.62 0.00 0.00 (0.39)
9/30/96 12.19 0.07 0.77 0.84 0.00 0.00 0.00
9/30/95 12.92 0.07 (0.56) (0.49) 0.00 0.00 (0.24)
9/30/94 12.17 0.04 0.94 0.98 0.00 0.00 (0.23)
9/30/93 10.04 0.07 2.80 2.87 0.00 0.00 (0.74)
9/30/92 10.54 0.05 (0.37) (0.32) 0.00 0.00 (0.18)
2/1/91-9/30/91 9.48 0.02 1.04 1.06 0.00 0.00 0.00
Class B
12/31/97 + 13.56 (0.07)(a) (1.10)(a) (1.17) 0.00 0.00 (1.12)
10/01/96-06/30/97 12.48 0.16 1.31 1.47 0.00 0.00 (0.39)
9/30/96 11.75 0.00 (a) 0.73 (a) 0.73 0.00 0.00 0.00
5/22/95-9/30/95 11.30 0.00 0.45 0.45 0.00 0.00 0.00
Class C
12/31/97 + 13.55 (0.07)(a) (1.10)(a) (1.17) 0.00 0.00 (1.12)
10/01/96-06/30/97 12.47 0.18 1.29 1.47 0.00 0.00 (0.39)
9/30/96 11.75 (0.05) 0.77 0.72 0.00 0.00 0.00
9/30/95 12.56 (0.02) (0.55) (0.57) 0.00 0.00 (0.24)
9/30/94 11.92 (0.06) 0.93 0.87 0.00 0.00 (0.23)
9/30/93 9.92 (0.01) 2.75 2.74 0.00 0.00 (0.74)
9/30/92 10.49 (0.06) (0.33) (0.39) 0.00 0.00 (0.18)
9/30/91 10.04 (0.08) 1.76 1.68 0.00 0.00 (1.23)
9/30/90 13.33 (0.10) (2.02) (2.12) 0.00 0.00 (1.17)
9/30/89 10.07 (0.18) 3.44 3.26 0.00 0.00 0.00
9/30/88 12.87 (0.10) (1.83) (1.93) 0.00 0.00 (0.87)
EMERGING MARKETS
FUND
Class A
12/31/97 + $ 13.94 $(0.02)(a) $(2.25)(a) $ (2.27) $ 0.00 $ 0.00 $ 0.00
01/20/97-06/30/97 12.82 0.09 (a) 1.03 (a) 1.12 0.00 0.00 0.00
Class B
12/31/97 + 13.89 (0.07)(a) (2.23)(a) (2.30) 0.00 0.00 0.00
01/20/97-06/30/97 12.82 0.03 (a) 1.04 (a) 1.07 0.00 0.00 0.00
Class C
12/31/97 + 13.89 (0.07)(a) (2.23)(a) (2.30) 0.00 0.00 0.00
01/20/97-06/30/97 12.82 0.04 (a) 1.03 (a) 1.07 0.00 0.00 0.00
INNOVATION FUND
Class A
12/31/97 + $ 17.43 $(0.09)(a) $ 1.54 (a) $ 1.45 $ 0.00 $ 0.00 $ (1.17)
10/01/96-06/30/97 17.26 0.07 0.36 0.43 0.00 0.00 (0.26)
9/30/96 14.74 (0.07) 2.94 2.87 0.00 0.00 (0.35)
12/22/94-9/30/95 10.00 (0.06)(b) 4.80 4.74 0.00 0.00 0.00
Class B
12/31/97 + 17.10 (0.16)(a) 1.51 (a) 1.35 0.00 0.00 (1.17)
10/01/96-06/30/97 17.04 (0.03) 0.35 0.32 0.00 0.00 (0.26)
9/30/96 14.66 (0.11) 2.84 2.73 0.00 0.00 (0.35)
5/22/95-9/30/95 11.81 (0.08) 2.93 2.85 0.00 0.00 0.00
Class C
12/31/97 + 17.09 (0.16)(a) 1.51 (a) 1.35 0.00 0.00 (1.17)
10/01/96-06/30/97 17.04 (0.02) 0.33 0.31 0.00 0.00 (0.26)
9/30/96 14.65 (0.15) 2.89 2.74 0.00 0.00 (0.35)
12/22/94-9/30/95 10.00 (0.13)(b) 4.78 4.65 0.00 0.00 0.00
<CAPTION>
DISTRIBUTIONS
Selected Per Share Data IN EXCESS OF
for the Period Ended: NET REALIZED
CAPITAL GAINS
-------------
<S> <C>
INTERNATIONAL
DEVELOPED FUND
(CONT.)
Class C
12/31/97 + $ 0.00
01/20/97-06/30/97 0.00
INTERNATIONAL
FUND (II)
Class A
12/31/97 + $ 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
2/1/91-9/30/91 0.00
Class B
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
5/22/95-9/30/95 0.00
Class C
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
9/30/91 0.00
9/30/90 0.00
9/30/89 0.00
9/30/88 0.00
EMERGING MARKETS
FUND
Class A
12/31/97 + $ 0.00
01/20/97-06/30/97 0.00
Class B
12/31/97 + 0.00
01/20/97-06/30/97 0.00
Class C
12/31/97 + 0.00
01/20/97-06/30/97 0.00
INNOVATION FUND
Class A
12/31/97 + $ 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
12/22/94-9/30/95 0.00
Class B
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
5/22/95-9/30/95 0.00
Class C
12/31/97 + 0.00
10/01/96-06/30/97 0.00
9/30/96 0.00
12/22/94-9/30/95 0.00
</TABLE>
*Annualized
+Unaudited
(a) Per share amounts based upon average number of shares outstanding during
the period.
(b) Reflecting voluntary waiver of investment advisory fee of $4,666 (0.00
per share) by the Advisor.
(ii) The information provided for the International Fund reflects results of
operations under 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 then been in
effect. On November 15, 1994, Blairlogie became the Portfolio Manager of
the Fund.
14 PIMCO Funds: Multi-Manager Series
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
DISTRIBUTIONS TAX BASIS NET ASSET EXPENSES TO INCOME TO
FROM RETURN OF TOTAL VALUE END OF NET ASSETS END AVERAGE NET AVERAGE NET PORTFOLIO
EQUALIZATION CAPITAL DISTRIBUTIONS PERIOD TOTAL RETURN OF PERIOD (000S) ASSETS ASSETS TURNOVER RATE
- ------------- --------- ------------- ------------ ------------ ---------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ (0.64) $ 11.43 (7.61)% $ 3,612 2.26%* (0.62)%* 37%
0.00 0.00 0.00 13.06 11.53 2,526 2.28* 1.07* 77
$ 0.00 $ 0.00 $ (1.12) $ 11.96 (8.23)% $ 17,084 1.47%* (0.47)%* 37%
0.00 0.00 (0.39) 14.26 12.82 18,287 1.51* 0.58* 59
0.00 0.00 0.00 13.03 6.89 20,056 1.41 0.49 110
0.00 0.00 (0.24) 12.19 (3.70) 17,951 1.50 0.60 170
0.00 0.00 (0.23) 12.92 8.20 23,289 1.40 0.30 55
0.00 0.00 (0.74) 12.17 30.40 11,992 1.40 0.60 68
0.00 0.00 (0.18) 10.04 (3.10) 471 1.90 0.50 160
0.00 0.00 0.00 10.54 17.30 22 1.90* 0.70* 107
0.00 0.00 (1.12) 11.27 (8.59) 7.781 2.22* (1.16)* 37
0.00 0.00 (0.39) 13.56 12.17 8,676 2.26* 0.18* 59
0.00 0.00 0.00 12.48 6.21 5,893 2.16 (0.26) 110
0.00 0.00 0.00 11.75 4.00 503 2.30* (0.10)* 170
0.00 0.00 (1.12) 11.26 (8.60) 129,380 2.22* (1.15)* 37
0.00 0.00 (0.39) 13.55 12.18 168,446 2.25* (0.25)* 59
0.00 0.00 0.00 12.47 6.13 203,544 2.16 (0.26) 110
0.00 0.00 (0.24) 11.75 (4.50) 215,349 2.20 (0.20) 170
0.00 0.00 (0.23) 12.56 7.40 294,492 2.20 (0.50) 55
0.00 0.00 (0.74) 11.92 29.40 147,194 2.20 (0.10) 68
0.00 0.00 (0.18) 9.92 (3.80) 28,299 2.60 (0.60) 160
0.00 0.00 (1.23) 10.49 18.30 33,594 2.60 (0.20) 107
0.00 0.00 (1.17) 10.04 (17.40) 36,282 2.30 (0.30) 93
0.00 0.00 0.00 13.33 32.40 56,150 2.30 (0.70) 84
0.00 0.00 (0.87) 10.07 (14.00) 60,394 2.40 (0.50) 95
$ 0.00 $ 0.00 $ 0.00 $ 11.67 (16.28)% $ 231 1.78%* (0.39)%* 34%
0.00 0.00 0.00 13.94 8.74 214 1.89* 1.52* 74
0.00 0.00 0.00 11.59 (16.56) 507 2.53* (1.09)* 34
0.00 0.00 0.00 13.89 8.35 308 2.62* 0.47* 74
0.00 0.00 0.00 11.59 (16.56) 1,465 2.53* (0.10)* 34
0.00 0.00 0.00 13.89 8.35 1,833 2.63* 0.66* 74
$ 0.00 $ 0.00 $ (1.17) $ 17.71 8.03% $ 60,231 1.31%* (0.95)%* 62%
0.00 0.00 (0.26) 17.43 2.41 56,215 1.28* (0.68)* 80
0.00 0.00 (0.35) 17.26 19.86 50,067 1.31 (0.61) 123
0.00 0.00 0.00 14.74 47.40 28,239 1.40* (0.60)* 86
0.00 0.00 (1.17) 17.28 7.60 57,418 2.06* (1.69) 62
0.00 0.00 (0.26) 17.10 1.79 51,472 2.03* (1.43)* 80
0.00 0.00 (0.35) 17.04 18.99 33,778 2.06 (1.36) 123
0.00 0.00 0.00 14.66 24.10 6,509 2.30* (1.70)* 86
0.00 0.00 (1.17) 17.27 7.60 167,037 2.06* (1.70)* 62
0.00 0.00 (0.26) 17.09 1.73 162,889 2.03* (1.43)* 80
0.00 0.00 (0.35) 17.04 19.08 137,752 2.06 (1.36) 123
0.00 0.00 0.00 14.65 46.50 63,952 2.20* (1.40)* 86
<CAPTION>
AVERAGE
COMMISSION RATE
---------------
<S>
$ 0.03
0.03
$ 0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
$ 0.01
0.00
0.01
0.00
0.01
0.00
$ 0.05
0.05
0.06
0.05
0.05
0.06
0.05
0.05
0.06
</TABLE>
July 13, 1998 Prospectus 15
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
NET REALIZED/ DIVIDENDS DIVIDENDS IN DISTRIBUTIONS
Selected Per Share Data NET ASSET VALUE NET UNREALIZED TOTAL INCOME FROM NET EXCESS OF NET FROM NET
for the Period Ended: BEGINNING INVESTMENT GAIN (LOSS) ON FROM INVESTMENT INVESTMENT INVESTMENT REALIZED CAPITAL
OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME INCOME GAINS
--------------- ------------- -------------- --------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRECIOUS MET-
ALS FUND
(III)
Class A
12/31/97 + $ 8.83 $ 0.02 (a) $(2.99)(a) $ (2.97) $ 0.00 $ 0.00 $ 0.00
10/01/96-06/30/97 12.12 0.17 (3.29) (3.12) 0.00 0.00 0.00
9/30/96 12.33 0.03 (0.24) (0.21) 0.00 0.00 0.00
9/30/95 14.14 0.07 (1.88) (1.81) 0.00 0.00 0.00
9/30/94 10.32 0.08 3.74 3.82 0.00 0.00 0.00
9/30/93 7.54 0.06 2.72 2.78 0.00 0.00 0.00
9/30/92 7.51 (0.01) 0.04 0.03 0.00 0.00 0.00
2/1/91-9/30/91 7.19 (0.07) 0.39 0.32 0.00 0.00 0.00
Class B
12/31/97 + 8.42 (0.01)(a) (2.85)(a) (2.86) 0.00 0.00 0.00
10/01/96-06/30/97 11.62 0.00 (3.03) (3.03) 0.00 0.00 0.00
9/30/96 11.90 (0.03) (0.25) (0.28) 0.00 0.00 0.00
6/15/95-9/30/95 11.61 (0.01) 0.30 0.29 0.00 0.00 0.00
Class C
12/31/97 + 8.43 0.00 (a) (2.87)(a) (2.87) 0.00 0.00 0.00
10/01/96-06/30/97 11.62 (0.03) (2.99) (3.02) 0.00 0.00 0.00
9/30/96 11.90 (0.07) (0.21) (0.28) 0.00 0.00 0.00
9/30/95 13.75 (0.02) (1.83) (1.85) 0.00 0.00 0.00
9/30/94 10.11 (0.02) 3.66 3.64 0.00 0.00 0.00
9/30/93 7.44 (0.02) 2.69 2.67 0.00 0.00 0.00
9/30/92 7.46 (0.06) 0.04 (0.02) 0.00 0.00 0.00
9/30/91 9.40 (0.05) (1.89) (1.94) 0.00 0.00 0.00
9/30/90 9.86 (0.05) (0.41) (0.46) 0.00 0.00 0.00
10/10/88-9/30/89 10.00 (0.05) (0.08) (0.13) (0.01) 0.00 0.00
<CAPTION>
DISTRIBUTIONS
Selected Per Share Data IN EXCESS OF
for the Period Ended: NET REALIZED
CAPITAL GAINS
-------------
<S> <C>
PRECIOUS MET-
ALS FUND
(III)
Class A
12/31/97 + $ 0.00
10/01/96-06/30/97 (0.17)
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
2/1/91-9/30/91 0.00
Class B
12/31/97 + 0.00
10/01/96-06/30/97 (0.17)
9/30/96 0.00
6/15/95-9/30/95 0.00
Class C
12/31/97 + 0.00
10/01/96-06/30/97 (0.17)
9/30/96 0.00
9/30/95 0.00
9/30/94 0.00
9/30/93 0.00
9/30/92 0.00
9/30/91 0.00
9/30/90 0.00
10/10/88-9/30/89 0.00
</TABLE>
*Annualized
+Unaudited
(a) Per share amounts based upon average number of shares outstanding during
the period.
(iii) The information provided for the Precious Metals Fund reflects results
of operations under the Fund's former investment objective and policies
through November 14, 1994; such results would not necessarily have been
achieved had the Fund's current objective and policies then been in
effect.
16 PIMCO Funds: Multi-Manager Series
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
DISTRIBUTIONS TAX BASIS NET ASSET EXPENSES TO INCOME TO
FROM RETURN OF TOTAL VALUE END OF NET ASSETS END AVERAGE NET AVERAGE NET PORTFOLIO
EQUALIZATION CAPITAL DISTRIBUTIONS PERIOD TOTAL RETURN OF PERIOD (000S) ASSETS ASSETS TURNOVER RATE
- ------------- --------- ------------- ------------ ------------ ---------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ 0.00 $ 5.86 (33.64)% $ 3,526 1.37%* 0.46%* 18%
0.00 0.00 (0.17) 8.83 (26.05) 4,016 1.37* 0.33* 46
0.00 0.00 0.00 12.12 (1.70) 6,245 1.32 0.19 35
0.00 0.00 0.00 12.33 (12.80) 7,670 1.40 0.60 9
0.00 0.00 0.00 14.14 37.00 11,229 1.30 0.60 11
0.00 0.00 0.00 10.32 36.90 3,425 1.40 0.60 10
0.00 0.00 0.00 7.54 0.40 668 1.90 (0.10) 30
0.00 0.00 0.00 7.51 6.80 514 2.10* (1.40)* 19
0.00 0.00 0.00 5.56 (33.97) 3,417 2.12* (0.17)* 18
0.00 0.00 (0.17) 8.42 (26.40) 4,248 2.13* (0.33)* 46
0.00 0.00 0.00 11.62 (2.35) 2,218 2.07 (0.56) 35
0.00 0.00 0.00 11.90 2.50 251 2.20* (0.20)* 9
0.00 0.00 0.00 5.56 (34.05) 13,677 2.12* (0.10)* 18
0.00 0.00 (0.17) 8.43 (26.31) 25,113 2.15* (0.41)* 46
0.00 0.00 0.00 11.62 (2.35) 37,609 2.07 (0.56) 35
0.00 0.00 0.00 11.90 (13.50) 42,341 2.20 (0.20) 9
0.00 0.00 0.00 13.75 36.00 62,825 2.10 (0.20) 11
0.00 0.00 0.00 10.11 35.90 23,884 2.20 (0.20) 10
0.00 0.00 0.00 7.44 (0.30) 6,633 2.60 (0.80) 30
0.00 0.00 0.00 7.46 (20.60) 6,995 2.40 (0.80) 19
0.00 0.00 0.00 9.40 (4.70) 9,918 2.40 (0.80) 23
0.00 0.00 (0.01) 9.86 (1.30) 6,630 2.50 (0.60) 9
<CAPTION>
AVERAGE
COMMISSION RATE
---------------
<S>
$ 0.02
0.03
0.02
0.02
0.03
0.02
0.02
0.03
0.02
</TABLE>
July 13, 1998 Prospectus 17
<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. Specific portfolio
securities eligible for purchase by the Funds, investment tech-
niques that may be used by the Funds, and the risks associated with
these securities and techniques are described more fully under
"Characteristics and Risks of Securities and Investment Tech-
niques" in this Prospectus and "Investment Objectives and Poli-
cies" in the Statement of Additional Information. For information
on other investment policies of the Equity Income, Value, Renais-
sance, Tax-Efficient Equity, Capital Appreciation, Growth, Value
25, Mid-Cap Growth, Target, Small-Cap Value, Opportunity, Interna-
tional Developed, International, Emerging Markets, Innovation and
Precious Metals Funds (together, the "Stock Funds"), see "Invest-
ment Objectives and Policies--Stock Funds" below. This information
is also relevant to an investment in the Balanced Fund because the
Common Stock Segment (as described below) of that Fund is managed
in accordance with the investment policies of the Value and Capi-
tal Appreciation Funds. For information regarding the average
portfolio duration of the Fixed Income Securities Segment (as de-
scribed below) of the Balanced Fund, see "Duration" below.
FUND BALANCED FUND seeks total return consistent with prudent invest-
DESCRIPTIONS 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 allocation
principles which take into account certain economic factors,
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 income
security (other than a short-term instrument) if, at the time of
investment, more than 80% of the Fund's assets would be invested
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 accordance with the
investment policies of the Value Fund; the portion allocated to
Cadence will be managed in accordance with the investment 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.
The portion of the assets of the Fund allocated by the Advisor
for investment in fixed income securities (the "Fixed Income Secu-
rities Segment") will be managed by Pacific Investment Management.
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; corporate
debt securities, including convertible securities and corporate
commercial paper; mortgage-related and other asset-backed securi-
ties; inflation-indexed bonds issued by both governments and cor-
porations; structured notes and loan participations; bank certifi-
cates of deposit, fixed time deposits and bankers' acceptances;
repurchase agreements and reverse repurchase agreements; obliga-
tions 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.
18 PIMCO Funds: Multi-Manager Series
<PAGE>
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 Investors Service, Inc.
("Moody's"), BBB or better by Standard & Poor's Ratings Services
("S&P") or, if not rated by Moody's or S&P, will be of comparable
quality as determined by Pacific Investment Management, except
that up to 10% of the Fixed Income Securities Segment may be in-
vested 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 Management to be of comparable quality. High
yield fixed income securities rated lower than Baa by Moody's or
BBB by S&P, or of equivalent quality, are not considered to be in-
vestment grade, and are commonly referred to as "junk 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")." The Fund also may invest up to 20% of the Fixed Income
Securities Segment in securities denominated in foreign curren-
cies, and may invest beyond this limit in U.S. dollar-denominated
securities of foreign issuers. Investing in securities denominated
in foreign currencies and securities of foreign issuers involves
special risks and considerations not typically associated with in-
vesting in U.S. securities. For a discussion of such risks, see
"Characteristics and Risks of Securities and Investment Tech-
niques--Foreign Securities."
Each Portfolio Manager generally invests a portion of its allo-
cation in liquid securities to facilitate redemptions. In addi-
tion, PIMCO Advisors reserves the right to allocate a portion of
the Fund's assets (the "Money Market Segment") for investment in
money market instruments and reserves the right to manage the in-
vestment of such assets. Because of the Fund's flexible investment
policy, portfolio turnover may be greater than for a fund that
does not allocate assets among various types of securities. See
"Characteristics and Risks of Securities and Investment Tech-
niques--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.
EQUITY INCOME FUND seeks current income as a primary investment
objective, 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. The Portfolio Manager for the
Equity Income Fund is NFJ.
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 groups. In selecting
securities, the Portfolio Manager
July 13, 1998 Prospectus 19
<PAGE>
classifies a universe of approximately 2,000 stocks by industry,
each of which has a minimum market capitalization of $200 million
at the time of investment. The universe is then screened to find
the stocks with the lowest P/E ratios in each industry, subject to
application of quality and price momentum screens. The stocks in
each industry with the lowest P/E ratios that pass the quality and
price momentum screens are then selected for the Fund. The Fund
usually invests in approximately 50 stocks. Although quarterly
rebalancing is a general rule, replacements are made whenever an
alternative stock within the same industry has a significantly
lower P/E ratio than the current Fund holdings. The Portfolio Man-
ager for the Value Fund is NFJ.
RENAISSANCE FUND seeks long-term growth of capital and income. The
Fund invests primarily in common stocks having below-average valu-
ations whose issuers are experiencing improvements in their busi-
ness fundamentals. Relative valuation is determined using a multi-
factor approach that examines characteristics such as price to
book, price to earnings and price to cash flow ratios. Stocks
which pass the valuation screen are further analyzed to identify
the key drivers of financial results and catalysts for change
which indicate that a company may demonstrate improving fundamen-
tals in the future. Stocks which appear likely to exceed consensus
expectations are candidates for addition to the Fund's portfolio.
Stocks are sold from the Fund's portfolio when the Portfolio Man-
ager believes that their ability to exceed investor expectations
has diminished or when their valuations have become excessive.
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. securities.
For a discussion of such risks, see "Characteristics and Risks of
Securities and Investment Techniques--Foreign Securities." 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. The Portfolio Man-
ager for the Renaissance Fund is Columbus Circle.
TAX-EFFICIENT EQUITY FUND seeks maximum after-tax growth of capi-
tal. The Fund attempts to provide a total return which exceeds the
return of the Standard & Poor's 500 Composite Stock Price Index
(the "S&P 500"). In addition, the Fund seeks to achieve superior
after-tax returns for its shareholders in part by minimizing the
taxes they incur in connection with the Fund's investment income
and realized capital gains by using the strategies described be-
low. Notwithstanding these strategies, the Fund may have taxable
investment income and may realize taxable gains from time to time.
The Fund invests primarily in a broadly diversified portfolio
of at least 250 common stocks of companies with larger market cap-
italizations. In selecting specific securities, the Portfolio Man-
ager uses a proprietary quantitative model that ranks companies
based on long-term (5-10 years) price appreciation potential
through analysis of such factors as growth of sustainable earnings
and dividend behavior. Securities in the top 50% of the model's
ranking are considered for purchase. The Portfolio Manager's sell
discipline incorporates a focus on reducing the realization of
capital gains. Each sell candidate is evaluated based on its cost,
current market value, and anticipated benefit of replacement. Se-
curities in the bottom 20% of the model's ranking are considered
for sale. The Fund may engage in the purchase and writing of op-
tions on securities indexes and may also invest in stock index
futures contracts and options thereon.
The Portfolio Manager utilizes a range of active tax management
techniques to minimize taxable distributions, including: low port-
folio turnover; emphasis towards low-dividend, growth-oriented
companies; tax lot accounting (identification of specific shares
of securities being sold that have the lowest tax cost); and regu-
lar rebalancing to capture available tax credits. The Fund will
generally seek to avoid realizing net short-term capital gains
and, when realizing gains, will attempt to realize long-term gains
(i.e., gains on securities held for more than 12 months) in such a
manner
20 PIMCO Funds: Multi-Manager Series
<PAGE>
as to maximize the net gains from securities held for more than 18
months. The Fund intends to notify each shareholder as to that
portion of his or her capital gain dividends which qualifies for a
maximum tax rate of 28% in the hands of the shareholder and the
balance, if any, of such capital gain dividends eligible for a
maximum tax rate of 20%. Net short-term capital gains, when dis-
tributed, will be taxed as ordinary income, at graduated rates of
up to 39.6%. When the Fund decides to sell a particular appreci-
ated security, it will normally select for sale first those share
lots with holding periods exceeding 18 or 12 months and among
those, the share lots with the highest cost basis. The Fund may,
when prudent, sell securities to realize capital losses that can
be used to offset realized capital gains.
To protect against price declines in securities holdings with
large accumulated capital gains, the Fund may, to the extent per-
mitted by law, use hedging techniques such as the purchase of put
options, the sale of stock index futures contracts and equity
swaps. By using these techniques rather than selling such securi-
ties, the Fund can reduce its exposure to price declines in the
securities without realizing substantial capital gains. In limited
circumstances, the Fund may follow the practice of distributing
selected appreciated securities to meet redemptions of certain in-
vestors and may, within certain limits, use the selection of secu-
rities distributed to meet such redemptions as a management tool.
By distributing appreciated securities the Fund can reduce its po-
sition in such securities without realizing capital gains. During
periods of net withdrawals by investors, using distributions of
securities could enable the Fund to avoid the forced sale of secu-
rities to raise cash for meeting redemptions.
It is expected that by employing the various tax-efficient man-
agement strategies described above, the Fund can minimize the ex-
tent to which shareholders incur taxes as a result of realized
capital gains. The Fund may nevertheless realize gains and share-
holders will incur tax liability from time to time. The Portfolio
Manager for the Tax-Efficient Equity Fund is Parametric.
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 $1 billion 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. The Portfolio Manager for the Capital Appre-
ciation 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. For a
discussion of such risks, see "Characteristics and Risks of Secu-
rities and Investment Techniques--Foreign Securities." 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. The Portfolio Manager for
the Growth Fund is Columbus Circle.
VALUE 25 FUND seeks long-term growth of capital and income. The
Fund invests primarily in a portfolio of approximately 25 common
stocks of companies with medium market capitalizations and below-
average P/E ratios relative to
July 13, 1998 Prospectus 21
<PAGE>
their industry groups. In selecting securities, the Portfolio Man-
ager classifies a universe of more than 2,000 stocks by industry,
each of which has a minimum market capitalization of $200 million.
The universe is then screened to find stocks with the lowest P/E
ratios in each industry, subject to application of quality, earn-
ings momentum and price momentum screens. Those stocks which pass
the screenings and satisfy the medium-cap size criteria are fur-
ther analyzed. Fundamental research is performed on the companies
determined by such process to be the most undervalued. Approxi-
mately 25 stocks, diversified across industries, are selected on
an equal-weighted basis for the Fund's portfolio. Although quar-
terly rebalancing is a general rule, replacements are made when-
ever an alternative stock has a significantly lower P/E ratio than
the current Fund holdings. Because the Fund concentrates on ap-
proximately 25 stocks at any one time (and is not as diversified
as many stock funds), it is intended for aggressive investors
seeking above-average capital gains and willing to accept the
greater risks associated therewith. The Portfolio Manager for the
Value 25 Fund is NFJ.
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 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. 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. For a discussion of such risks,
see "Characteristics and Risks of Securities and Investment Tech-
niques--Foreign Securities." 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 cur-
rency contracts. The Portfolio Manager for the Target Fund is Co-
lumbus 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. The Portfolio Manager for the Small-Cap Value Fund is NFJ.
22 PIMCO Funds: Multi-Manager Series
<PAGE>
OPPORTUNITY FUND seeks capital appreciation. No consideration is
given to income. Except to the extent described under "How to Buy
Shares--Restrictions on Sales of and Exchanges for Shares of the
Opportunity Fund," the Fund is closed to new investors. The Fund
invests primarily in common stocks of companies with market capi-
talizations of less than $2 billion at the time of investment. The
Fund is intended for aggressive investors seeking above-average
gains and willing to accept the greater risks associated there-
with.
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.
For a discussion of such risks, see "Characteristics and Risks of
Securities and Investment Techniques--Foreign Securities." 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. The Portfolio Man-
ager 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 sell (write) call and put
options. The Fund may utilize stock index futures contracts and
options thereon for hedging purposes and also for investment pur-
poses. For instance, the Fund may invest in stock index futures
contracts and related options as an alternative to purchasing in-
dividual stocks to adjust its exposure to a particular foreign
market. See "Characteristics and Risks of Securities and Invest-
ment Techniques--Derivative Instruments--Index Futures." The Fund
may also 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 a discussion of such risks, see "Character-
istics and Risks of Securities and Investment Techniques--Foreign
Securities." The Portfolio Manager for the International Developed
Fund is Blairlogie.
July 13, 1998 Prospectus 23
<PAGE>
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 in-
vest in securities traded in securities markets of any country in
the world. In allocating the Fund's assets among the various secu-
rities markets of any country of the world, the Portfolio Manager
will consider such factors as the condition and growth potential
of the various economies and securities markets, currency and tax-
ation 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 foreign currencies; buy or sell foreign currencies; and enter
into forward foreign currency contracts. The Fund may utilize
stock index futures contracts and options thereon for hedging pur-
poses and also for investment purposes. For instance, the Fund may
invest in stock index futures contracts and related options as an
alternative to purchasing individual stocks to adjust its exposure
to a particular foreign market. See "Characteristics and Risks of
Securities and Investment Techniques--Derivative Instruments--In-
dex Futures."
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, and particu-
larly emerging market issuers, involves special risks and consid-
erations not typically associated with investing in U.S. compa-
nies. For a discussion of such risks, see "Characteristics and
Risks of Securities and Investment Techniques--Foreign Securi-
ties." The Portfolio Manager for the International 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
24 PIMCO Funds: Multi-Manager Series
<PAGE>
relative to the industry, price to earnings ratios, and price to
book ratios (value factors). This two-level screening method iden-
tifies undervalued securities for purchase as well as provides a
sell discipline for fully valued securities. In selecting securi-
ties, 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 Sri Lanka
Brazil Hong Kong Malaysia Portugal Taiwan
Chile Hungary Mexico Romania Thailand
China India Pakistan Russia Turkey
Colombia Indonesia Peru South Africa Venezuela
Czech Republic Israel Philippines South Korea Zimbabwe
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 sell
(write) call and put options. The Fund may utilize stock index
futures contracts and options thereon for hedging purposes and
also for investment purposes. For instance, the Fund may invest in
stock index futures contracts and related options as an alterna-
tive to purchasing individual stocks to adjust its exposure to a
particular foreign market. See "Characteristics and Risks of Secu-
rities and Investment Techniques--Derivative Instruments--Index
Futures." The Fund may also engage in equity index swap transac-
tions.
Investing in securities of foreign issuers, and particularly
emerging market issuers, involves special risks and considerations
not typically associated with investing in U.S. companies. For a
discussion of such risks, see "Characteristics and Risks of Secu-
rities and Investment Techniques--Foreign Securities." The Portfo-
lio 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.
For a discussion of such risks, see "Characteristics and Risks of
Securities and
July 13, 1998 Prospectus 25
<PAGE>
Investment Techniques--Foreign Securities." The Fund may also pur-
chase 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. The Portfolio Manager for the Innova-
tion 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."
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. Although
the Fund reserves the right to do so at any time, as of the date
of this Prospectus, it does not have the present intention to in-
vest directly in any precious metals other than gold.
Although the Fund reserves the right to do so at any time, as
of the date of this Prospectus, it does not have the present in-
tention 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, or to invest 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 up to 100%
of its assets in securities of companies whose assets, revenues or
profits are derived from a single precious metal.
The Fund may invest up to 100% of its assets in securities
principally traded on foreign securities markets and in securities
of foreign issuers that are traded on U.S. securities markets or
on foreign securities markets. Investing in the securities of for-
eign issuers involves special risks and considerations not typi-
cally associated with investing in U.S. companies. For a discus-
sion of such risks, see "Characteristics and Risks of Securities
and Investment Techniques--Foreign Securities." The Fund may also
purchase and write call and put options on securities, securities
indexes, commodity indexes, and on foreign currencies; enter into
futures contracts and use options on futures contracts, including
futures contracts on stock indexes, foreign currencies, and pre-
cious metals; buy or sell foreign currencies; and enter into for-
ward 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.
The Portfolio Manager for the Precious Metals Fund is Van Eck.
STOCK FUNDS The Equity Income, Value, Tax-Efficient Equity, Capital Apprecia-
tion, Value 25, Mid-Cap Growth, Small-Cap Value, International De-
veloped and Emerging Markets Funds will each invest primarily
(normally at least 65% of its assets) in common stock. Each of
these Funds may maintain a portion of its assets, which will usu-
ally not exceed 10%, in U.S. Government securities, high quality
debt securities (whose maturity or remaining maturity will not ex-
ceed five years), money market obligations, and in cash to provide
for payment of the Fund's expenses and to meet redemption re-
quests. 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 in-
vestment posture (although these Funds may invest in such securi-
ties to provide for payment of expenses and to meet redemption re-
quests). Accordingly, investors in these Funds bear the risk of
general declines in stock prices and the risk that a Fund's expo-
sure to such declines cannot be lessened by investment in debt se-
curities. These Funds may also invest in convertible securities,
preferred stocks, and warrants, subject to certain limitations.
26 PIMCO Funds: Multi-Manager Series
<PAGE>
The Renaissance, Growth, Target, Opportunity, International,
Innovation and Precious Metals Funds will each invest primarily
(normally at least 65% of its assets) in common stocks, and may
also invest in other equity securities, including preferred stocks
and securities (including debt securities and warrants) convert-
ible into or exercisable for common stocks. Each of these Funds
may invest a portion of its assets in debt securities and, for
temporary defensive purposes, up to 100% of its assets in short-
term U.S. Government securities and other money market instru-
ments.
One or more of the Stock Funds may temporarily not be invested
primarily in equity securities immediately following the commence-
ment of operations or after receipt of significant new monies.
While attempting to identify suitable investments, the Funds may
hold assets in cash, short-term U.S. Government securities and
other money market instruments. Any of the Stock Funds may tempo-
rarily not contain the number of securities in which the Fund nor-
mally invests if the Fund does not have sufficient assets to be
fully invested, or pending the Portfolio Manager's ability to pru-
dently invest new monies.
The Stock 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 Stock Funds may invest in American Depository Receipts
("ADRs"). The International Developed, International, Emerging
Markets and Precious Metals Funds may invest in European Deposi-
tory Receipts ("EDRs") and Global Depository Receipts ("GDRs").
The Stock Funds that invest primarily in securities of foreign is-
suers 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 cur-
rency. For more information on these and other investment practic-
es, see "Characteristics and Risks of Securities and Investment
Techniques" in this Prospectus and "Investment Objectives and Pol-
icies" 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 based on the Portfolio Man-
ager'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" mea-
sures only the time until a fixed income security provides its fi-
nal 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 Manager for the Fixed
Income Securities Segment of the Balanced Fund. For more informa-
tion on investments in fixed income securities, 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.
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. There-
fore, investors should carefully consider the investment objec-
tive, investment policies and potential risks of any Fund or Funds
before investing.
July 13, 1998 Prospectus 27
<PAGE>
The following describes potential risks associated with differ-
ent types of investment techniques that may be used by the indi-
vidual 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 Certain of the Funds may invest in common stock of companies with
IN market capitalizations that are small compared to other publicly
COMPANIES traded companies. Generally, small market capitalization is con-
WITH SMALL sidered to be less than $1.5 billion and large market capitaliza-
AND MEDIUM tion is considered to be more than $5 billion. Under normal market
MARKET conditions, the Small- Cap Value Fund will invest primarily in
CAPITALIZ- companies with market capitalizations of $1 billion or less and
ATIONS the Opportunity Fund will invest primarily in companies with mar-
ket capitalizations of $2 billion or less. Investments in larger
companies present certain advantages in that such companies gener-
ally have greater financial resources, more extensive research and
development, manufacturing, marketing and service capabilities,
and more stability and greater depth of management and technical
personnel. Investments in smaller, less seasoned companies may
present greater opportunities for growth but also may involve
greater risks than customarily are associated with more estab-
lished companies. The securities of smaller companies may be sub-
ject 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 in
the over-the-counter market or on a regional exchange, or may oth-
erwise have limited liquidity. As a result of owning large posi-
tions in this type of security, a Fund is subject to the addi-
tional risk of possibly having to sell portfolio securities at
disadvantageous times and prices if redemptions require the Fund
to liquidate its securities positions. In addition, it may be pru-
dent for a Fund with a relatively large asset size to limit the
number of relatively small positions it holds in securities having
limited liquidity in order to minimize its exposure to such risks,
to minimize transaction costs, and to maximize the benefits of re-
search. As a consequence, as a Fund's asset size increases, the
Fund may reduce its exposure to illiquid small capitalization se-
curities, which could adversely affect performance.
Many of the Funds may also invest in stocks of companies with
medium market capitalizations. Whether a U.S. issuer's market cap-
italization is medium is determined by reference to the capital-
ization 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
SECURITIES 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 Stock 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-de-
28 PIMCO Funds: Multi-Manager Series
<PAGE>
nominated securities of foreign issuers. The Renaissance, 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 cer-
tificates of deposit are excluded for purposes of these limita-
tions), and may invest without limit in securities of foreign is-
suers 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. Individual foreign economies may differ favorably or unfa-
vorably from the U.S. economy in such respects as growth of gross
domestic product, rate of inflation, capital reinvestment, re-
sources, self-sufficiency, and balance of payments position. The
securities markets, values of securities, yields, and risks asso-
ciated with securities markets may change independently of each
other. 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 higher custodial fees than apply to domestic cus-
todial arrangements and transaction costs of foreign currency con-
versions. 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 securities. Repatriation of invest-
ment income, capital, and the proceeds of sales by foreign invest-
ors 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
July 13, 1998 Prospectus 29
<PAGE>
court outside the United States; and significantly smaller market
capitalization of securities markets. Also, any change in the
leadership or policies of emerging market countries, or the coun-
tries that exercise a significant influence over those countries,
may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and adversely affect existing
investment opportunities.
In addition, emerging securities markets may have different
clearance and settlement procedures, which may be unable to keep
pace with the volume of securities transactions or otherwise make
it difficult to engage in such transactions. Settlement problems
may cause a Fund to miss attractive investment opportunities, hold
a portion of its assets in cash pending investment, or delay in
disposing of a portfolio security. Such a delay could result in
possible liability to a purchaser of the security.
SPECIAL RISKS OF INVESTING IN RUSSIAN AND OTHER EASTERN EUROPEAN
SECURITIES The International and Emerging Markets Funds may in-
vest a portion of their assets in securities of issuers located in
Russia and in other Eastern European countries. While investments
in securities of such issuers are subject generally to the same
risks associated with investments in other emerging market coun-
tries described above, the political, legal and operational risks
of investing in Russian and other Eastern European issuers, and of
having assets custodied within these countries, may be particu-
larly acute. A risk of particular note with respect to direct in-
vestment in Russian securities is the way in which ownership of
shares of companies is normally recorded. When a Fund invests in a
Russian issuer, it will normally receive a "share extract," but
that extract is not legally determinative of ownership. The offi-
cial record of ownership of a company's share is maintained by the
company's share registrar. Such share registrars are completely
under the control of the issuer, and investors are provided with
few legal rights against such registrars. Please refer to "Invest-
ment Objectives and Policies-Foreign Securities" in the Statement
of Additional Information for a more complete description of these
and other risks associated with investments in securities of Rus-
sian and other Eastern European issuers.
FOREIGN Foreign currency exchange rates may fluctuate significantly over
CURRENCY short periods of time. They generally are determined by the forces
TRANS- of supply and demand in the foreign exchange markets and the rela-
ACTIONS 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. For example, significant uncertainty surrounds the pro-
posed introduction of the euro (a common currency unit for the Eu-
ropean Union) in January 1999 and its effect on the value of secu-
rities denominated in local European currencies. These and other
currencies in which the Funds' assets are denominated may be de-
valued against the U.S. dollar, resulting in a loss to the Funds.
The Balanced, Renaissance, Growth, Target, Opportunity, Inter-
national Developed, International, Emerging Markets, Innovation
and Precious Metals Funds may enter into forward foreign currency
exchange contracts to reduce the risks of adverse changes in for-
eign exchange rates. In addition, the Balanced, International De-
veloped, International, Emerging Markets 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 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 between the currency it will deliver and the cur-
rency it will receive for the duration of the contract. As a re-
sult, a Fund reduces its exposure to changes in the value of the
currency it will deliver and increases its exposure to changes in
the value of the currency it will exchange into. The effect on the
value of a Fund is similar to selling securities denominated in
one currency and purchasing securities denominated in another cur-
rency. Contracts to sell foreign currency would limit any poten-
tial gain which might be realized by a Fund if the value of the
hedged currency
30 PIMCO Funds: Multi-Manager Series
<PAGE>
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
successful and may eliminate any chance for a Fund to benefit from
favorable fluctuations in relevant foreign currencies. The
International Developed, International and Emerging Markets Funds
may also enter into hedging 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 Developed, International and
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. These
Funds 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. 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 segregated account to cover its obligations under
forward foreign currency 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 obligations") or foreign
branches of U.S. banks ("Eurodollar obligations");
(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
obligations rated in the highest rating category by at
least two NRSROs, or, if rated by only one NRSRO, in such
agency's highest grade, or, if unrated, determined to be of
comparable quality by the Advisor or a Portfolio Manager;
and
(5) repurchase agreements with domestic commercial banks or
registered broker-dealers.
MORTGAGE- All Funds that may purchase debt securities for investment pur-
RELATED AND poses (and in particular, the Balanced Fund) may invest in mort-
OTHER ASSET- gage-related securities, and in other asset-backed securities (un-
BACKED related to mortgage loans) that are offered to investors currently
SECURITIES or in the future. The value of some mortgage-related or asset-
backed securities in which the Funds invest may be particularly
sensitive to changes in prevailing interest rates, and, like other
fixed income investments, the ability of a Fund to successfully
utilize these instruments may depend in part upon the ability of
the Portfolio Manager to forecast interest rates and other
economic factors correctly.
MORTGAGE PASS-THROUGH SECURITIES are securities representing
interests in "pools" of mortgage loans secured by residential or
commercial real property in which payments of both interest and
principal on the securities are generally made monthly, in effect
"passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). Early
repayment of principal on some mortgage-related securities
(arising from prepayments of principal due to sale of the
underlying property, refinancing, or foreclosure, net of fees and
costs which may be incurred) may expose a Fund to a lower rate of
return upon reinvestment of principal. Also, if a security subject
to prepayment has been purchased at a premium, the value of the
premium would be lost in the event of prepayment. Like other fixed
income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when
interest rates are declining, the value of
July 13, 1998 Prospectus 31
<PAGE>
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
volatility of a mortgage-related security, and may have the effect
of shortening or extending the effective maturity of the security
beyond what was anticipated at the time of purchase. To the extent
that unanticipated rates of prepayment on underlying mortgages
increase the effective maturity of a mortgage-related security, the
volatility of such security can be expected to increase.
Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves)
may be guaranteed by the full faith and credit of the U.S.
Government (in the case of securities guaranteed by the Government
National Mortgage Association ("GNMA")); or guaranteed by agencies
or instrumentalities of the U.S. Government (in the case of
securities 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 guarantees, including
individual loan, title, pool and hazard insurance and letters of
credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") are hybrid mortgage-
related instruments. Similar to a bond, interest and pre-paid
principal on a CMO are paid, in most cases, on a monthly basis.
CMOs may be collateralized by whole mortgage loans but are more
typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured
into multiple classes, with each class bearing a different stated
maturity. Monthly payments of principal, including prepayments, are
first returned to investors holding the shortest maturity class;
investors holding the longer maturity classes receive principal only
after the first class has been retired. CMOs that are issued or
guaranteed by the U.S. Government or by any of its agencies or
instrumentalities will be considered U.S. Government securities by a
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 a Fund's diversification tests.
COMMERCIAL MORTGAGE-BACKED SECURITIES include securities that
reflect an interest in, and are secured by, mortgage loans on
commercial real property. The market for commercial mortgage-backed
securities developed more recently and in terms of total outstanding
principal amount of issues is relatively small compared to the
market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate
securing the underlying mortgage loans. These risks reflect the
effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial
mortgage-backed securities may be less liquid and exhibit greater
price volatility than other types of mortgage-related or asset-
backed securities.
MORTGAGE-RELATED SECURITIES include securities other than those
described above that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans
on real property, such as CMO residuals or stripped mortgage-backed
securities ("SMBS"), and may be structured in classes with rights to
receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while
the other class will receive most of the interest and the remainder
of the principal. In the most extreme case, one class will receive
all of the interest (the interest-only, or "IO" class), while the
other class will receive all of the principal (the principal-only,
or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and a
32 PIMCO Funds: Multi-Manager Series
<PAGE>
rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. For a
discussion of the characteristics of some of these instruments,
see the Statement of Additional Information.
CONVERTIBLE Many of the Funds may invest in convertible securities.
SECURITIES Convertible securities are generally preferred stocks or fixed
income securities 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 convertible 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
convertible 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
convertible securities," which are composed of two or more
different securities whose investment characteristics, taken
together, resemble those of convertible securities. For example,
the Renaissance Fund may purchase a non-convertible debt security
and a warrant or option. The synthetic convertible differs from
the true convertible security in several respects. Unlike a true
convertible security, which is a single security having a unitary
market value, a synthetic convertible comprises two or more
separate securities, 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 convertible security may respond differently to market
fluctuations.
RISKS OF The Balanced, Renaissance and Growth Funds may invest a portion of
HIGH YIELD their assets in fixed income securities rated lower than Baa by
SECURITIES Moody's or lower than BBB by S&P but rated at least B by Moody's
("JUNK or S&P or, if not rated, determined by the Portfolio Manager to be
BONDS") of comparable quality. In addition, the Renaissance Fund may
invest in convertible securities rated below B by Moody's or S&P
(or, if unrated, considered by the Portfolio Manager 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
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 higher grade securities.
The following chart provides information on the weighted
average percentage of rated and unrated debt or fixed income
securities in the portfolios of each Fund that invested at least
5% of its average assets in high yield securities during the
fiscal year ended June 30, 1997. The numerical rating designations
correspond to the associated rating categories. The designation
"1st" corresponds 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
descrip-
July 13, 1998 Prospectus 33
<PAGE>
tion of these rating categories, see the Appendix to the Statement
of Additional Information. The columns related to unrated securi-
ties present the percentage of a Fund's total net assets invested
during such fiscal year (1) in unrated high yield securities be-
lieved 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>
Renaissance* -- 1.08% 4.13% 1.55% 4.01% 3.67% -- -- -- --
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* -- -- -- -- -- 6.41% -- -- -- -- 6.41%
</TABLE>
*Represents holdings of the Renaissance Fund for the period of Oc-
tober 1, 1996 through June 30, 1997. Although the Fund reserves
the right to do so at any time, as of the date of this Prospectus,
it does not invest or have the present intention to invest 5% or
more of its assets in high yield securities.
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 To the extent permitted by the investment objective and policies
INSTRUMENTS of each Fund, a Fund may purchase and write call and put options
on securities, securities indexes and foreign currencies, and en-
ter into futures contracts and use options on futures contracts as
further described below. In pursuit of their investment objec-
tives, the Balanced, Renaissance, Tax-Efficient Equity, Growth,
Target, Opportunity, International Developed, International,
Emerging Markets, Innovation and Precious Metals Funds may engage
in the purchase and writing of call and put options on securities
and securities indexes and enter into futures contracts and op-
tions thereon, including securities index futures contracts and
options thereon. The Precious Metals Fund may purchase and write
options on commodities indexes. The Funds that may invest in for-
eign-currency denominated securities may engage in the purchase
and writing of call and put options on foreign currencies. The
Balanced, Tax-Efficient Equity, International Developed and Emerg-
ing Markets 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 established by the Board of Trustees
(or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under options,
futures, and swaps to limit leveraging of the Fund.
Derivative instruments are considered for these purposes to
consist of securities or other instruments whose value is derived
from or related to the value of some other instrument or asset,
and not to include those securities whose payment of principal
and/or interest depend upon cash flows from underlying assets,
such as mortgage-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 Portfo-
34 PIMCO Funds: Multi-Manager Series
<PAGE>
lio Manager incorrectly forecasts such factors and has taken posi-
tions in derivative instruments contrary to prevailing market
trends, the Funds could be exposed to the risk of loss.
The Funds might not employ any of the strategies described 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 other-
wise, due to the possible inability of a Fund to purchase or sell
a portfolio security at a time that would be favorable or the pos-
sible need to sell a portfolio security at a disadvantageous time
because the Fund is required to maintain asset coverage or offset-
ting positions in connection with transactions in derivative in-
struments, and the possible inability of a Fund to close out or to
liquidate its derivatives positions.
OPTIONS ON SECURITIES, SECURITIES INDEXES, AND CURRENCIES Certain
Funds may purchase put options on securities. One purpose of pur-
chasing put options is to protect holdings in an underlying or re-
lated security against a substantial decline in market value.
These Funds may also purchase call options on securities. One pur-
pose of purchasing call options is to protect against substantial
increases in prices of securities the Fund intends to purchase
pending its ability to invest in such securities in an orderly
manner. A Fund may sell put or call options it has previously pur-
chased, which could result in a net gain or loss depending on
whether the amount realized on the sale is more or less than the
premium and other transaction costs paid on the put or call option
which is sold. A Fund may write a call or put option only if the
option is "covered" by the Fund holding a position in the under-
lying securities or by other means which would permit immediate
satisfaction of the Fund's obligation as writer of the option.
Prior to exercise or expiration, an option may be closed out by an
offsetting purchase or sale of an option of the same series.
The 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.
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 Balanced, International Developed, International, Emerging
Markets and Precious Metals Funds may buy or sell put and call op-
tions 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.
July 13, 1998 Prospectus 35
<PAGE>
Over-the-counter options in which certain Funds may invest dif-
fer 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 cer-
tain written over-the-counter options.
SWAP AGREEMENTS The Balanced Fund may enter into swap agreements
to hedge against changes in interest rates, foreign currency ex-
change rates or securities prices. The Tax-Efficient Equity, In-
ternational 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 without actually pur-
chasing those stocks. Swap agreements are two-party contracts en-
tered into primarily by institutional investors for periods rang-
ing from a few weeks to more than one year. In a standard swap
transaction, two parties agree to exchange the returns (or differ-
entials in rates of return) earned or realized on particular pre-
determined 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS Certain Funds
may enter into futures contracts and options thereon. 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 Balanced,
International Developed, International, Emerging Markets and Pre-
cious Metals Funds may invest in foreign exchange futures con-
tracts 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. These Funds may engage
in such futures transactions as an adjunct to their securities ac-
tivities.
36 PIMCO Funds: Multi-Manager Series
<PAGE>
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.
INDEX FUTURES The Balanced, Renaissance, Tax-Efficient Equity,
Growth, Target, Opportunity, International Developed, Internation-
al, Emerging Markets, Innovation and Precious Metals Funds may
purchase and sell futures contracts on various securities indexes
("Index Futures") and related options for hedging purposes and for
investment purposes. A Fund's purchase and sale of Index Futures
is limited to contracts and exchanges which have been approved by
the Commodity Futures Trading Commission ("CFTC").
Each of the International Developed, International and Emerging
Markets Funds may invest to a significant degree in Index Futures
on stock indexes and related options (including those which may
trade outside of the United States) as an alternative to purchas-
ing individual stocks in order to adjust the Fund's exposure to a
particular market. These Funds may invest in Index Futures and re-
lated options when a Portfolio Manager believes that there are not
enough attractive securities available to maintain the standards
of diversification and liquidity set for a Fund pending investment
in such securities if or when they do become available. Through
the use of Index Futures and related options, a Fund may diversify
risk in its portfolio without incurring the substantial brokerage
costs which may be associated with investment in the securities of
multiple issuers. A Fund may also avoid potential market and li-
quidity problems which may result from increases in positions al-
ready held by the Fund.
A Fund may close open positions on the futures exchanges on
which Index Futures are traded at any time up to and including the
expiration day. All positions which remain open at the close of
the last business day of the contract's life are required to set-
tle on the next business day (based upon the value of the relevant
index on the expiration day), with settlement made with the appro-
priate clearing house. Because the specific procedures for trading
foreign stock Index Futures on futures exchanges are still under
development, additional or different margin requirements as well
as settlement procedures may be applicable to foreign stock Index
Futures at the time a Fund purchases such instruments.
Positions in Index Futures may be closed out by a Fund only on
the futures exchange upon which the Index Futures are then traded.
There can be no assurance that a liquid market will exist for any
particular contract at any particular time. Also, the price of In-
dex Futures may not correlate perfectly with movement in the rele-
vant index due to certain market distortions. First, all partici-
pants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close future contracts through
offsetting transactions which could distort the normal relation-
ship between the index and futures markets. Second, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market, and as a result, the
futures market may attract more speculators than does the securi-
ties market. Increased participation by speculators in the futures
market may also cause temporary price distortions. In addition,
trading hours for foreign stock Index Futures may not correspond
perfectly to hours of trading on the foreign exchange to which a
particular foreign stock Index Future relates. This may result in
a disparity between the price of Index Futures and the value of
the relevant index due to the lack of continuous arbitrage between
the Index Futures price and the value of the underlying index.
July 13, 1998 Prospectus 37
<PAGE>
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 futures contracts and
related options for "bona fide hedging" purposes, as such term is
defined in applicable regulations of the CFTC, or, with respect to
positions in 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 may lend its port-
PORTFOLIO folio securities to brokers, dealers, and other financial institu-
SECURITIES tions, provided:
(i) the loan is secured continuously by collateral consisting
of U.S. Government securities, cash or cash equivalents
(negotiable certificates of deposit, bankers' acceptances
or letters of credit) maintained on a daily mark-to-market
basis in an amount at least equal to the current market
value of the securities loaned;
(ii) the Fund may at any time call the loan and obtain the re-
turn 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 interest, through investment of cash collateral by the
Fund in permissible investments, or a fee, if the collateral is
U.S. Government securities. Securities lending involves the risk
of loss of rights in the collateral or delay in recovery of 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. For these
purposes, a Fund may also hold or have the right to acquire secu-
rities which, without the payment of any further consideration,
are convertible into or exchangeable for the securities sold
short. Short sales expose the Fund to the risk that it will be re-
quired to acquire, convert or exchange securities to cover its
short position at a time when the securities sold short have ap-
preciated 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,
TRANS- which risk is in addition to the risk of decline in the value of
ACTIONS the Fund's other assets. Typically, no income accrues on securi-
ties a Fund has committed to purchase prior to the time delivery
of the securities is made, although a Fund may earn income on se-
curities it has deposited in a segregated account.
38 PIMCO Funds: Multi-Manager Series
<PAGE>
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
to cover its obligations under reverse repurchase agreements. Re-
verse repurchase agreements will be subject to the Funds' limita-
tions on borrowings. A Fund also may borrow money for investment
purposes subject to any policies of the Fund currently described
in this Prospectus or in the Statement of Additional Information.
Such a practice will result in leveraging of a Fund's assets. Lev-
erage will tend to exaggerate the effect on net asset value of any
increase or decrease in the value of a Fund's portfolio 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. See
"Management of the Trust--Portfolio Transactions." Such sales may
result in realization of taxable capital gains. See "Taxes." Port-
folio turnover rates for the Renaissance, Growth, Target, Opportu-
nity, International, Innovation and Precious Metals Funds are set
forth under "Financial Highlights." Portfolio turnover rates for
the remaining Funds which have not recently commenced operations
were as follows for the fiscal years ended June 30, 1997 and 1996,
respectively: Balanced--199% and 140%; Equity Income--45% and 52%;
Value--71% and 29%; Capital Appreciation--87% and 73%; Mid-Cap
Growth--82% and 79%; Small-Cap Value--48% and 35%; International
Developed--77% and 60%; and Emerging Markets--74% and 74%. The an-
nual portfolio turnover rate for the Tax-Efficient Equity Fund is
expected to be less than 40%. The annual portfolio turnover rate
for the Value 25 Fund is expected to be less than 150%.
ILLIQUID Each Fund may invest in securities that are illiquid so long as no
SECURITIES more than 15% of the value of the Fund's net assets (taken at mar-
ket value at the time of investment) would be invested in such se-
curities. 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 signifi-
cant delays in disposing of illiquid securities, and transactions
in illiquid securities may entail registration expenses and other
transaction costs that are higher than those for 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 in-
clude, among other things, written over-the-counter options, secu-
rities or other liquid assets being used as cover for such op-
tions, 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 pen-
alties upon prepayment (other than overnight deposits), securities
that are subject to legal or contractual restrictions on
July 13, 1998 Prospectus 39
<PAGE>
resale (such as privately placed debt securities), and other secu-
rities which legally or in the Advisor's or a Portfolio Manager's
opinion may be deemed illiquid (not including securities issued
pursuant to Rule 144A under the Securities Act of 1933 and certain
commercial paper that the Advisor or a Portfolio Manager has de-
termined 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, such
INVESTMENT as closed-end management investment companies, or in pooled ac-
COMPANIES counts or other investment vehicles which invest in foreign mar-
kets. 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
FIXED rates. The value of a Fund's investments in fixed income securi-
INCOME ties will change as the general level of interest rates fluctuate.
SECURITIES 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 secu-
rities generally decline. Credit risk relates to the ability of
the issuer to make payments of principal and interest.
SERVICE Many of the services provided to the Funds depend on the smooth
SYSTEMS -- functioning of computer systems. Many systems in use today cannot
YEAR 2000 distinguish between the year 1900 and the year 2000. Should any of
PROBLEM the service systems fail to process information properly, that
could have an adverse impact on the Funds' operations and services
provided to shareholders. The Advisor, Distributor, Shareholder
Servicing and Transfer Agent, Custodian, and certain other service
providers to the Funds have reported that each is working toward
mitigating the risks associated with the so-called "year 2000
problem." However, there can be no assurance that the problem will
be corrected in all respects and that the Funds' operations and
services provided to shareholders will not be adversely effected.
"FUND- The investment objective of each of the Renaissance, Tax-Efficient
AMENTAL" Equity, Growth, Value 25, Target, Opportunity, International, In-
POLICIES novation and Precious Metals Funds described in this Prospectus
may be changed by the Board of Trustees without shareholder ap-
proval. 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 ap-
proved 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 perfor-
mance is based on that Fund's (or its predecessor's) record to a
recent date and is not intended to indicate future performance.
Performance information is computed separately for each Fund's
Class A, Class B and Class C shares in accordance with the formu-
las 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) alterna-
tives and certain other expenses, it is expected that, under nor-
mal 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
40 PIMCO Funds: Multi-Manager Series
<PAGE>
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 establishment of the Fund or its predeces-
sor series of PIMCO Advisors Funds, as more fully described in the
Statement of Additional Information. For periods prior to the ini-
tial offering date of a particular class of shares, total return
presentations for the class will be based on the historical per-
formance of an older class of the Fund (if any) restated, as nec-
essary, to reflect the current sales charges (if any) associated
with the newer class. The older class to be used in each case is
set forth in the Statement of Additional Information. For these
purposes, the performance of the older class will also be restated
to reflect any different operating expenses (such as different ad-
ministrative fees and/or 12b-1/servicing fee charges) associated
with the newer class. In certain cases, such a restatement will
result in performance of the newer class which is higher than if
the performance of the older class were not restated to reflect
the different operating expenses of the newer class. In such
cases, the Trust's advertisements will also, to the extent appro-
priate, show the lower performance figure reflecting the actual
operating expenses incurred by the older class for periods prior
to the initial offering date of the newer class. Total return for
each class is measured by comparing the value of an investment 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). To-
tal return may be advertised using alternative methods that re-
flect all elements of return, but that may be adjusted to reflect
the cumulative impact of alternative fee and expense structures,
such as the currently effective advisory and administrative 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 Funds may also provide current distribution information to
their 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 a Fund has declared and paid to shareholders as of the
end of a specified period rather than the Fund's actual net in-
vestment 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 advisor 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
the Portfolio Managers, should be considered in light of the
Funds' investment objectives and policies, characteristics and
quality of the Funds' portfolios, and the market conditions during
the time period indicated, and should not be considered to be rep-
resentative 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 Distributors LLC (the
"Distributor"), and through other firms which have dealer agree-
ments with the Distributor ("participating brokers") or which have
agreed to act as
July 13, 1998 Prospectus 41
<PAGE>
introducing brokers for the Distributor ("introducing brokers").
Except to the extent described under "Restrictions on Sales of and
Exchanges for Shares of the Opportunity Fund" below, the Opportu-
nity Fund is closed to new investors. 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.
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 ei-
ther (i) at the time of the purchase in the case of Class A shares
(the "initial sales charge alternative"), (ii) on a contingent de-
ferred basis in the case of Class B shares (the "deferred sales
charge alternative"), or (iii) by the deduction of an ongoing as-
set 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 Arrangements." Purchase payments for Class B and Class C
shares are fully invested at the net asset value next determined
after acceptance of the trade. Purchase payments for Class A
shares, less the applicable sales charge, are invested at the net
asset value next determined after acceptance of the trade.
All purchase orders received by the Distributor prior to the
close of regular trading (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 9:30 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.
Except for purchases through the PIMCO Funds Auto-Invest plan,
the PIMCO Funds Auto-Exchange plan, investments pursuant to the
Uniform Gifts to Minors Act, and tax-qualified and wrap programs
referred to below under "Tax-Qualified Retirement Plans" and
"Sales at Net Asset Value," the minimum initial investment in
Class A, Class B or Class C shares of any Fund of the Trust or any
series of PIMCO Funds: Pacific Investment Management Series is
$2,500, and the minimum additional investment is $100 per Fund.
For information about dealer commissions, see "Alternative Pur-
chase 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 participating bro-
kers are held in the investor's account with that broker. No share
certificates will be issued unless specifically requested in writ-
ing 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
42 PIMCO Funds: Multi-Manager Series
<PAGE>
which result from the reinvestment of daily-accrued dividends
and/or distributions will be confirmed once each calendar quarter.
See "Distributions" below. Information regarding direct investment
or any other features or plans offered by the Trust may be ob-
tained 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 Distributors LLC, along with a completed application
form to:
PIMCO Funds Distributors LLC
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 Funds Auto-Invest plan, the PIMCO Funds Auto-Exchange
plan, tax-qualified programs and PIMCO Funds Fund Link referred to
below, and except during periods when an Automatic Withdrawal Plan
is in effect, the minimum subsequent purchase is $100 in any Fund.
All payments should be made payable to PIMCO Funds Distributors
LLC 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), including Roth
RETIREMENT IRAs, for which First National Bank of Boston serves as trustee
PLANS and for IRA Accounts established with Form 5305-SIMPLE under the
Internal Revenue Code. These accounts include Simplified Employee
Pension Plan (SEP) and Salary Reduction Simplified Employee Pen-
sion Plan (SAR/SEP) IRA accounts and prototype documents. In addi-
tion, prototype documents are available for establishing 403(b)(7)
Custodial Accounts with First National Bank of Boston as custodi-
an. This type of plan is available to employees of certain non-
profit organizations.
The Distributor also makes available prototype documents for
establishing Money Purchase and/or Profit Sharing Plans and 401(k)
Retirement Savings Plans. Investors should call the Distributor at
800-426-0107 for further information about these plans and should
consult with their own tax advisers before establishing any 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 investment for all tax qualified plans (except for employer-
sponsored plans, SIMPLE IRAs, SEPs and SAR/SEPs) is $1,000 per
Fund and the minimum subsequent investment is $100. The minimum
initial investment for employer-sponsored plans, SIMPLE IRAs, SEPs
and SAR/SEPs and the minimum subsequent investment per Fund for
all such plans is $50.
PIMCO FUNDS The PIMCO Funds Auto-Invest plan provides for periodic investments
AUTO-INVEST into the shareholder's account with the Trust by means of auto-
matic transfers of a designated amount from the shareholder's bank
account. The minimum investment for eligibility in the PIMCO Funds
Auto-Invest plan is $1,000 per Fund. Investments may be made
monthly or quarterly, and may be in any amount subject to a mini-
mum of $50 per month for each Fund in which shares are purchased
through the plan. Further information regarding the PIMCO Funds
Auto-Invest plan is available from the Distributor or participat-
ing brokers. You may enroll by completing the appropriate section
on the account application, or you may obtain an Auto-Invest ap-
plication by calling the Distributor or your broker.
July 13, 1998 Prospectus 43
<PAGE>
PIMCO FUNDS The PIMCO Funds Auto-Exchange plan establishes regular, periodic
AUTO- exchanges from one Fund to another Fund or a series of PIMCO
EXCHANGE Funds: Pacific Investment Management Series which offers Class A,
Class B or Class C shares. The plan provides for regular invest-
ments into a shareholder's account in a specific Fund by means of
automatic exchanges of a designated amount from another Fund ac-
count of the same class of shares and with identical account reg-
istration. Exchanges for shares of the Opportunity Fund are cur-
rently restricted to the extent provided under "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 Funds Auto-Exchange plan is available from the Distributor
at 800-426-0107 or participating brokers. You may enroll by com-
pleting an application which may be obtained from the Distributor
or by telephone request at 800-426-0107. For more information on
exchanges, see "Exchange Privilege."
PIMCO FUNDS PIMCO Funds Fund Link ("Fund Link") connects your Fund account
FUND LINK with a bank account. Fund Link may be used for subsequent pur-
chases and for redemptions and other transactions described under
"How to Redeem." Purchase transactions are effected by electronic
funds transfers from the shareholder's account at a U.S. bank or
other financial institution that is an Automated Clearing House
("ACH") member. Investors may use Fund Link to make subsequent
purchases of shares in amounts from $50 to $10,000. To initiate
such purchases, call 800-426-0107. All such calls will be record-
ed. Fund Link is normally established within 45 days of receipt of
a Fund Link application by Shareholder Services, Inc. (the "Trans-
fer 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 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.
RESTRICTIONS ON SALES OF AND EXCHANGES FOR SHARES OF THE OPPORTU-
NITY FUND Shares of the Opportunity Fund are normally not avail-
able for purchase by new investors in the Fund. However, in 1997,
the Opportunity Fund began offering Class A and Class C shares to
new investors (the "Offering") on a limited basis. With the excep-
tion of certain benefit plans not currently eligible to acquire
Opportunity Fund shares, all investors eligible to purchase shares
of other Funds may participate in the Offering. Existing Class A
shareholders and Class C shareholders of the other Funds of the
Trust or series of PIMCO Funds: Pacific Investment Management Se-
ries may purchase shares or acquire Opportunity 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 un-
der "Exchange Privilege" below. The Offering will continue in ef-
fect until it is modified or terminated at the sole discretion of
the Trust. Upon termination of the Offering, the Opportunity Fund
will again be closed to new investors. For additional information
regarding the terms of the Offering, please contact the Distribu-
tor (at 800-426-0107) or your broker.
44 PIMCO Funds: Multi-Manager Series
<PAGE>
Except to the extent described above, shares of the Opportunity
Fund are not available for purchase by new investors in the Fund.
The following categories of existing shareholders will still be
permitted to purchase additional shares of the Fund upon termina-
tion of the Offering: (i) shareholders who owned shares of the Op-
portunity Fund on December 31, 1992 will be permitted to purchase
additional shares of the Fund for as long as they continue to own
shares of the Fund; (ii) participants in any self-directed quali-
fied benefit 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 shares of the Fund for any
single plan participant; and (iii) shareholders who acquired
shares during the Offering will be permitted to purchase addi-
tional shares of the Fund for as long as they continue to own
shares of the Fund. Upon termination of the Offering, in the event
a shareholder redeems all of his or her shares of the Opportunity
Fund, or all participants in a self-directed qualified benefit
plan described above redeem their shares of the Opportunity Fund,
such shareholder, or the participants in such plan, will no longer
be eligible to purchase shares of the Opportunity Fund. The Oppor-
tunity Fund does not offer Class B shares to new or existing in-
vestors.
Except pursuant to the Offering, shareholders of other Funds
are not permitted to exchange any of their shares for Opportunity
Fund shares unless the shareholders 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.
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-
REGISTRA- ing to the Transfer Agent. Signature guarantees may be required.
TION See "Signature Guarantee" above. All correspondence must include
CHANGES the account number and must be sent to:
PIMCO Funds Distributors LLC
P.O. Box 5866
Denver, CO 80217-5866
July 13, 1998 Prospectus 45
<PAGE>
SMALL Because of the disproportionately high costs of servicing accounts
ACCOUNT FEE with low balances, a fee at an annual rate of $16, paid to PIMCO
Advisors, the Funds' administrator, will automatically be deducted
from direct accounts with balances falling below a minimum level.
The valuation of accounts and the deduction are expected to take
place during the last five business days of each calendar quarter.
The fee will be deducted in quarterly installments from accounts
with balances below $2,500 except for Uniform Gift to Minors, IRA,
Roth IRA and Auto-Invest accounts, for which the limit is $1,000.
The fee will not apply to employer-sponsored retirement plan ac-
counts or 403(b)(7) custodial accounts. (A separate custodial fee
may apply to IRAs, Roth IRAs and other retirement accounts.) No
fee will be charged on any account of a shareholder if the aggre-
gate value of all of the shareholder's accounts is at least
$50,000. No small account fee will be charged to employee and em-
ployee-related accounts of PIMCO Advisors and/or its affiliates.
MINIMUM Due to the relatively high cost to the Funds of maintaining small
ACCOUNT accounts, you are asked to maintain an account balance of at least
SIZE the amount necessary to open the type of account involved. If your
balance is below such minimum for three months or longer, the
Funds' administrator shall have the right (except in the case of
employer-sponsored retirement accounts) to close your account af-
ter giving you 60 days in which to increase your balance. Your ac-
count will not be liquidated if the reduction in size is due
solely to market decline in the value of your Fund shares or if
the aggregate value of all your accounts in PIMCO Funds exceeds
$50,000.
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 separate prospectuses, certain of the Funds cur-
rently offer up to three additional classes of shares, Class D,
Institutional Class and Administrative Class shares. Class D
shares are offered through financial intermediaries. Institutional
Class and Administrative Class shares are offered to pension and
profit sharing plans, employee benefit trusts, endowments, founda-
tions, corporations and other high net worth individuals. Class D,
Institutional Class and Administrative Class shares are sold with-
out a sales charge and have different expenses than Class A, Class
B and Class C shares. As a result of lower sales charges and/or
operating expenses, Class D, Institutional Class and Administra-
tive Class shares are generally expected to achieve higher invest-
ment returns than Class A, Class B or Class C shares. To obtain
more information about the other classes of shares, please call
the Distributor at 800-927-4648 (for Institutional and Administra-
tive Classes) or 888-87-PIMCO (for Class D).
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
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
46 PIMCO Funds: Multi-Manager Series
<PAGE>
shares are expected to pay correspondingly higher dividends on a
per share basis. However, because initial sales charges are de-
ducted 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 pur-
chase 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 elimina-
tion 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 De-
ferred 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 B shares are not available for purchase by employer
sponsored retirement plans. The Opportunity Fund does not offer
Class B shares.
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 any of the following
distributions from a retirement plan, including a 403(b)(7) custo-
dial account or an IRA (with the exception of a Roth IRA), that
qualify for exemption from the additional tax on early distribu-
tions under Section 72(t) of the Internal Revenue Code of 1986, as
amended (the "Code"): (a) upon attaining age 59 1/2, (b) on ac-
count of death or disability, (c) as part of a series of substan-
tially equal periodic payments, (d) in the case of an IRA (with
the exception of a Roth IRA), attributable to qualified higher ed-
ucation expenses or to qualified first-time home-buyer expenses,
or (e) in the case of a retirement plan other than an IRA, upon
separation from service after attaining age 55; (ii) any partial
or complete redemption in connection with a qualifying loan or
hardship withdrawal from an employer sponsored retirement plan;
(iii) any complete redemption in connection with a distribution
from a qualified employer retirement plan in connection with
termina-
July 13, 1998 Prospectus 47
<PAGE>
tion of employment or termination of the employer's plan and the
transfer to another employer's plan or to an IRA (with the excep-
tion of a Roth IRA); (iv) any partial or complete redemption fol-
lowing death or disability (as defined in the Code) of a share-
holder (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 redemp-
tion resulting from a return of an excess contribution to a quali-
fied employer retirement plan or an IRA (with the exception of a
Roth IRA); (vi) up to 10% per year of the value of an account
which (a) has the value of at least $10,000 at the start of such
year and (b) is subject to an Automatic Withdrawal Plan; (vii) re-
demptions by Trustees, officers and employees of the Trust, and by
directors, officers and employees of the Distributor and the Advi-
sor; (viii) redemptions effected pursuant to a Fund's right to in-
voluntarily redeem a shareholder's account if the aggregate net
asset value of shares held in such shareholder's account is less
than a minimum account size specified in such Fund's prospectus;
(ix) involuntary redemptions caused by operation of law; (x) re-
demption 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 pe-
riodic 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 pur-
chases; (xii) redemptions effected by trustees or other fiducia-
ries who have purchased shares for employer sponsored plans, the
trustee, administrator, fiduciary, broker, trust company or regis-
tered investment advisor for which has an agreement with the Dis-
tributor with respect to such purchases; or (xiii) redemptions in
connection with IRA accounts established with Form 5305-SIMPLE un-
der 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 in each of the following cases:
(a) in connection with a distribution without penalty under Sec-
tion 72(t) of the Code from a 403(b)(7) plan or an IRA (with the
exception of a Roth 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) up to 10%
per year of the value of an account which (i) has a value of at
least $100,000 at the start of such year and (ii) is subject to an
Automatic Withdrawal Plan. See "How to Redeem--Automatic With-
drawal 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.
48 PIMCO Funds: Multi-Manager Series
<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
<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>
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 accord-
ing to the following schedule: 0.75% of the first $2,000,000,
0.50% of amounts from $2,000,001 to $5,000,000, and 0.25% of
amounts over $5,000,000.
Each Fund receives the entire net asset value of its Class A
shares purchased by investors. The Distributor receives the sales
charge shown above less any applicable discount or commission
"reallowed" to participating brokers in the amounts indicated in
the table above. The Distributor may, however, elect to reallow
the entire sales charge to participating brokers for all sales
with respect to which orders are placed with the Distributor for
any particular Fund during a particular period. 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 0.50% of the
purchase price on sales of Class A shares of all or selected Funds
purchased to each participating broker which obtains purchase 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.
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 pur-
chases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, 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;
July 13, 1998 Prospectus 49
<PAGE>
(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 Equity Income
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
purchase of shares under a Letter of Intent will be made at the
public offering price or prices applicable at the time of such
purchase to a single transaction of the dollar amount indicated in
the Letter. At the investor's option, a Letter of Intent may include
purchases of Class A shares of any 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 included and
the sales charge on any purchases prior to the Letter will not be
adjusted.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the eligible PIMCO Funds
under a single Letter of Intent. For example, if at the time you
sign a Letter of Intent to invest at least $100,000 in Class A
shares of any Fund, 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 qualify 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 Letter
of Intent is 5% of such amount. Shares purchased with the first 5%
of such amount will be held in escrow (while remaining registered in
your name) to secure payment of the higher sales charge applicable
to the shares actually purchased in the event the full intended
amount is not purchased. If the full amount indicated is not
purchased, a sufficient amount of such escrowed shares will be
involuntarily redeemed to pay the additional sales charge applicable
to the amount actually purchased, if necessary. Dividends on
escrowed shares, whether paid in cash or reinvested in additional
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 application. If you
are a current Class A shareholder desiring to do so you may obtain a
form of Letter of Intent by contacting the Distributor at
800-426-0107 or any broker participating in this program.
50 PIMCO Funds: Multi-Manager Series
<PAGE>
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, a parent, brother or sister of any such
officer, trustee, director or employee or a spouse or child of any
of the foregoing persons, or any trust, profit sharing or pension
plan for the benefit of any such person and to any other person if
the Distributor anticipates that there will be minimal sales ex-
penses associated with the sale, (b) current or retired trustees
of PIMCO Funds: Pacific Investment Management Series, a registered
investment company for which Pacific Investment Management, an af-
filiate of the Advisor, acts as investment advisor, (c) current
registered representatives and other full-time employees of par-
ticipating brokers or such persons' spouses or for trust or custo-
dial accounts for their minor children, (d) trustees or other fi-
duciaries purchasing shares for certain employer sponsored plans
that have at least 100 eligible participants or at least $1 mil-
lion in total plan assets, (e) trustees or other fiduciaries pur-
chasing shares for certain plans sponsored by employers, profes-
sional organizations or associations or charitable organizations,
the trustee, administrator, fiduciary, broker, trust company or
registered investment advisor for which has an agreement with the
Distributor with respect to such purchases, and to participants in
such plans and their spouses purchasing for their account(s) or
IRAs (with the exception of Roth IRAs), (f) participants investing
through accounts known as "wrap accounts" established with brokers
or dealers approved by the Distributor where such brokers or deal-
ers are paid a single, inclusive fee for brokerage and investment
management services, (g) client accounts of broker-dealers or reg-
istered investment advisors 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 or
programs, and (h) accounts for which a trust company affiliated
with the Trust or the Advisor serves as trustee or custodian. As
described above, the Distributor will not pay any initial commis-
sion to dealers upon the sale of Class A shares to the purchasers
described in this paragraph except for sales to purchasers de-
scribed 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 $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.
July 13, 1998 Prospectus 51
<PAGE>
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 de-
rived 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 re-
deemed 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 Ar-
rangements--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 transaction fees and/or
other 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 partici-
pate in a program allowing them access to their clients' accounts
for servicing including, without limitation, transfers of regis-
tration 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 any initial sales charge. The full amount of an investor's pur-
CHARGE chase payment will be invested in shares of the Fund(s) selected.
ALTERNATIVE A CDSC will be imposed on Class B shares if an investor redeems an
- -- CLASS B amount which causes the current value of the investor's account
SHARES for a Fund to fall below the total dollar amount of purchase pay-
ments 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.
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.
52 PIMCO Funds: Multi-Manager Series
<PAGE>
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 4.00% of the purchase amount for each of the Funds.
During such periods as may from time to time be designated by the
Distributor, the Distributor will pay selected participating bro-
kers 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
participating broker which obtains purchase orders in amounts ex-
ceeding thresholds established from time to time by the Distribu-
tor.
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 any initial sales charge. A CDSC is imposed on Class C shares if
CHARGE an investor redeems an amount which causes the current value of
ALTERNATIVE the investor's account for a Fund to fall below the total dollar
- --CLASS C amount of purchase payments subject to the CDSC, except that no
SHARES CDSC is imposed if the shares redeemed have been acquired through
the reinvestment of dividends or capital gains distributions or if
the amount redeemed is derived from increases in the value of the
account above the amount of purchase payments subject to the CDSC.
All of an investor's purchase payments are invested in shares of
the Fund(s) selected.
Whether a CDSC is imposed and the amount of the CDSC will 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).
July 13, 1998 Prospectus 53
<PAGE>
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 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 account 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 "Restrictions on
Sales of and Exchanges for Shares of the Opportunity Fund" under
"How to Buy Shares" above. Class A, Class B and Class C shares of
each Fund may also be exchanged for shares of the same class of a
series of PIMCO Funds: Pacific Investment Management Series, an
affiliated mutual fund family comprised primarily 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 ef-
fected through the PIMCO Funds Auto-Exchange plan, exchanges are
subject to the $2,500 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
Distributors LLC, P.O. Box 5866, Denver, CO 80217-5866 or, unless
the investor has specifically declined telephone exchange privi-
leges on the account application or elected in writing not to uti-
lize telephone exchanges, by a telephone request to the Transfer
Agent at 800-426-0107. The Trust will employ reasonable procedures
to confirm that instructions communicated by telephone are genu-
ine, 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 transac-
54 PIMCO Funds: Multi-Manager Series
<PAGE>
tions and will record telephone instructions. Exchange forms are
available from the Distributor at 800-426-0107 and may be used if
there will be no change in the registered name or address of the
shareholder. Changes in registration information or account privi-
leges may be made in writing to the Transfer Agent, Shareholder
Services, Inc., P.O. Box 5866, Denver, Colorado 80217-5866, or by
use of forms which are available from the Distributor. A signature
guarantee is required. See "How to Buy Shares--Signature Guaran-
tee." 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 purchases if, in the judgment of the Advisor,
the purchase would adversely affect the Fund and its shareholders.
In particular, a pattern of exchanges characteristic of "market-
timing" strategies may be deemed by the Advisor to be detrimental
to the Trust or a particular Fund.
Currently, the Trust limits the number of "round trip" ex-
changes an investor may make. An investor makes a "round trip" ex-
change when the investor purchases shares of a particular Fund,
subsequently exchanges those shares for shares of a different
Fund, and then exchanges back into the originally purchased Fund.
The Trust has the right to refuse any exchange for any investor
who completes (by making the exchange back into the shares of the
originally purchased Fund) more than six round trip exchanges in
any twelve-month period. Although the Trust has no current inten-
tion of terminating or modifying the exchange privilege other than
as set forth in the preceding sentence, it reserves the right to
do so at any time. Except as otherwise permitted by Securities and
Exchange Commission regulations, the Trust will give 60 days' ad-
vance notice to shareholders of any termination or material modi-
fication of the exchange privilege. For further information about
exchange privileges, contact your participating broker or call the
Transfer Agent at 800-426-0107.
With respect to Class B and Class C shares, or Class A shares
subject to a CDSC, if less than all of an investment is exchanged
out of a Fund, any portion of the investment attributable to 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 Funds Auto-Exchange plan
which establishes automatic periodic exchanges. For further infor-
mation on automatic exchanges see "How to Buy Shares--PIMCO Funds
Auto-Exchange" 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 Funds
Fund Link. In the event a shareholder or participants in certain
self-directed qualified employee benefit plans eligible to pur-
chase shares of the Opportunity Fund redeem(s) all of the share-
holder's or the participants' shares of the Fund (including shares
acquired during the Offering described under "How to Buy Shares--
Restrictions on Sales of and Exchanges for Shares of the Opportu-
nity Fund" above), such shareholder or participants in such plans
will no longer be eligible to purchase shares of the Opportunity
Fund.
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
July 13, 1998 Prospectus 55
<PAGE>
of the Distributor's business day will be confirmed at the net as-
set 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 num-
ber of shares to be redeemed;
(2) for certain redemptions described below, a guarantee of all
signatures on the written request or on the share certifi-
cate 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 documents which may be required by the
Transfer Agent for redemption by corporations, partnerships
or other organizations, executors, administrators, trust-
ees, custodians or guardians, or if the redemption is re-
quested by anyone other than the shareholder(s) of record.
Transfers of shares are subject to the same requirements. A
signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record for
the account, to be sent to the address of record for that account.
To avoid delay in redemption or transfer, shareholders having any
questions about these requirements should contact the Transfer
Agent in writing or call 1-800-426-0107 before submitting a re-
quest. Redemption or transfer requests will not be honored until
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.
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
56 PIMCO Funds: Multi-Manager Series
<PAGE>
written authorization with a signature guarantee. See "How to Buy
Shares--Signature Guarantee." Telephone redemptions will not be
accepted during the 30-day period following any change in an ac-
count'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 800-426-0107 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 Ex-
change, the redemption is effected on the following Trust business
day at that day's net asset value and the proceeds are usually
sent to the investor on the second following Trust business day.
The Trust reserves the right to terminate or modify the telephone
redemption service at any time. During times of severe disruptions
in the securities markets, the volume of calls may make it diffi-
cult to redeem by telephone, in which case a shareholder may wish
to send a written request for redemption as described under "Writ-
ten Requests" 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 800-426-0107. 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 Funds Fund
Link" for information on establishing the Fund Link privilege. The
Trust may terminate the Fund Link program at any time without no-
tice to shareholders. This redemption option does not apply to
shares held in broker "street name" accounts.
July 13, 1998 Prospectus 57
<PAGE>
PIMCO FUNDS PIMCO Funds Automated Telephone System ("ATS") is an automated
AUTOMATED telephone system that enables shareholders to perform a number of
TELEPHONE account transactions automatically using a touch-tone telephone.
SYSTEM ATS may be used on already-established Fund accounts after you ob-
tain a Personal Identification Number (PIN) by calling the special
ATS number: 1-800-223-2413.
PURCHASING SHARES. You may purchase shares in amounts up to
$100,000 by telephone by calling 1-800-223-2413. You must have es-
tablished ATS privileges to link your bank account with the Fund
to pay for these purchases.
EXCHANGING SHARES. With the PIMCO Funds Exchange Privilege, you
can exchange shares automatically by telephone from your Fund Link
Account to another PIMCO Funds account you have already estab-
lished by calling 1-800-223-2413. Please refer to "Exchange Privi-
lege" for details.
REDEMPTIONS. You may redeem shares by telephone automatically by
calling 1-800-223-2413 and the Fund will send the proceeds di-
rectly to your Fund bank account. Please refer to "How to Redeem"
for details.
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 800-426-0107 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 Distributors
LLC, 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.
CERTIFI- To redeem shares for which certificates have been issued, the cer-
CATED tificates must be mailed to or deposited with the Trust, duly en-
SHARES 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
58 PIMCO Funds: Multi-Manager Series
<PAGE>
Buy Shares--Signature Guarantee." Class A, Class B and Class C
shares of any Fund are deposited in a plan account and all distri-
butions 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 asset value (less any applicable CDSC) to
make each withdrawal payment. Any applicable CDSC may be waived
for certain redemptions under an Automatic Withdrawal Plan. See
"Alternative Purchase Arrangements--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 Automatic Withdrawal Plan concurrently with
purchases of additional shares of the Fund would be disadvanta-
geous to the investor because of the CDSC that may become payable
on such withdrawals in the case of Class A, Class B or Class C
shares and because of the initial sales charge in the case of
Class A shares. For this reason, the minimum investment accepted
for a Fund while an Automatic Withdrawal Plan is in effect for
that Fund is $1,000, and an investor may not maintain a plan for
the accumulation of shares of the Fund (other than through rein-
vestment of distributions) and an Automatic Withdrawal Plan at the
same time. The Trust or the Distributor may terminate or change
the terms of the Automatic Withdrawal Plan at any time.
Because the Automatic Withdrawal Plan may involve invasion of
capital, investors should consider carefully with their own finan-
cial advisors 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.
REDEMPTIONS The Trust agrees to redeem shares of each Fund solely in cash up
IN KIND to the lesser of $250,000 or 1% of the Fund's net assets during
any 90-day period for any one shareholder. In consideration of the
best interests of the remaining shareholders, the Trust reserves
the right to pay any redemption proceeds exceeding this amount in
whole or in part by a distribution in kind of securities held by a
Fund in lieu of cash. Except for Funds with a tax-efficient man-
agement strategy, it is highly unlikely that shares would ever be
redeemed in kind. When shares are redeemed in kind, the redeeming
shareholder should expect to incur transaction costs upon the dis-
position of the securities received in the distribution.
Distributor and Distribution and Servicing Plans
PIMCO Funds Distributors LLC (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 ser-
vicing 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
July 13, 1998 Prospectus 59
<PAGE>
current shareholders. The Distributor, located at 2187 Atlantic
Street, Stamford, Connecticut 06902, is a broker-dealer registered
with the Securities and Exchange Commission.
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 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 compensate the Distributor for services ren-
dered 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
60 PIMCO Funds: Multi-Manager Series
<PAGE>
the relative sales of each class, except for any expenses that re-
late only to the sale or servicing of a single class. The Distrib-
utor may make payments to brokers (and with respect to servicing
fees only, to certain banks and other financial intermediaries) of
up to the following percentages annually of the average daily net
assets attributable to shares in the accounts of their customers
or clients:
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 transactions 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 shares of a Fund and/or all of the Funds to-
gether 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 administrator for the Funds, PIMCO Advi-
sors 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 January 17, 1997 in respect of se-
ries of PIMCO Advisors Funds that were predecessors of certain
Funds listed below. The remaining Funds did not offer Class B or
Class C shares prior to January 17, 1997. As of June 30, 1997,
such expenses were approximately $12,674,000 in excess of payments
under the Class B Distribution and Servicing Plan and $2,163,000
in excess of payments under the Class C Distribution and Servicing
Plan.
July 13, 1998 Prospectus 61
<PAGE>
The allocation of such excess (on a pro rata basis) among the
Funds listed below (and where noted, their predecessees) as of
June 30, 1997 was as follows:
EXCESS EXPENSES
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------------------------------
(AS A PERCENTAGE (AS A PERCENTAGE
OF NET ASSETS OF NET ASSETS
($ IN THOUSANDS) AS OF 6/30/97) ($ IN THOUSANDS) AS OF 6/30/97)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Fund 35 4.00 1 .10
--------------------------------------------------------------------------------------------
Equity Income Fund 97 4.00 4 .10
--------------------------------------------------------------------------------------------
Value Fund 658 4.00 35 .10
--------------------------------------------------------------------------------------------
Renaissance Fund* 1,533 4.00 170 .10
--------------------------------------------------------------------------------------------
Capital Appreciation
Fund 94 4.00 7 .10
--------------------------------------------------------------------------------------------
Growth Fund* 2,966 4.00 821 .10
--------------------------------------------------------------------------------------------
Mid-Cap Growth Fund 791 4.00 28 .10
--------------------------------------------------------------------------------------------
Target Fund* 3,198 4.00 526 .10
--------------------------------------------------------------------------------------------
Small-Cap Value Fund 358 4.00 11 .10
--------------------------------------------------------------------------------------------
Opportunity Fund* N/A N/A 341 .10
--------------------------------------------------------------------------------------------
International Developed
Fund 37 4.00 2 .10
--------------------------------------------------------------------------------------------
International Fund* 432 4.00 91 .10
--------------------------------------------------------------------------------------------
Emerging Markets Fund 9 4.00 2 .10
--------------------------------------------------------------------------------------------
Innovation Fund* 2,042 4.00 88 .10
--------------------------------------------------------------------------------------------
Precious Metals Fund* 272 4.00 14 .10
</TABLE>
* For these Funds, the table includes excess expenses of predeces-
sor series of PIMCO Advisors Funds which reorganized as the listed
Funds of the Trust on January 17, 1997.
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. Net asset value will not be determined on days on which
the Exchange is closed.
Portfolio securities and other assets for which market quota-
tions are readily available are stated at market value. Fixed in-
come securities are normally valued on the basis of quotations ob-
tained from brokers and dealers or pricing services, which take
into account appropriate factors such as institutional-sized trad-
ing 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 quo-
tations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to
fixed income securities whose prices are more readily obtainable
and whose durations are comparable to the securities being valued.
Short-term investments having a maturity of 60 days or less are
valued at amortized cost, when the Board of Trustees determines
that amortized cost is their fair value. 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 direc-
tion.
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
62 PIMCO Funds: Multi-Manager Series
<PAGE>
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 securities are deter-
mined using information derived from pricing services and other
sources. Information that becomes known to the Trust or its agents
after the time that net asset value is calculated 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 ear-
lier or on a prior day. Events affecting the values of portfolio
securities that occur between the time their prices are determined
and the close of regular trading on the Exchange (normally 4:00
p.m., Eastern time) may not be reflected in the calculation of net
asset value. If events materially affecting the value of such se-
curities occur during such period, then these securities may be
valued at fair value as determined 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
a particular Fund's classes.
Distributions
Shares begin earning dividends on the day after 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 div-
idends, if any, will be declared and paid quarterly to sharehold-
ers of record by the Balanced, Equity Income, Value and Renais-
sance Funds. Net investment income from interest and dividends, if
any, will be declared and paid at least annually to shareholders
of record by the Tax-Efficient Equity, Capital Appreciation,
Growth, Value 25, Mid-Cap Growth, Target, Small-Cap Value, Oppor-
tunity, International Developed, International, Emerging Markets,
Innovation and Precious Metals Funds. Any net capital gains from
the sale of portfolio securities will be distributed no less fre-
quently than once annually. Net 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 or PIMCO Funds: Pacific
Investment Management Series as described below, at net asset val-
ue, unless the shareholder elects to receive cash (either paid to
shareholders directly or credited to their account with their par-
ticipating broker). If a shareholder has elected to receive divi-
dends and/or capital gain distributions in cash and the postal or
other delivery service is unable to deliver checks to the share-
holder's address of record, such shareholder's distributions will
automatically be invested in the Money Market Fund of PIMCO Funds:
Pacific Investment Management Series, until such shareholder is
located. 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 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 dividends.
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-
426-0107. For further information on this option, contact your
broker or call the Distributor at 800-426-0107.
July 13, 1998 Prospectus 63
<PAGE>
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. Under the
Taxpayer Relief Act of 1997, long-term capital gains will gener-
ally be taxed at a 28% or 20% rate, depending upon the holding pe-
riod of the portfolio security. Any distributions that are not
from a Fund's net investment income or net capital gain may be
characterized as a return of capital to shareholders or, in some
cases, as capital gain. Certain dividends declared in October, No-
vember or December of a calendar year are taxable to shareholders
(who otherwise are subject to tax on dividends) as though received
on December 31 of that year if paid to shareholders during January
of the following calendar year. Each Fund will advise shareholders
annually of the amount and nature of the dividends paid to them.
Dividends derived from interest on certain U.S. Government securi-
ties may be exempt from state and local taxes, although interest
on mortgage-backed U.S. Government securities may not be so ex-
empt. While the Tax-Efficient Equity Fund seeks to minimize tax-
able distributions, the Fund may be expected to earn and distrib-
ute taxable income and may also be expected to realize and dis-
tribute capital gains from time to time.
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, 1989 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.
64 PIMCO Funds: Multi-Manager Series
<PAGE>
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 advisor 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 May 31, 1998 were approximately
$223.2 billion. The general partners of PIMCO Advisors are PIMCO
Partners, G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO
Partners, G.P. is a general partnership between PIMCO Holding LLC,
a Delaware limited liability company and an indirect wholly-owned
subsidiary of Pacific Life Insurance Company, and PIMCO Partners
LLC, a California limited liability company controlled by the Man-
aging Directors of Pacific Investment Management. PIMCO Partners,
G.P. is the sole general partner of PAH. PIMCO Advisors is gov-
erned by a Management Board, which exercises substantially all of
the governance powers of the general partner and serves as the
functional equivalent of a board of directors. PIMCO Advisors' ad-
dress is 800 Newport Center Drive, Suite 100, Newport Beach, Cali-
fornia 92660. PIMCO Advisors is registered as an investment advi-
sor with the Securities and Exchange Commission. PIMCO Advisors
currently has seven subsidiary investment advisor partnerships,
the following six of which manage one or more of the Funds:
Blairlogie, Cadence, Columbus Circle, NFJ, Pacific Investment Man-
agement and Parametric.
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 (and not the Funds or the Trust)
compensates the Portfolio Managers from its advisory fee. Under
these agreements, a Portfolio Manager has full investment discre-
tion and makes all determinations with respect to the investment
of a Fund's assets, or, for the Balanced Fund, with respect to the
portion of the Fund's assets allocated to the Portfolio Manager
for investment, and makes all determinations respecting the pur-
chase 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 and the Innovation Fund (the
"Columbus Circle Funds"). Columbus Circle is an investment manage-
ment firm organized as a general partnership. Columbus Circle has
two partners: PIMCO Advisors as the supervisory partner, and Co-
lumbus Circle Investors Management Inc. as the managing partner.
Columbus Circle Investors Division of Thomson Advisory Group L.P.
("TAG"), the predecessor investment advisor to Columbus Circle,
commenced operations in 1975. Accounts managed by Columbus Circle
had combined assets as of May 31, 1998 of approximately $9.5 bil-
lion. Columbus Circle's address is Metro Center, One Station
Place, 8th Floor, Stamford, Connecticut 06902. Columbus Circle is
registered as an investment advisor with the Securities and Ex-
change 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
July 13, 1998 Prospectus 65
<PAGE>
this theory, Columbus Circle attempts to manage the Columbus Cir-
cle Funds with a view to investing in growing companies that are
surprising the market with business results that are better than
anticipated.
Investment decisions made by Columbus Circle are generally made
by one or more committees, although the following individuals have
primary responsibility for the noted Columbus Circle Funds. An-
thony Rizza is primarily responsible for the day-to-day management
of the Growth Fund. Mr. Rizza, a Managing Director of Columbus
Circle, has 11 years of investment management experience. He re-
ceived his bachelor's degree from the University of Connecticut,
and he is a Chartered Financial Analyst. Marc Felman is primarily
responsible for the day-to-day management of the Opportunity Fund
and Donald A. Chiboucas has secondary responsibility. Mr. Felman,
a Managing Director at Columbus Circle, has 9 years of investment
management experience. He received his bachelor's degree from Em-
ory University and his MBA from the Wharton School of Business.
Mr. Chiboucas, a Managing Director of Columbus Circle, has 30
years of investment management experience. He received his bache-
lor's degree and MBA from the University of California, Berkeley,
and he is a Chartered Financial Analyst. Amy H. Hogan is primarily
responsible for the day-to-day management of the Target Fund. Ms.
Hogan, a Managing Director of Columbus Circle, has 12 years of in-
vestment management experience. She received her bachelor's degree
and MBA from the University of Wisconsin, and she is a Chartered
Financial Analyst. Anthony Rizza (see above) is primarily respon-
sible for the day-to-day management of the Innovation Fund. Clif-
ford G. Fox is primarily responsible for the day-to-day management
of the Renaissance Fund. Mr. Fox, a Managing Director of Columbus
Circle, has 16 years of investment management experience. He re-
ceived his bachelor's degree from the University of Pennsylvania
and his MBA from New York University, and he is a Chartered Finan-
cial Analyst.
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 advisor to Cadence,
commenced operations in 1988. Accounts managed by Cadence had com-
bined assets as of May 31, 1998 of approximately $6.6 billion. Ca-
dence's address is Exchange Place, 53 State Street, Boston,
Massachusetts 02109. Cadence is registered as an investment advi-
sor with the Securities and Exchange Commission.
David B. Breed, William B. Bannick, Katherine A. Burdon and Pe-
ter B. McManus are primarily responsible for the day-to-day man-
agement of the Cadence Funds. Mr. Breed is a Managing Director,
the Chief Executive Officer, and a founding partner of Cadence,
and has 24 years' investment management experience. He has been
the driving force in developing the firm's growth-oriented stock
screening and selection process and has been with Cadence or its
predecessor since its inception. Mr. Breed graduated from the Uni-
versity of Massachusetts and received his MBA from the Wharton
School of Business. He is a Chartered Financial Analyst. Mr.
Bannick is a Managing Director and Executive Vice President of Ca-
dence and has 12 years' investment management experience. He pre-
viously served as Executive Vice President of George D. Bjurman &
Associates and as Supervising Portfolio Manager of Trinity Invest-
ment Management Corporation. Mr. Bannick joined the predecessor of
Cadence in 1992. He graduated from the University of Massachusetts
and received his MBA from Boston University. Mr. Bannick is
a Chartered Financial Analyst. Ms. Burdon is a Managing Director
and Portfolio Manager of Cadence and has nine years' investment
management experience. She previously served as a Vice President
and Portfolio Manager of The Boston Company. Ms. Burdon joined the
predecessor of Cadence in 1993. She graduated from Stanford Uni-
versity and received a Master of Science degree from Northeastern
University. Ms. Burdon is a Chartered Financial Analyst and Certi-
fied Public Accountant. Mr. McManus is Director of Fund Management
of Cadence and has 20 years' investment management experience. He
previously served as a Vice President of Bank of Boston. Mr. Mc-
Manus joined Cadence in 1994. He graduated from the University of
Massachusetts, and he is certified as a Financial Planner.
66 PIMCO Funds: Multi-Manager Series
<PAGE>
NFJ manages the Equity Income Fund, the Value Fund, the Value 25
Fund, the Small-Cap Value Fund, and a portion of the Common Stock
Segment of the Balanced 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 advisor to NFJ, commenced operations in 1989. Accounts
managed by NFJ had combined assets as of May 31, 1998 of approxi-
mately $2.7 billion. NFJ's address is 2121 San Jacinto, Suite
1840, Dallas, Texas 75201. NFJ is registered as an investment ad-
visor with the Securities and Exchange Commission.
Chris Najork and Benjamin Fischer are responsible for the day-
to-day management of the Equity Income 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 29 years' experience encompassing equity research and portfo-
lio management. He received his bachelor's degree and MBA from
Southern Methodist University, and he is a Chartered Financial An-
alyst. Mr. Fischer is a Managing Director and a founding partner
of NFJ and has 31 years' experience encompassing equity research
and portfolio management. He received his bachelor's degree from
Oklahoma University and his MBA from the New York University Grad-
uate School of Business. He is a Chartered Financial Analyst.
Messrs. Najork, Fischer and Paul A. Magnuson are primarily respon-
sible for the day-to-day management of the Value Fund and the
Small-Cap Value Fund. Mr. Magnuson, a research analyst at NFJ, has
12 years' experience in equity research and portfolio management.
He received his bachelor's degree in Finance from the University
of Nebraska-Lincoln. Messrs. Najork, Fischer and Cliff Hoover are
primarily responsible for the day-to-day management of the Value
25 Fund. Mr. Hoover is a principal at NFJ and has 23 years' expe-
rience in portfolio management and banking. He received his bache-
lor's degree and MBA from Texas Tech University. He is a Chartered
Financial Analyst.
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 the United Kingdom, with
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 subsidiary of PIMCO
Advisors, which serves as the managing partner. The limited part-
ner is Blairlogie Partners L.P., a limited partnership, the gen-
eral partner of which is Pacific Asset Management LLC (a subsidi-
ary of Pacific Life Insurance Company), and the limited partners
of which are the principal executive officers of Blairlogie Capi-
tal Management. Blairlogie Capital Management Ltd., the predeces-
sor investment advisor to Blairlogie, commenced operations in
1992. Accounts managed by Blairlogie had combined assets as of May
31, 1998 of approximately $800 million. Blairlogie's address is
4th Floor, 125 Princes Street, Edinburgh EH2 4AD, Scotland.
Blairlogie is registered as an investment advisor with the Securi-
ties and Exchange Commission in the United States and with the In-
vestment 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 six 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 advisor to Pacific Investment Management, commenced
operations in 1971. Pacific Investment Management had approxi-
mately $133.6 billion of assets
July 13, 1998 Prospectus 67
<PAGE>
under management as of May 31, 1998. Pacific Investment
Management's address is 840 Newport Center Drive, Suite 360,
Newport Beach, California 92660. Pacific Investment Management is
registered as an investment advisor 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
Management or its predecessor for more than 27 years. He has
extensive investment experience in both credit research and fixed
income portfolio management. 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 Society of Financial Analysts.
PARAMETRIC manages the Tax-Efficient Equity Fund. Parametric is
an investment management firm organized as a general partnership.
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. Accounts
managed by Parametric had combined assets as of May 31, 1998 of
approximately $3 billion. Parametric's address is 7310 Columbia
Center, 701 Fifth Avenue, Seattle, Washington 98104-7090.
Parametric is registered as an investment adviser with the
Securities and Exchange Commission and as a commodity trading
advisor with the
CFTC.
David Stein and Brian Langstraat are primarily responsible for
the day-to-day management of the Tax-Efficient Equity Fund. Mr.
Stein is a Managing Director of Parametric and has been
associated with Parametric since June of 1996. He also directs
research and product development for Parametric. Mr. Stein
graduated with bachelor's and master's degrees in Applied
Mathematics from the University of Witwatersrand, South Africa,
and received a Ph.D. in Applied Mathematics from Harvard
University. Prior to joining Parametric, Mr. Stein served as the
Director of Investment Research at GTE Investment Management,
Director of Active Equity Strategies at the Vanguard Group, and
Director of Quantitative Portfolio Management and Research at
IBM. Mr. Langstraat is a Managing Director of Parametric and has
been associated with Parametric since 1990. He is responsible for
product and portfolio management in the areas of taxable and
international investing. Mr. Langstraat graduated from the
University of Washington with a bachelor's degree in Economics.
He is a Chartered Financial Analyst.
VAN ECK is an unaffiliated investment advisor that manages the
Precious Metals Fund. Van Eck is a Delaware corporation which,
together with its affiliates, provides investment advisory
services to other mutual funds and to 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. Accounts
managed by Van Eck had combined assets as of May 31, 1998 of
approximately $1.4 billion. Van Eck's address is 99 Park Avenue,
New York, NY 10001. Van Eck is registered as an investment
advisor with the Securities and Exchange Commission.
Henry J. Bingham, Executive Managing Director of Van Eck, has
served as the portfolio manager responsible for the day-to-day
management of the Precious Metals Fund since the Fund commenced
operations.
Registration as an investment advisor with the Securities and
Exchange 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 supervision by the CFTC over commodities trading. The
portfolio management agreements are not exclusive, and Columbus
Circle, Cadence, NFJ, Blairlogie, Pacific Investment Management,
Parametric and Van Eck 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 for the Funds' Class A, Class B and Class C shares pursuant to an
administration agreement with the Trust. The Administrator
provides or procures administrative services for Class A, Class B
and Class C shareholders of the Funds, which include clerical
help and accounting,
68 PIMCO Funds: Multi-Manager Series
<PAGE>
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 re-
tained 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 serv-
ices. In addition, the Administrator, at its own expense, arranges
for the provision of legal, audit, custody, transfer agency (in-
cluding 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 bor-
rowing 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 ex-
clusively for their benefit; (vi) extraordinary expenses, includ-
ing costs of litigation and indemnification expenses; (vii) ex-
penses which are capitalized in accordance with generally accepted
accounting principles; and (viii) any expenses allocated or allo-
cable 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 permit-
ted 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 pro-
AND viding or arranging for the provision of investment advisory serv-
ADMINIS- ices to the Funds as described above, PIMCO Advisors receives
TRATIVE monthly fees from each Fund at an annual rate based on the average
FEES daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
ADVISORY
FUND FEE RATE
---------------------------------
<S> <C>
Balanced, Equity
Income, Value, Tax-
Efficient Equity,
Capital Appreciation
and Mid-Cap Growth
Funds .45%
---------------------------------
Growth and Value 25
Funds .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>
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>
July 13, 1998 Prospectus 69
<PAGE>
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, Growth, Target, Op-
portunity, International, Innovation and Precious Metals Funds 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 agreements 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 (and not
the Funds or the Trust) pays each Portfolio Manager a fee based on
a percentage of the average daily net assets of a Fund as follows:
Columbus Circle--.38% for the Renaissance Fund, .34% for the
Growth Fund, .36% for the Target Fund, .48% for the Opportunity
Fund and .38% for the Innovation Fund; Cadence--.35% for the Capi-
tal 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 Income Fund, .35%
for the Value Fund, .40% for the Value 25 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 International 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; Parametric--.35% for the Tax-Efficient Equity Fund;
and Van Eck--.35% for the Precious Metals Fund.
PORTFOLIO Pursuant to the portfolio management agreements, a Portfolio Man-
TRANS- Sager places orders for the purchase and sale of portfolio invest-
ACTION 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. Particularly when investing in less liquid or illiquid
securities of smaller capitalization companies, such allocation
may take into account the asset size of a Fund in determining
whether the allocation of an investment is suitable. As a result,
larger Funds may become more concentrated in more liquid securi-
ties than smaller Funds or private accounts of a Portfolio Manager
pursuing a small capitalization investment strategy, which could
adversely affect performance. A Portfolio Manager may aggregate
orders for the Funds with simultaneous transactions entered into
on behalf of its other clients so long as price and transaction
expense are averaged either for the particular transaction or for
that day.
Description of the Trust
CAPITAL- The Trust was organized as a Massachusetts business trust on Au-
IZATION gust 24, 1990, and currently consists of twenty-five portfolios
that are operational, seventeen 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 portfo-
lios 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.
70 PIMCO Funds: Multi-Manager Series
<PAGE>
Under Massachusetts law, shareholders could, under certain cir-
cumstances, be held liable for the obligations of the Trust. How-
ever, the Second Amended and Restated Agreement and Declaration of
Trust (the "Declaration of Trust") of the Trust disclaims share-
holder liability for acts or obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obliga-
tion or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust also provides for indemnifica-
tion 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 fi-
nancial 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 In addition to Class A, Class B and Class C shares, certain Funds
CLASSES OF also offer Class D, Institutional Class and Administrative Class
SHARES shares through separate prospectuses. See "Alternative Purchase
Arrangements." These other classes of shares of the Funds may have
different sales charges and expense levels, which will affect per-
formance accordingly. This Prospectus relates only to Class A,
Class B and Class C shares of the Funds.
Class A, Class B and Class C shares of each Fund represent in-
terests in the assets of that Fund, and each class has identical
dividend, liquidation and other rights and the same terms and con-
ditions, 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 in-
cluding advisory or custodial fees or other expenses related to
the management of the Trust's assets, if these expenses are actu-
ally 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 rela-
tion to the net asset value of the particular Fund.
VOTING Each class of shares of each Fund has identical voting rights, ex-
cept 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 Distribu-
tion and Servicing Plan or agreement applicable only to that
class. These shares are entitled to vote at meetings of sharehold-
ers. 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 de-
termined 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 to-
gether, except with respect to a Distribution and Servicing Plan
or agreement 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 de-
clared by the Trustees and, in liquidation of the Trust, are enti-
tled to receive the net assets of their Fund, but not of the other
Funds. The Trust does not generally hold annual meetings of share-
holders 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 June 30, 1998, the
following were shareholders of record of at least 25% of the out-
standing voting securities of the indicated Fund: Merrill Lynch,
Pierce, Fenner & Smith Inc. (Jacksonville, Florida) with respect
to the Target Fund and the Opportunity Fund; and Charles Schwab &
Co., Inc. (San Francisco, California) with respect to the Emerging
Markets Fund. To the extent a shareholder is also the beneficial
owner of such shares, the shareholder may be deemed to control (as
that term is defined in the 1940 Act) the Fund. As used in this
Prospectus, the phrase "vote of a majority of the outstanding
shares" of a Fund (or the Trust) means the vote of the lesser of:
(1) 67% of the shares of
July 13, 1998 Prospectus 71
<PAGE>
the Fund (or the Trust) present at a meeting, if the holders of
more than 50% of the outstanding shares are present in person or
by proxy; or (2) more than 50% of the outstanding shares of the
Fund (or the Trust).
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 reports, will be mailed to a shareholder's house-
hold (same surname, same address). A shareholder may call 800-426-
0107 if additional shareholder reports are desired.
72 PIMCO Funds: Multi-Manager Series
<PAGE>
---------------------------------------------------------------------
PIMCO INVESTMENT ADVISOR AND ADMINISTRATOR
FUNDS: PIMCO Advisors L.P., 800 Newport Center Drive, Newport Beach, CA
MULTI- 92660
MANAGER ---------------------------------------------------------------------
SERIES PORTFOLIO MANAGERS
Columbus Circle Investors, Cadence Capital Management, NFJ Invest-
ment Group, Blairlogie Capital Management, Pacific Investment Man-
agement Company, Parametric Portfolio Associates, Van Eck Associates
Corporation
---------------------------------------------------------------------
DISTRIBUTOR
PIMCO Funds Distributors LLC, 2187 Atlantic Street, Stamford, CT
06902
---------------------------------------------------------------------
CUSTODIAN
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, MO
64105
---------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
Shareholder Services, Inc., P.O. Box 5866, Denver, CO 80217
---------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP (formerly, Price Waterhouse LLP), 1055
Broadway, Kansas City, MO 64105
---------------------------------------------------------------------
LEGAL COUNSEL
Ropes & Gray, One International Place, Boston, MA 02110
---------------------------------------------------------------------
For further information about the PIMCO Funds, call 1-800-426-0107
or visit our Web site at www.pimcofunds.com.
<PAGE>
PIMCO Funds is on the Web
w w w . p i m c o f u n d s . c o m
A Partial List of PIMCO Funds Distributors LLC is pleased to announce
What's Available: the launch of its Web site. You and your financial
advisor now have around-the-clock access to the most
Daily Manager timely and comprehensive information available on all
Commentary of the PIMCO Funds. In addition, the site includes
daily commentary from our fund managers, with insights
Fund Manager Bios on the economy and other factors affecting the stock
and bond markets.
Current and
Historical Fund [PICTURE OF PC SCREEN APPEARS HERE]
Performance
You'll find the site to be informative and easy-to-use.
Lipper Rankings It's divided into three main sections: Investment
Insight, Fund Information and Resources. And there are
Morningstar Ratings several functions that can help you navigate your way
around the site. We can be found on the Worldwide Web
Listing of Fund at www.pimcofunds.com.
Portfolio Holdings
[PICTURE OF PC SCREEN APPEARS HERE]
Risk Analysis
Investment Insight
Daily Share Prices The Investment Insight section provides an overview of
six of the investment management firms under the PIMCO
Downloadable Advisors L.P. umbrella. You'll find an explanation of
Literature Section each firm's investment process, biographies of the
investment team, manager updates and more.
On-line Literature
Requests [PICTURE OF PC SCREEN APPEARS HERE]
Resources for Fund Information
Investment In the Fund Information section you'll access detailed
Professionals profiles of all the PIMCO Funds, including current and
historical performance, Lipper rankings and Morningstar
ratings. Additionally, we provide a summary of a fund's
portfolio--complete with risk analysis data. You can
also obtain daily fund share prices. Please read the
relevant prospectus carefully before you invest in any
PIMCO Fund.
[PICTURE OF PC SCREEN APPEARS HERE]
Resources
Our Resources section features a variety of useful
information, including:
. an on-line document library with applications and
forms that you can view and print
. a literature-by-mail "catalog", so you can order free
materials
. information about our convenient shareholder services,
such as Auto-Invest, Fund Link and our 24-Hour Telephone
Information System
. a listing of the features and benefits of the
retirement plans offered by PIMCO Funds
. a feature--"My Portfolio"--which enables you to track
your portfolio (including PIMCO Funds, other funds,
stocks, futures and options), get detailed stock quotes
and more.
Questions?
We're sure you'll find the PIMCO Funds Web site to be an
invaluable tool. If you have any questions about the
site, call us at 1-800-426-0107. Or, use the e-mail
feature of the site to contact us.
P I M C O
-----------------
F U N D S
<PAGE>
[LOGO OF PIMCO FUNDS APPEARS HERE]
Multi-Manager Series
BLAIRLOGIE CAPITAL MANAGEMENT
PIMCO Emerging Markets Fund
PIMCO International Developed Fund
PIMCO International Fund
CADENCE CAPITAL MANAGEMENT
PIMCO Capital Appreciation Fund
PIMCO Mid-Cap Growth Fund
PIMCO Micro-Cap Growth Fund
PIMCO Small-Cap Growth Fund
COLUMBUS CIRCLE INVESTORS
PIMCO Renaissance Fund
PIMCO Core Equity Fund
PIMCO Mid-Cap Equity Fund
PIMCO Innovation Fund
PIMCO International Growth Fund
NFJ INVESTMENT GROUP
PIMCO Equity Income Fund
PIMCO Value Fund
PIMCO Value 25 Fund
PIMCO Small-Cap Value Fund
PARAMETRIC PORTFOLIO ASSOCIATES
PIMCO Enhanced Equity Fund
PIMCO Structured Emerging Markets Fund
PIMCO Tax-Efficient Structured Emerging Markets Fund
PIMCO Tax-Efficient Equity Fund
MULTIPLE MANAGERS
PIMCO Balanced Fund
PROSPECTUS
- --------------------------------------------------------------------------------
July 13, 1998
<PAGE>
PIMCO Funds: Multi-Manager Series
Prospectus
July 13, 1998
PIMCO Funds: Multi-Manager Series (the "Trust"), formerly PIMCO Funds: Equity
Advisors Series, is an open-end management investment company ("mutual fund").
This Prospectus describes twenty-one separate diversified investment portfolios
(the "Funds") of the Trust. Each Fund has its own investment objective and
policies. The Trust is designed to provide access to the professional
investment management services offered by PIMCO Advisors L.P. ("PIMCO
Advisors") and the Funds' Portfolio Managers.
This Prospectus describes two classes of shares offered by each Fund: the
"Institutional Class" and the "Administrative Class." Through separate
prospectuses, certain Funds may offer up to four additional classes of shares,
Class A, Class B, Class C, and Class D shares. See "Other Information--Multiple
Classes of Shares." 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's
Administrative Class shares are subject to service and/or distribution fees
paid to such entities for services they provide to shareholders of that class.
Administrative Class shares of certain Funds are not currently available for
investment. Institutional Class and Administrative Class shares of the Funds
are generally offered for sale at the relevant next determined net asset value
for each class with no sales charge.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. It should be read and retained for
ready reference to information about the Funds. 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 the Funds' investments will change, the
investment returns and net asset value per share of each Fund will vary.
A Statement of Additional Information, dated July 13, 1998, as amended or
supplemented from time to time, containing additional and more detailed
information about the Funds, has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference into this Prospectus. It is
available without charge and may be obtained by writing or calling:
PIMCO Funds
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
Telephone: (800) 927-4648
(800) 987-4626 (PIMCO Infolink Audio Response
Network).
The Securities and Exchange Commission maintains an Internet World Wide Web
site (at http://www.sec.gov) which contains the Statement of Additional
Information, materials that are incorporated by reference into this Prospectus
and the Statement of Additional Information, and other information about the
Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
July 13, 1998 Prospectus 1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Expense Information..................................................... 8
Financial Highlights.................................................... 10
Investment Objectives and Policies...................................... 16
Investment Restrictions................................................. 29
Characteristics and Risks of Securities and Investment Techniques....... 32
Management of the Trust................................................. 46
Purchase of Shares...................................................... 52
Redemption of Shares.................................................... 56
Portfolio Transactions.................................................. 58
Net Asset Value......................................................... 59
Dividends, Distributions and Taxes...................................... 60
Other Information....................................................... 61
</TABLE>
2 PIMCO Funds: Multi-Manager Series
<PAGE>
PROSPECTUS SUMMARY
PIMCO Funds: Multi-Manager Series (the "Trust") is an open-end management
investment company ("mutual fund") organized as a Massachusetts business trust
on August 24, 1990. This Prospectus describes twenty-one separate diversified
investment portfolios (the "Funds") offered by the Trust.
COMPARISON OF FUNDS
The following chart provides general information about each of the Funds. It
is qualified in its entirety by the more complete descriptions of the Funds
appearing elsewhere in this Prospectus.
PORTFOLIO MANAGER
AND FUND INVESTMENT OBJECTIVE AND PRIMARY INVESTMENTS
- --------------------------------------------------------------------------------
BLAIRLOGIE CAPITAL
MANAGEMENT
Emerging Markets Seeks long-term growth of capital; invests primarily in
common stocks of companies located in emerging market
countries.
- --------------------------------------------------------------------------------
International Seeks long-term growth of capital; invests primarily in
Developed a diversified portfolio of international equity
securities.
- --------------------------------------------------------------------------------
International Seeks capital appreciation, income is incidental;
invests primarily in common stocks of non-U.S. issuers.
- --------------------------------------------------------------------------------
CADENCE CAPITAL
MANAGEMENT
Capital Seeks growth of capital; invests primarily in common
Appreciation stocks of companies with market capitalizations of at
least $1 billion that have improving fundamentals and
whose stock is reasonably valued by the market.
- --------------------------------------------------------------------------------
Mid-Cap Growth Seeks growth of capital; invests primarily in common
stocks of companies with market capitalizations in
excess of $500 million that have improving fundamentals
and whose stock is reasonably valued by the market.
- --------------------------------------------------------------------------------
Micro-Cap Growth Seeks long-term growth of capital; invests primarily in
common stocks of companies with market capitalizations
of less than $100 million that have improving
fundamentals and whose stock is reasonably valued by the
market.
- --------------------------------------------------------------------------------
Small-Cap Growth Seeks growth of capital; invests primarily in common
stocks of companies with market capitalizations between
$50 million and $1 billion that have improving
fundamentals and whose stock is reasonably valued by the
market.
- --------------------------------------------------------------------------------
COLUMBUS CIRCLE
INVESTORS
Renaissance Seeks long-term growth of capital and income; invests
primarily in common stocks with below-average valuations
that have improving business fundamentals.
- --------------------------------------------------------------------------------
Core Equity Seeks long-term growth of capital, with income as a
secondary objective; invests primarily in common stocks
of companies with market capitalizations in excess of $3
billion.
- --------------------------------------------------------------------------------
Mid-Cap Equity Seeks long-term growth of capital; invests primarily in
common stocks of companies with market capitalizations
between $800 million and $3 billion.
- --------------------------------------------------------------------------------
Innovation Seeks capital appreciation; invests primarily in common
stocks of technology-related companies.
- --------------------------------------------------------------------------------
International Seeks long-term capital appreciation; invests primarily
Growth in an international portfolio of equity and equity-
related securities.
(CONTINUED ON NEXT PAGE)
July 13, 1998 Prospectus 3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
COMPARISON OF FUNDS (CONTINUED)
PORTFOLIO MANAGER
AND FUND INVESTMENT OBJECTIVE AND PRIMARY INVESTMENTS
- --------------------------------------------------------------------------------
NFJ INVESTMENT GROUP
Equity Income Seeks current income as a primary investment objective,
and long-term growth of capital as a secondary
objective; invests primarily in common stocks with
below-average price to earnings ratios and higher
dividend yields relative to their industry groups.
- --------------------------------------------------------------------------------
Value Seeks long-term growth of capital and income; invests
primarily in common stocks with below-average price to
earnings ratios relative to their industry groups.
- --------------------------------------------------------------------------------
Value 25 Seeks long-term growth of capital and income; invests
primarily in approximately 25 common stocks with medium
market capitalizations and that have below-average price
to earnings ratios relative to their industry groups.
- --------------------------------------------------------------------------------
Small-Cap Value Seeks long-term growth of capital and income; invests
primarily in common stocks of companies with market
capitalizations between $50 million and $1 billion and
below-average price to earnings ratios relative to their
industry groups.
- --------------------------------------------------------------------------------
PARAMETRIC PORTFOLIO
ASSOCIATES
Enhanced Equity Seeks to provide a total return which equals or exceeds
the total return performance of an index representing
the performance of a reasonably broad spectrum of common
stocks (currently the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500")); invests primarily in
common stocks represented in the S&P 500.
- --------------------------------------------------------------------------------
Structured Seeks long-term growth of capital; invests primarily in
Emerging Markets common stocks of companies located in emerging market
countries.
- --------------------------------------------------------------------------------
Tax-Efficient Has the same investment objective and policies as the
Structured Structured Emerging Markets Fund, except that the Fund
Emerging Markets seeks to achieve superior after-tax returns for
shareholders by employing a variety of tax-efficient
management strategies.
- --------------------------------------------------------------------------------
Tax-Efficient Seeks maximum after-tax growth of capital; invests
Equity primarily in a broadly diversified portfolio of at least
250 common stocks of companies with larger market
capitalizations.
- --------------------------------------------------------------------------------
MULTIPLE MANAGERS
Balanced Seeks total return consistent with prudent investment
management; invests in common stocks, fixed income
securities and money market instruments.
- --------------------------------------------------------------------------------
INVESTMENT RISKS AND CONSIDERATIONS
The following are some of the primary risks relevant to an investment in the
Funds and to the securities in which the Funds invest. Investors should read
this Prospectus carefully for a more complete discussion of the risks relating
to an investment in the Funds. The value of all securities and other
instruments held by the Funds vary from time to time in response to a wide
variety of market factors. Consequently, the net asset value per share of each
Fund will vary. The net asset value per share of any Fund may be less at the
time of redemption than it was at the time of investment. Except for the
Balanced Fund, all of the Funds invest primarily in common stock or other types
of equity securities (the "Stock Funds"). While each of the International,
Renaissance, Innovation, and International Growth Funds may invest up to 100%
of its assets in money market instruments for temporary defensive purposes, it
is the policy of the other Stock Funds to be as fully invested as practicable
in common stock. These other Stock Funds may not invest in debt securities as a
defensive investment posture (although they may invest in such securities to
provide for payment of expenses and to meet redemption requests), and,
therefore, may be more vulnerable to general declines in stock prices. For
further information, see "Investment Objectives and Policies--Stock Funds.
4 PIMCO Funds: Multi-Manager Series
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Certain of the Funds may invest in debt securities rated lower than Baa by
Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings
Services ("S&P"). Such securities carry a high degree of credit risk and are
considered speculative by the major rating agencies. Certain Funds may invest
in securities of foreign issuers, which may be subject to additional risk
factors, including foreign currency and political risks, not applicable to
securities of U.S. issuers. Investments by certain Funds in securities of
issuers based in countries with developing economies may pose political,
currency, and market risks greater than, or in addition to, risks of investing
in foreign developed countries. Certain of the Funds' investment techniques may
involve a form of borrowing, which may tend to exaggerate the effect on net
asset value of any increase or decrease in the market value of a Fund's
portfolio and may require liquidation of portfolio positions when it is not
advantageous to do so.
Certain Funds may use derivative instruments, including futures, options,
options on futures, and swap agreements, for hedging purposes or as part of
their investment strategies. Use of these instruments may involve certain costs
and risks, including the risk that a Fund could not close out a position when
it would be most advantageous to do so, the risk of an imperfect correlation
between the value of the securities being hedged and the value of the
particular derivative instrument, and the risk that unexpected changes in
interest rates may adversely affect the value of a Fund's investments in
particular derivative instruments.
The Funds offer their shares to both retail and institutional investors.
Institutional shareholders, some of whom also may be investment advisory
clients of PIMCO Advisors L.P. or its affiliates, may hold large positions in
certain of the Funds. Such shareholders may on occasion make large redemptions
of their holdings in the Funds to meet their liquidity needs, in connection
with strategic adjustments to their overall portfolio of investments, or for
other purposes. Large redemptions from some Funds could require liquidation of
portfolio positions when it is not most desirable to do so. Liquidation of
portfolio holdings also may cause a Fund to realize taxable capital gains.
INVESTMENT ADVISER AND PORTFOLIO MANAGERS
PIMCO Advisors L.P. ("PIMCO Advisors" or the "Adviser") serves as investment
adviser to the Trust. PIMCO Advisors is one of the largest investment
management firms in the U.S. As of May 31, 1998, PIMCO Advisors and its
subsidiary partnerships had approximately $223.2 billion in assets under
management. Subject to the supervision of the Board of Trustees of the Trust,
the Adviser is responsible for the investment program for the Funds in
accordance with each Fund's investment objective, policies, and restrictions.
For all of the Funds, the Adviser has engaged its affiliates to serve as
Portfolio Managers. These affiliated Portfolio Managers, each of which is a
subsidiary partnership of PIMCO Advisors, are Blairlogie Capital Management
("Blairlogie"), Cadence Capital Management ("Cadence"), Columbus Circle
Investors ("Columbus Circle"), NFJ Investment Group ("NFJ"), Pacific Investment
Management Company ("Pacific Investment Management"), and Parametric Portfolio
Associates ("Parametric"). Under the supervision of PIMCO Advisors, the
Portfolio Managers make determinations with respect to the purchase and sale of
portfolio securities, and they place, in the names of the Funds, orders for
execution of the Funds' transactions. For the Balanced Fund, PIMCO Advisors
determines the allocation of the Fund's assets among common stock and fixed
income securities and reserves the right to allocate a portion of the Fund's
assets for investment in money market instruments and to manage the investment
of such assets.
For its services, the Adviser receives fees based on the average daily net
assets of each Fund. The Portfolio Managers are compensated by the Adviser out
of its fees (not by the Trust). See "Management of the Trust."
PURCHASE OF SHARES
This Prospectus describes two classes of shares of each Fund: the
"Institutional Class" and the "Administrative Class." Shares of the
Institutional Class are offered primarily for direct investment by
institutional investors (Institutional
July 13, 1998 Prospectus 5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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. Each Fund pays service and/or distribution fees to such
entities for services they provide to such Fund's shareholders of that class.
Administrative Class shares of certain Funds are not currently available for
investment.
Except with respect to shares of the Structured Emerging Markets and Tax-
Efficient Structured Emerging Markets Funds, shares of the Institutional Class
and Administrative Class of the Funds are offered at the relevant next
determined net asset value with no sales charge or other fee. A "Fund
Reimbursement Fee" is normally charged on purchases of Institutional Class and
Administrative Class shares of the Structured Emerging Markets and Tax-
Efficient Structured Emerging Markets Funds equal to 1.00% of the net asset
value of the shares purchased. See "Purchase of Shares--Fund Reimbursement
Fees." The minimum initial investment for shares of either class is $5 million,
subject to certain exceptions described under "Purchase of Shares." Shares of
either class may also be offered to clients of the Adviser and its affiliates.
Shares of the Micro-Cap Growth and Small-Cap Growth Funds are normally not
available for purchase by new investors, although purchase orders may be
accepted in certain circumstances. Existing shareholders may continue to invest
in these Funds. In addition, Institutional Class and Administrative Class
shares of the International and Innovation Funds are not offered as of the date
of this Prospectus; however, investment opportunities in these Funds may be
available in the future. These restrictions may be changed or eliminated at any
time at the discretion of the Trust's Board of Trustees. See "Purchase of
Shares."
REDEMPTIONS AND EXCHANGES
Institutional Class and Administrative Class shares of each Fund may be
redeemed without cost (except as noted below) at the relevant net asset value
per share of the class of that Fund next determined after receipt of the
redemption request. The redemption price may be more or less than the purchase
price.
Institutional Class and Administrative Class shares of any Fund may be
exchanged without cost (except as noted below) on the basis of relative net
asset values for shares of the same class of any other Fund of the Trust
offered generally to the public, or for shares of the same class of a series of
PIMCO Funds: Pacific Investment Management Series, an affiliated mutual fund
family composed primarily of fixed income portfolios managed by Pacific
Investment Management. See "Redemption of Shares."
A Fund Reimbursement Fee is normally charged on redemptions and exchanges
involving Institutional Class and Administrative Class shares of the Structured
Emerging Markets and Tax-Efficient Structured Emerging Markets Funds equal to
1.00% of the net asset value of the shares redeemed or exchanged. See
"Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
Each Fund will distribute dividends from net investment income at least
annually (except for the Renaissance, Equity Income, Value, and Balanced Funds,
which will distribute dividends quarterly), and any net realized capital gains
at least annually. All dividends and distributions will be reinvested
automatically at net asset value in additional shares of the same class of the
same Fund, unless cash payment is requested. Dividends from net investment
income with respect to Administrative Class shares will be lower than those
paid with respect to Institutional Class shares, reflecting the payment of
service and/or distribution fees by that class. See "Dividends, Distributions
and Taxes."
6 PIMCO Funds: Multi-Manager Series
<PAGE>
(This page left blank intentionally)
July 13, 1998 Prospectus 7
<PAGE>
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES (INSTITUTIONAL CLASS AND ADMINISTRATIVE
CLASS):
<TABLE>
<S> <C>
Sales Load Imposed on Purchases....................................... None
Sales Load Imposed on Reinvested Dividends............................ None
Redemption Fee........................................................ None
Exchange Fee.......................................................... None
Fund Reimbursement Fee Imposed on Purchases, Redemptions and
Exchanges:
Structured Emerging Markets and Tax-Efficient Structured Emerging
Markets Funds....................................................... 1.00%*
All Other Funds...................................................... None
</TABLE>
* Unless a waiver applies, investors are charged a "Fund Reimbursement Fee"
in connection with purchases and redemptions involving Institutional Class
and Administrative Class shares of the Structured Emerging Markets and Tax-
Efficient Structured Emerging Markets Funds equal to 1.00% of the net asset
value of the shares purchased or redeemed. The fee also applies to
exchanges involving these Funds. See "Purchase of Shares--Fund
Reimbursement Fees" and "Redemption of Shares."
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
ADVISORY ADMINISTRATIVE TOTAL
INSTITUTIONAL CLASS SHARES FEE FEE EXPENSES
-------------------------- -------- -------------- --------
<S> <C> <C> <C>
Emerging Markets Fund...................... 0.85% 0.50% 1.35%
International Developed Fund............... 0.60 0.50 1.10
International Fund......................... 0.55 0.50 1.05
Capital Appreciation Fund.................. 0.45 0.25 0.70
Mid-Cap Growth Fund........................ 0.45 0.25 0.70
Micro-Cap Growth Fund...................... 1.25 0.25 1.50
Small-Cap Growth Fund...................... 1.00 0.25 1.25
Renaissance Fund........................... 0.60 0.25 0.85
Core Equity Fund........................... 0.57 0.25 0.82
Mid-Cap Equity Fund........................ 0.63 0.25 0.88
Innovation Fund............................ 0.65 0.25 0.90
International Growth Fund.................. 0.85 0.50 1.35
Equity Income Fund......................... 0.45 0.25 0.70
Value Fund................................. 0.45 0.25 0.70
Value 25 Fund.............................. 0.50 0.25 0.75
Small-Cap Value Fund....................... 0.60 0.25 0.85
Enhanced Equity Fund....................... 0.45 0.25 0.70
Structured Emerging Markets Fund........... 0.45 0.50 0.95
Tax-Efficient Structured Emerging Markets
Fund...................................... 0.45 0.50 0.95
Tax-Efficient Equity Fund.................. 0.45 0.25 0.70
Balanced Fund.............................. 0.45 0.25 0.70
</TABLE>
<TABLE>
<CAPTION>
SERVICE/
ADVISORY ADMINISTRATIVE 12B-1 TOTAL
ADMINISTRATIVE CLASS SHARES FEE FEE FEE EXPENSES
--------------------------- -------- -------------- -------- --------
<S> <C> <C> <C> <C>
Emerging Markets Fund............. 0.85% 0.50% 0.25% 1.60%
International Developed Fund...... 0.60 0.50 0.25 1.35
International Fund................ 0.55 0.50 0.25 1.30
Capital Appreciation Fund......... 0.45 0.25 0.25 0.95
Mid-Cap Growth Fund............... 0.45 0.25 0.25 0.95
Micro-Cap Growth Fund............. 1.25 0.25 0.25 1.75
Small-Cap Growth Fund............. 1.00 0.25 0.25 1.50
Renaissance Fund.................. 0.60 0.25 0.25 1.10
Core Equity Fund.................. 0.57 0.25 0.25 1.07
Mid-Cap Equity Fund............... 0.63 0.25 0.25 1.13
Innovation Fund................... 0.65 0.25 0.25 1.15
International Growth Fund......... 0.85 0.50 0.25 1.60
Equity Income Fund ............... 0.45 0.25 0.25 0.95
Value Fund........................ 0.45 0.25 0.25 0.95
Value 25 Fund..................... 0.50 0.25 0.25 1.00
Small-Cap Value Fund.............. 0.60 0.25 0.25 1.10
Enhanced Equity Fund.............. 0.45 0.25 0.25 0.95
Structured Emerging Markets Fund.. 0.45 0.50 0.25 1.20
Tax-Efficient Structured Emerging
Markets Fund..................... 0.45 0.50 0.25 1.20
Tax-Efficient Equity Fund......... 0.45 0.25 0.25 0.95
Balanced Fund..................... 0.45 0.25 0.25 0.95
</TABLE>
For a more detailed discussion of the Funds' fees and expenses, see "Fund
Administrator," "Advisory and Administrative Fees," and "Service and
Distribution Fees" under the caption "Management of the Trust."
8 PIMCO Funds: Multi-Manager Series
<PAGE>
EXAMPLE OF FUND EXPENSES:
An investor would pay the following expenses on a $1,000 investment assuming
(1) a hypothetical 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Markets Fund....................... $14 $43 $74 $162
International Developed Fund................ 11 35 61 134
International Fund.......................... 11 33 58 128
Capital Appreciation Fund................... 7 22 39 87
Mid-Cap Growth Fund......................... 7 22 39 87
Micro-Cap Growth Fund....................... 15 47 82 179
Small-Cap Growth Fund....................... 13 40 69 151
Renaissance Fund............................ 9 27 47 105
Core Equity Fund............................ 8 26 46 101
Mid-Cap Equity Fund......................... 9 28 49 108
Innovation Fund............................. 9 29 50 111
International Growth Fund................... 14 43 74 162
Equity Income Fund.......................... 7 22 39 87
Value Fund.................................. 7 22 39 87
Value 25 Fund............................... 8 24 -- --
Small-Cap Value Fund........................ 9 27 47 105
Enhanced Equity Fund........................ 7 22 39 87
Structured Emerging Markets Fund*........... 29 50 -- --
Tax-Efficient Structured Emerging Markets
Fund*...................................... 29 50 -- --
Tax-Efficient Equity Fund................... 7 22 -- --
Balanced Fund............................... 7 22 39 87
<CAPTION>
ADMINISTRATIVE CLASS SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Markets Fund....................... $16 $50 $87 $190
International Developed Fund................ 14 43 74 163
International Fund.......................... 13 41 71 157
Capital Appreciation Fund................... 10 30 53 117
Mid-Cap Growth Fund......................... 10 30 53 117
Micro-Cap Growth Fund....................... 18 55 95 206
Small-Cap Growth Fund....................... 15 47 82 179
Renaissance Fund............................ 11 35 61 134
Core Equity Fund............................ 11 34 59 131
Mid-Cap Equity Fund ........................ 12 36 62 137
Innovation Fund............................. 12 37 63 140
International Growth Fund................... 16 50 87 190
Equity Income Fund.......................... 10 30 53 117
Value Fund.................................. 10 30 53 117
Value 25 Fund............................... 10 32 -- --
Small-Cap Value Fund........................ 11 35 61 134
Enhanced Equity Fund........................ 10 30 53 117
Structured Emerging Markets Fund*........... 32 58 -- --
Tax-Efficient Structured Emerging Markets
Fund*...................................... 32 58 -- --
Tax-Efficient Equity Fund................... 10 30 -- --
Balanced Fund............................... 10 30 53 117
</TABLE>
* The Examples for the Structured Emerging Markets and Tax-Efficient
Structured Emerging Markets Funds assume the payment of a Fund
Reimbursement Fee both at the time of purchase and at the time of
redemption even though such fees may be waived for certain investors. See
"Purchase of Shares--Fund Reimbursement Fees" and "Redemption of Shares."
Assuming there is no redemption at the end of the time periods listed, the
Examples for 1 year and 3 years, respectively, for the Structured Emerging
Markets and Tax-Efficient Structured Emerging Markets Funds would be as
follows: Institutional Class Shares--$20 and $40; and Administrative Class
Shares--$22 and $48.
The above tables are provided to assist investors in understanding the
various expenses which may be borne directly or indirectly in connection with
an investment in the Funds. The information is based upon each Fund's current
fees and expenses. This example should not be considered a representation of
past or future expenses or performance. Actual expenses may be higher or lower
than those shown.
July 13, 1998 Prospectus 9
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights set forth on the following pages present certain
information and ratios as well as performance information for the Funds that
were operational during the periods listed. Information provided below for
periods through June 30, 1997 is included in the June 30, 1997 PIMCO Funds
Annual Report (relating to Institutional Class and Administrative Class
shares) and has been audited by Price Waterhouse LLP, independent accountants,
whose report thereon is also included in such Annual Report. Information for
the periods ended December 31, 1997 is included in the Trust's December 31,
1997 Semi-Annual Report and is unaudited. The Annual Report and Semi-Annual
Report are incorporated by reference in the Statement of Additional
Information and may be obtained from the Trust without charge. Financial
statements and related notes are also incorporated by reference in the
Statement of Additional Information. The International, Renaissance,
Innovation, International Growth, Value 25, Structured Emerging Markets, Tax-
Efficient Structured Emerging Markets, and Tax-Efficient Equity Funds did not
offer Institutional or Administrative Class Shares during the reporting
periods. Prior to November 1, 1995, the fiscal year end for each Fund listed
below was October 31.
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET REALIZED/ TOTAL DIVIDENDS DIVIDENDS IN DISTRIBUTIONS
VALUE NET UNREALIZED INCOME FROM FROM NET EXCESS OF NET FROM NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EMERGING MARKETS FUND
Institutional Class
12/31/97 + $13.96 $ 0.00(a) $(2.25)(a) $(2.25) $ 0.00 $ 0.00 $ 0.00
06/30/97 12.66 0.06(a) 1.30(a) 1.36 (0.06) 0.00 0.00
11/01/95-06/30/96 11.27 0.03 1.40 1.43 (0.04) 0.00 0.00
10/31/95 16.53 0.07 (4.55) (4.48) (0.06) 0.00 (0.72)
10/31/94 12.27 (0.01) 4.45 4.44 0.00 0.00 (0.18)
06/01/93-10/31/93 10.00 0.03 2.52 2.55 (0.02) 0.00 (0.26)
Administrative Class
12/31/97 + 13.95 (0.01)(a) (2.26)(a) (2.27) 0.00 0.00 0.00
06/30/97 12.63 0.00(a) 1.32(a) 1.32 0.00 0.00 0.00
11/01/95-06/30/96 11.24 0.02(a) 1.40(a) 1.42 (0.03) 0.00 0.00
10/31/95 16.95 0.00 (4.95) (4.95) (0.05) 0.00 (0.71)
INTERNATIONAL DEVELOPED
FUND (i)
Institutional Class
12/31/97 + $13.12 $ 0.03(a) $(0.96)(a) $(0.93) $(0.11) $ 0.00 $(0.58)
06/30/97 12.54 0.10(a) 1.09(a) 1.19 0.00 0.00 (0.61)
11/01/95-06/30/96 11.74 0.72 0.72 1.44 (0.07) (0.36) (0.21)
10/31/95 11.86 0.10 0.30 0.40 (0.09) 0.00 (0.43)
10/31/94 10.69 0.09 1.15 1.24 (0.03) 0.00 (0.04)
06/08/93-10/31/93 10.00 0.05 0.69 0.74 (0.04) 0.00 (0.01)
Administrative Class
12/31/97 + 13.05 0.02(a) (0.95)(a) (0.93) (0.03) 0.00 (0.58)
06/30/97 12.51 0.06(a) 1.09(a) 1.15 0.00 0.00 (0.61)
11/01/95-06/30/96 11.73 0.69(a) 0.72(a) 1.41 (0.07) (0.35) (0.21)
11/30/94-10/31/95 11.21 0.02 1.01 1.03 (0.08) 0.00 (0.43)
CAPITAL APPRECIATION
FUND
Institutional Class
12/31/97 + $21.19 $ 0.07(a) $ 3.37(a) $ 3.44 $(0.12) $ 0.00 $(1.68)
06/30/97 18.10 0.24 5.08 5.32 (0.10) 0.00 (2.13)
11/01/95-06/30/96 16.94 0.35 1.99 2.34 (0.15) 0.00 (1.03)
10/31/95 13.34 0.18 3.60 3.78 (0.18) 0.00 0.00
10/31/94 13.50 0.14 (0.12) 0.02 (0.14) 0.00 (0.04)
10/31/93 11.27 0.11 2.73 2.84 (0.11) 0.00 (0.50)
10/31/92 11.02 0.14 1.05 1.19 (0.14) 0.00 (0.72)
03/08/91-10/31/91 10.00 0.09 1.02 1.11 (0.09) 0.00 0.00
Administrative Class
12/31/97 + 21.16 0.04(a) 3.37(a) 3.41 (0.14) 0.00 (1.68)
07/31/96-06/30/97 17.19 0.16 6.03 6.19 (0.09) 0.00 (2.13)
MID-CAP GROWTH FUND
Institutional Class
12/31/97 + $20.28 $ 0.05(a) $ 3.58(a) $ 3.63 $(0.08) $ 0.00 $(1.33)
06/30/97 19.44 (0.07) 5.25 5.18 (0.05) 0.00 (4.29)
11/01/95-06/30/96 18.16 0.32 1.53 1.85 (0.14) 0.00 (0.43)
10/31/95 13.97 0.07 4.19 4.26 (0.07) 0.00 0.00
10/31/94 13.97 0.06 0.01 0.07 (0.06) 0.00 (0.01)
10/31/93 11.29 0.07 2.70 2.77 (0.07) 0.00 (0.02)
10/31/92 10.28 0.10 1.03 1.13 (0.10) 0.00 0.00
08/26/91-10/31/91 10.00 0.02 0.27 0.29 (0.01) 0.00 0.00
Administrative Class
12/31/97 + 20.24 0.03(a) 3.57(a) 3.60 (0.08) 0.00 (1.33)
06/30/97 19.44 (0.13) 5.25 5.12 (0.03) 0.00 (4.29)
11/01/95-06/30/96 18.17 0.28 1.53 1.81 (0.11) 0.00 (0.43)
11/30/94-10/31/95 13.31 0.03 4.85 4.88 (0.02) 0.00 0.00
</TABLE>
- -------
*Annualized
+Unaudited
(a)Per share amounts based on average number of shares outstanding during the
period.
(i)Formerly the Blairlogie International Active Fund.
10 PIMCO Funds: Multi-Manager Series
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
RATIO OF
NET
DISTRIBUTIONS RATIO OF INVESTMENT
IN EXCESS OF DISTRIBUTIONS TAX BASIS NET ASSET NET ASSETS EXPENSES TO INCOME TO
NET REALIZED FROM RETURN OF TOTAL VALUE END END OF AVERAGE NET AVERAGE NET PORTFOLIO
CAPITAL GAINS EQUALIZATION CAPITAL DISTRIBUTIONS OF PERIOD TOTAL RETURN PERIOD (000S) ASSETS ASSETS TURNOVER RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $ 0.00 $0.00 $ 0.00 $11.71 (16.12)% $ 37,412 1.38%* 0.02%* 34%
0.00 0.00 0.00 (0.06) 13.96 10.85 52,703 1.45 0.45 74
0.00 0.00 0.00 (0.04) 12.66 12.70 80,545 1.35* 0.84* 74
0.00 0.00 0.00 (0.78) 11.27 (27.70) 73,539 1.35 0.57 118
0.00 0.00 0.00 (0.18) 16.53 36.31 79,620 1.35 (0.06) 79
0.00 0.00 0.00 (0.28) 12.27 25.55 14,625 1.34* 0.64* 37
0.00 0.00 0.00 0.00 11.68 (16.27) 750 1.63* (0.10)* 34
0.00 0.00 0.00 0.00 13.95 10.45 117 1.69 0.02 74
0.00 0.00 0.00 (0.03) 12.63 12.70 368 1.61* 0.18 * 74
0.00 0.00 0.00 (0.76) 11.24 (27.96) 830 1.62 0.02 118
$0.00 $ 0.00 $0.00 $(0.69) $11.50 (7.09)% $ 86,977 1.11%* 0.55%* 37%
0.00 0.00 0.00 (0.61) 13.12 10.07 94,044 1.13 0.85 77
0.00 0.00 0.00 (0.64) 12.54 12.54 70,207 1.10* 0.81* 60
0.00 0.00 0.00 (0.52) 11.74 3.83 63,607 1.10 1.10 63
0.00 0.00 0.00 (0.07) 11.86 11.68 22,569 1.10 1.12 89
0.00 0.00 0.00 (0.05) 10.69 7.39 8,299 1.10* 0.91* 20
0.00 0.00 0.00 (0.61) 11.51 (7.17) 1,997 1.36* 0.28* 37
0.00 0.00 0.00 (0.61) 13.05 9.77 2,302 1.38 0.52 77
0.00 0.00 0.00 (0.63) 12.51 12.33 5,624 1.35* 1.04* 60
0.00 0.00 0.00 (0.51) 11.73 9.61 675 1.34* 0.50* 58
$0.00 $ 0.00 $0.00 $(1.80) $22.83 16.17% $656,315 0.71%* 0.58%* 25%
0.00 0.00 0.00 (2.23) 21.19 31.52 536,187 0.71 1.02 87
0.00 0.00 0.00 (1.18) 18.10 14.65 348,728 0.70* 1.33* 73
0.00 0.00 0.00 (0.18) 16.94 28.47 236,220 0.70 1.22 83
0.00 0.00 0.00 (0.18) 13.34 0.15 165,441 0.70 1.17 77
0.00 0.00 0.00 (0.61) 13.50 25.30 84,990 0.70 0.94 81
0.00 (0.08) 0.00 (0.94) 11.27 10.75 36,334 0.70 1.13 134
0.00 0.00 0.00 (0.09) 11.02 11.19 18,813 0.75* 1.55* 41
0.00 0.00 0.00 (1.82) 22.75 16.02 30,734 0.95* 0.37* 25
0.00 0.00 0.00 (2.22) 21.16 38.26 3,115 0.96* 0.66* 87
$0.00 $ 0.00 $0.00 $(1.41) $22.50 17.83% $392,946 0.71%* 0.46%* 29%
0.00 0.00 0.00 (4.34) 20.28 30.58 291,374 0.71 0.53 82
0.00 0.00 0.00 (0.57) 19.44 10.37 231,011 0.70* 1.11* 79
0.00 0.00 0.00 (0.07) 18.16 30.54 189,320 0.70 0.43 78
0.00 0.00 0.00 (0.07) 13.97 0.58 121,791 0.70 0.45 61
0.00 0.00 0.00 (0.09) 13.97 24.57 67,625 0.70 0.56 98
0.00 (0.02) 0.00 (0.12) 11.29 10.91 21,213 0.70 0.87 66
0.00 0.00 0.00 (0.01) 10.28 2.98 2,748 0.82* 0.92* 13
0.00 0.00 0.00 (1.41) 22.43 17.72 10,577 0.95* 0.25* 29
0.00 0.00 0.00 (4.32) 20.24 30.23 2,066 0.96 0.28 82
0.00 0.00 0.00 (0.54) 19.44 10.17 1,071 0.95* 0.89* 79
0.00 0.00 0.00 (0.02) 18.17 36.64 892 0.94* 0.23* 72
</TABLE>
AVERAGE
COMMISSION
RATE
- --------------------------------------------------------------------------------
$0.01
0.00
0.01
0.03
0.01
0.00
0.01
N/A
$0.03
0.03
0.02
0.03
0.03
0.03
0.02
N/A
$0.05
0.06
0.04
0.05
0.05
0.06
$0.05
0.06
0.04
0.04
0.05
0.06
0.04
N/A
July 13, 1998 Prospectus 11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
NET ASSET NET REALIZED/ TOTAL DIVIDENDS DIVIDENDS IN DISTRIBUTIONS
VALUE NET UNREALIZED INCOME FROM FROM NET EXCESS OF NET FROM NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MICRO-CAP GROWTH FUND
Institutional Class
12/31/97 + $19.85 $(0.07)(a) $ 4.21(a) $ 4.14 $ 0.00 $ 0.00 $(2.62)
06/30/97 18.47 0.00 3.41 3.41 0.00 0.00 (2.03)
11/01/95-06/30/96 15.38 0.00 3.43 3.43 0.00 0.00 (0.34)
10/31/95 11.87 (0.04) 3.55 3.51 0.00 0.00 0.00
10/31/94 11.06 (0.03) 0.84 0.81 0.00 0.00 0.00
06/25/93-10/31/93 10.00 0.00 1.07 1.07 0.00 0.00 0.00
Administrative Class
12/31/97 + 19.78 (0.10)(a) 4.20(a) 4.10 0.00 0.00 (2.62)
06/30/97 18.46 (0.06) 3.41 3.35 0.00 0.00 (2.03)
04/01/96-06/30/96 16.73 0.03 1.70 1.73 0.00 0.00 0.00
SMALL-CAP GROWTH FUND
Institutional Class
12/31/97 + $13.40 $(0.01)(a) $ 1.78(a) $ 1.77 $0.00 $ 0.00 $(1.88)
06/30/97 20.83 (0.01)(a) 3.17(a) 3.16 0.00 0.00 (10.59)
11/01/95-06/30/96 21.02 2.02 (0.61) 1.41 0.00 0.00 (1.60)
10/31/95 19.38 (0.05) 3.12 3.07 0.00 0.00 (1.43)
10/31/94 19.15 (0.02) 0.89 0.87 0.00 0.00 (0.64)
10/31/93 15.80 (0.06) 6.19 6.13 0.00 0.00 (2.78)
10/31/92 14.87 0.01 1.50 1.51 (0.01) 0.00 (0.57)
01/07/91-10/31/91 10.00 0.02 5.03 5.05 (0.02) 0.00 (0.16)
Administrative Class
12/31/97 + 13.41 0.00(a) 1.75(a) 1.75 0.00 0.00 (1.88)
06/30/97 20.82 (0.06)(a) 3.24(a) 3.18 0.00 0.00 (10.59)
11/01/95-06/30/96 21.01 2.02(a) (0.61)(a) 1.41 0.00 0.00 (1.60)
09/27/95-10/31/95 21.90 (0.02) (0.87) (0.89) 0.00 0.00 0.00
CORE EQUITY FUND
Institutional Class
12/31/97 + $15.55 $ 0.02(a) $ 1.73(a) $ 1.75 $ 0.00 $ 0.00 $(1.30)
06/30/97 13.55 0.03(a) 2.78(a) 2.81 (0.02) 0.00 (0.79)
11/01/95-06/30/96 12.72 0.51 0.65 1.16 (0.04) (0.01) (0.28)
12/28/94-10/31/95 10.00 0.07 2.71 2.78 (0.06) 0.00 0.00
Administrative Class
12/31/97 + 15.53 0.01(a) 1.72(a) 1.73 0.00 0.00 (1.30)
06/30/97 13.56 0.00(a) 2.77(a) 2.77 (0.01) 0.00 (0.79)
11/01/95-06/30/96 12.73 0.49 0.65 1.14 (0.02) (0.01) (0.28)
05/31/95-10/31/95 11.45 0.02 1.28 1.30 (0.02) 0.00 0.00
MID-CAP EQUITY FUND
Institutional Class
12/31/97 + $14.04 $(0.02)(a) $ 1.33(a) $ 1.31 $ 0.00 $ 0.00 $(4.09)
06/30/97 14.66 (0.06)(a) 1.31(a) 1.25 0.00 0.00 (1.87)
11/01/95-06/30/96 12.92 0.49 1.62 2.11 0.00 0.00 (0.37)
12/28/94-10/31/95 10.00 0.02 2.92 2.94 (0.02) 0.00 0.00
Administrative Class
08/21/97-12/31/97 + 15.27 (0.02)(a) 0.09(a) 0.07 0.00 0.00 (4.09)
EQUITY INCOME FUND
Institutional Class
12/31/97 + $15.41 $ 0.23(a) $ 1.93(a) $ 2.16 $(0.25) $ 0.00 $(2.09)
06/30/97 14.36 0.40 3.17 3.57 (0.55) 0.00 (1.97)
11/01/95-06/30/96 13.09 0.78 1.31 2.09 (0.34) 0.00 (0.48)
10/31/95 11.75 0.46 1.67 2.13 (0.46) 0.00 (0.33)
10/31/94 11.95 0.42 (0.16) 0.26 (0.42) 0.00 (0.04)
10/31/93 10.92 0.40 1.40 1.80 (0.40) 0.00 (0.37)
10/31/92 10.77 0.45 0.93 1.38 (0.43) 0.00 (0.57)
03/08/91-10/31/91 10.00 0.24 0.92 1.16 (0.24) 0.00 (0.15)
Administrative Class
12/31/97 + 15.40 0.21(a) 1.93(a) 2.14 (0.23) 0.00 (2.09)
06/30/97 14.35 0.27 3.26 3.53 (0.51) 0.00 (1.97)
11/01/95-06/30/96 13.13 0.75 1.31 2.06 (0.36) 0.00 (0.48)
11/30/94-10/31/95 11.12 0.39 2.35 2.74 (0.40) 0.00 (0.33)
</TABLE>
- --------
*Annualized
+Unaudited
(a)Per share amounts based on average number of shares outstanding during the
period.
12 PIMCO Funds: Multi-Manager Series
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
RATIO OF
NET
DISTRIBUTIONS RATIO OF INVESTMENT
IN EXCESS OF DISTRIBUTIONS TAX BASIS NET ASSET NET ASSETS EXPENSES TO INCOME TO
NET REALIZED FROM RETURN OF TOTAL VALUE END END OF AVERAGE NET AVERAGE NET PORTFOLIO
CAPITAL GAINS EQUALIZATION CAPITAL DISTRIBUTIONS OF PERIOD TOTAL RETURN PERIOD (000S) ASSETS ASSETS TURNOVER RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $ 0.00 $ 0.00 $ (2.62) $21.37 20.99% $210,800 1.51%* (0.59)%* 39%
0.00 0.00 0.00 (2.03) 19.85 20.05 164,139 1.52 (0.49) 84
0.00 0.00 0.00 (0.34) 18.47 22.64 83,973 1.50* (0.45)* 54
0.00 0.00 0.00 0.00 15.38 29.54 69,775 1.50 (0.37) 87
0.00 0.00 0.00 0.00 11.87 7.31 32,605 1.50 (0.25) 59
0.00 0.00 (0.01) (0.01) 11.06 10.81 10,827 1.50* (0.02)* 16
0.00 0.00 0.00 (2.62) 21.26 20.85 3,817 1.76* (0.85)* 39
0.00 0.00 0.00 (2.03) 19.78 19.72 2,116 1.77 (0.74) 84
0.00 0.00 0.00 0.00 18.46 10.34 566 1.73* (0.74)* 54
$0.00 $ 0.00 $ 0.00 $ (1.88) $13.29 13.20% $ 38,933 1.26%* (0.11)%* 40%
0.00 0.00 0.00 (10.59) 13.40 22.82 33,390 1.32 (0.05) 129
0.00 0.00 0.00 (1.60) 20.83 7.22 32,954 1.25* (0.20)* 59
0.00 0.00 0.00 (1.43) 21.02 17.39 73,977 1.25 (0.27) 86
0.00 0.00 0.00 (0.64) 19.38 4.62 50,425 1.25 (0.33) 66
0.00 0.00 0.00 (2.78) 19.15 38.80 43,308 1.25 (0.35) 62
0.00 0.00 0.00 (0.58) 15.80 10.20 33,734 1.25 0.09 66
0.00 0.00 0.00 (0.18) 14.87 50.68 33,168 1.29* 0.11* 48
0.00 0.00 0.00 (1.88) 13.28 13.03 82 1.51* (0.05)* 40
0.00 0.00 0.00 (10.59) 13.41 23.12 1 1.54 (0.36) 129
0.00 0.00 0.00 (1.60) 20.82 7.18 112 1.50* (0.41)* 59
0.00 0.00 0.00 0.00 21.01 (5.34) 544 1.60* (0.82)* 9
$0.00 $ 0.00 $ 0.00 $ (1.30) $16.00 11.29% $ 4,277 0.83%* 0.27%* 79%
0.00 0.00 0.00 (0.81) 15.55 21.59 6,444 0.87 0.23 139
0.00 0.00 0.00 (0.33) 13.55 9.41 10,452 0.82* 0.53* 73
0.00 0.00 0.00 (0.06) 12.72 27.86 7,791 0.82* 0.79* 123
0.00 0.00 0.00 (1.30) 15.96 11.17 95,843 1.07* 0.12* 79
0.00 0.00 0.00 (0.80) 15.53 21.20 29,332 1.13 (0.03) 139
0.00 0.00 0.00 (0.31) 13.56 9.23 33,575 1.07* 0.28 * 73
0.00 0.00 0.00 (0.02) 12.73 11.34 24,645 1.06* 0.34 * 58
$0.00 $ 0.00 $ 0.00 $ (4.09) $11.26 8.52% $ 6.845 0.89%* (0.24)%* 146%
0.00 0.00 0.00 (1.87) 14.04 9.61 7,591 1.15 (0.43) 202
0.00 0.00 0.00 (0.37) 14.66 16.72 8,378 0.88* (0.32)* 97
0.00 0.00 0.00 (0.02) 12.92 29.34 8,357 0.88* 0.24 * 132
0.00 0.00 0.00 (4.09) 11.25 (0.29) 550 1.13* (0.48)* 146
$0.00 $ 0.00 $ 0.00 $ (2.34) $15.23 14.13% $133,405 0.71%* 2.82%* 17%
0.00 0.00 0.00 (2.52) 15.41 27.67 121,138 0.72 3.03 45
0.00 0.00 0.00 (0.82) 14.36 16.35 116,714 0.70* 3.41 * 52
0.00 0.00 0.00 (0.79) 13.09 19.36 118,015 0.70 3.83 46
0.00 0.00 0.00 (0.46) 11.75 2.25 92,365 0.70 3.77 36
0.00 0.00 0.00 (0.77) 11.95 16.65 67,854 0.70 3.55 39
0.00 (0.23) 0.00 (1.23) 10.92 12.89 30,506 0.70 3.83 47
0.00 0.00 0.00 (0.39) 10.77 11.81 15,628 0.74* 4.18* 62
0.00 0.00 0.00 (2.32) 15.22 14.01 9,877 0.96* 2.57* 17
0.00 0.00 0.00 (2.48) 15.40 27.40 8,145 0.97 2.79 45
0.00 0.00 0.00 (0.84) 14.35 16.08 6,097 0.95* 3.19 * 52
0.00 0.00 0.00 (0.73) 13.13 25.69 140 0.95* 3.43 * 43
</TABLE>
AVERAGE
COMMISSION
RATE
- --------------------------------------------------------------------------------
$0.05
0.05
0.02
0.03
0.05
0.05
0.02
$0.05
0.05
0.02
0.02
0.05
0.05
0.02
N/A
$0.06
0.06
0.04
0.03
0.06
0.06
0.04
N/A
$0.06
0.06
0.03
0.04
0.06
$0.06
0.06
0.06
0.06
0.06
0.06
0.06
N/A
July 13, 1998 Prospectus 13
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
NET ASSET NET REALIZED/ TOTAL DIVIDENDS DIVIDENDS IN DISTRIBUTIONS
VALUE NET UNREALIZED INCOME FROM FROM NET EXCESS OF NET FROM NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT REALIZED
OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
VALUE FUND (ii)
Institutional Class
12/31/97 + $14.81 $0.12 (a) $ 1.38 (a) $ 1.50 $(0.13) $0.00 $(1.63)
06/30/97 12.46 1.05 2.11 3.16 (0.31) 0.00 (0.50)
11/01/95-06/30/96 12.53 0.25 1.62 1.87 (0.17) 0.00 (1.77)
10/31/95 11.55 0.30 2.18 2.48 (0.30) 0.00 (1.20)
10/31/94 11.92 0.30 (0.28) 0.02 (0.29) 0.00 (0.10)
10/31/93 10.05 0.28 2.36 2.64 (0.28) 0.00 (0.49)
12/30/91-10/31/92 10.00 0.24 0.23 0.47 (0.24) 0.00 (0.18)
Administrative Class
08/21/97-12/31/97 + 15.66 0.07 (a) 0.58 (a) 0.65 (0.13) 0.00 (1.63)
SMALL-CAP VALUE FUND
Institutional Class
12/31/97 + $15.78 $0.16 (a) $ 2.60 (a) $ 2.76 $(0.13) $0.00 $(0.76)
06/30/97 14.20 0.46 3.63 4.09 (0.13) 0.00 (2.38)
11/01/95-06/30/96 13.10 0.56 1.49 2.05 (0.21) 0.00 (0.74)
10/31/95 12.07 0.28 1.92 2.20 (0.28) 0.00 (0.89)
10/31/94 12.81 0.29 (0.65) (0.36) (0.29) 0.00 (0.09)
10/31/93 10.98 0.24 2.33 2.57 (0.24) 0.00 (0.50)
10/31/92 10.09 0.22 1.17 1.39 (0.22) 0.00 (0.24)
10/01/91-10/31/91 10.00 0.02 0.10 0.12 (0.03) 0.00 0.00
Administrative Class
12/31/97 + 15.76 0.14 (a) 2.59 (a) 2.73 (0.11) 0.00 (0.76)
06/30/97 14.20 0.38 3.68 4.06 (0.12) 0.00 (2.38)
11/01/95-06/30/96 13.16 0.54 1.43 1.97 (0.19) 0.00 (0.74)
ENHANCED EQUITY FUND
Institutional Class
12/31/97 + $16.46 $0.07 (a) $ 1.94 (a) $ 2.01 $(0.11) $0.00 $(7.73)
06/30/97 15.91 1.18 3.10 4.28 (0.10) 0.00 (3.63)
11/01/95-06/30/96 14.44 0.34 1.67 2.01 (0.16) 0.00 (0.38)
10/31/95 11.99 0.25 2.62 2.87 (0.25) 0.00 (0.17)
10/31/94 12.08 0.25 (0.04) 0.21 (0.25) 0.00 (0.05)
10/31/93 11.76 0.23 0.74 0.97 (0.23) 0.00 (0.42)
10/31/92 10.80 0.16 1.06 1.22 (0.16) 0.00 (0.04)
02/11/91-10/31/91 10.00 0.16 0.80 0.96 (0.16) 0.00 0.00
Administrative Class
08/21/97-12/31/97 + 17.53 0.03 (a) 0.89 (a) 0.92 (0.11) 0.00 (7.73)
BALANCED FUND (iii)
Institutional Class
12/31/97 + $11.42 $0.18 (a) $ 0.99 (a) $ 1.17 $(0.20) $0.00 $(1.09)
06/30/97 11.64 0.89 1.21 2.10 (0.36) 0.00 (1.96)
11/01/95-06/30/96 11.89 0.27 0.76 1.03 (0.27) 0.00 (1.01)
10/31/95 10.35 0.44 1.54 1.98 (0.44) 0.00 0.00
10/31/94 10.84 0.34 (0.34) 0.00 (0.34) 0.00 (0.15)
10/31/93 10.42 0.35 0.68 1.03 (0.35) 0.00 (0.26)
06/25/92-10/31/92 10.00 0.12 0.52 0.64 (0.12) 0.00 (0.10)
</TABLE>
- --------
*Annualized
+Unaudited
(a) Per share amounts based on average number of shares outstanding during
the period.
(ii) Formerly the NFJ Diversified Low P/E Fund.
(iii) NFJ and Cadence began serving as Portfolio Managers of the portion of
the Balanced Fund allocated for investment in common stocks on August
1, 1996. Prior to August 1, 1996, a different firm served as portfolio
manager.
14 PIMCO Funds: Multi-Manager Series
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
RATIO OF
NET
DISTRIBUTIONS RATIO OF INVESTMENT
IN EXCESS OF DISTRIBUTIONS TAX BASIS NET ASSET NET ASSETS EXPENSES TO INCOME TO
NET REALIZED FROM RETURN OF TOTAL VALUE END END OF AVERAGE NET AVERAGE NET PORTFOLIO
CAPITAL GAINS EQUALIZATION CAPITAL DISTRIBUTIONS OF PERIOD TOTAL RETURN PERIOD (000S) ASSETS ASSETS TURNOVER RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $ 0.00 $0.00 $(1.76) $14.55 10.17% $ 77,926 0.71%* 1.57%* 33%
0.00 0.00 0.00 (0.81) 14.81 26.38 74,613 0.73 2.02 71
0.00 0.00 0.00 (1.94) 12.46 16.24 52,727 0.70* 2.40* 29
0.00 0.00 0.00 (1.50) 12.53 24.98 14,443 0.70 2.50 71
0.00 0.00 0.00 (0.39) 11.55 0.15 15,442 0.70 2.34 44
0.00 0.00 0.00 (0.77) 11.92 26.35 22,930 0.70 2.43 28
0.00 0.00 0.00 (0.42) 10.05 4.68 18,083 0.70* 2.57* 73
0.00 0.00 0.00 (1.76) 14.55 4.19 4,245 0.95* 1.31* 33
$0.00 $ 0.00 $0.00 $(0.89) $17.65 17.57% $ 46,841 0.86%* 1.79%* 18%
0.00 0.00 0.00 (2.51) 15.78 31.99 34,639 0.90 1.92 48
0.00 0.00 0.00 (0.95) 14.20 16.35 29,017 0.85* 2.12* 35
0.00 0.00 0.00 (1.17) 13.10 19.88 35,093 0.85 2.25 50
0.00 0.00 0.00 (0.38) 12.07 (2.89) 31,236 0.85 2.23 48
0.00 0.00 0.00 (0.74) 12.81 23.60 46,523 0.85 2.05 42
0.00 (0.04) 0.00 (0.50) 10.98 13.75 18,261 0.85 2.16 27
0.00 0.00 0.00 (0.03) 10.09 1.19 5,060 1.09* 3.06* 0
0.00 0.00 0.00 (0.87) 17.62 17.35 9,096 1.11* 1.54* 18
0.00 0.00 0.00 (2.50) 15.76 31.70 5,916 1.16 1.68 48
0.00 0.00 0.00 (0.93) 14.20 15.64 4,433 1.10* 1.86* 35
$0.00 $ 0.00 $0.00 $(7.84) $10.63 11.29% $ 40,413 0.71%* 0.83%* 24%
0.00 0.00 0.00 (3.73) 16.46 31.45 44,838 0.74 1.31 91
0.00 0.00 0.00 (0.54) 15.91 14.21 83,425 0.70* 1.58* 53
0.00 0.00 0.00 (0.42) 14.44 24.46 73,999 0.70 1.91 21
0.00 0.00 0.00 (0.30) 11.99 1.83 65,915 0.70 2.20 44
0.00 0.00 0.00 (0.65) 12.08 8.20 46,724 0.70 1.89 15
0.00 (0.06) 0.00 (0.26) 11.76 11.46 36,515 0.70 1.81 17
0.00 0.00 0.00 (0.16) 10.80 9.59 4,451 0.73* 2.14* 0
0.00 0.00 0.00 (7.84) 10.61 4.37 2,926 0.96* 0.59* 24
$0.00 $ 0.00 $0.00 $(1.29) $11.30 10.22% $ 52,357 0.71%* 3.00%* 85%
0.00 0.00 0.00 (2.32) 11.42 20.37 61,518 0.74 3.33 199
0.00 0.00 0.00 (1.28) 11.64 9.07 82,562 0.70* 3.46* 140
0.00 0.00 0.00 (0.44) 11.89 19.47 72,638 0.70 3.73 43
0.00 0.00 0.00 (0.49) 10.35 0.08 130,694 0.70 3.25 47
0.00 0.00 0.00 (0.61) 10.84 10.06 126,410 0.70 3.10 19
0.00 0.00 0.00 (0.22) 10.42 6.40 99,198 0.70* 3.36* 39
AVERAGE
COMMISSION
RATE
- --------------------------------------------------------------------------------
$0.06
0.06
0.06
0.06
0.06
$0.06
0.06
0.04
0.04
0.06
0.06
0.04
$0.04
0.06
0.05
0.05
0.04
$0.06
0.06
0.05
0.04
</TABLE>
July 13, 1998 Prospectus 15
<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 investment objective of
any Fund will be achieved. Because the market value of each Fund's investments
will change, the net asset value per share of each Fund also will vary.
Specific portfolio securities eligible for purchase by the Funds, investment
techniques that may be used by the Funds, and the risks associated with these
securities and techniques are described more fully under "Characteristics and
Risks of Securities and Investment Techniques" in this Prospectus and
"Investment Objectives and Policies" in the Statement of Additional
Information. For information on other investment policies of the Stock Funds,
see "Investment Objectives and Policies--Stock Funds."
EMERGING MARKETS FUND seeks long-term growth of capital. The Fund invests
primarily in common stocks of companies located in countries identified as
emerging market countries. The Morgan Stanley Capital International Emerging
Markets Free Index ("MSCI Free Index") and the International Finance
Corporation Emerging Markets Index ("IFC Index") are used as the bases for
choosing the countries 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 selecting 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 Hungary Peru Sri Lanka
Brazil India Philippines Taiwan
Chile Indonesia Poland Thailand
China Israel Portugal Turkey
Colombia Jordan Romania Venezuela
Czech Republic Malaysia Russia Zimbabwe
Greece Mexico South Africa
Hong Kong Pakistan South Korea
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 significant 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 foreign 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
include 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 sell (write) call and put options. The Fund may
utilize stock index futures contracts and options thereon for hedging purposes
and
16 PIMCO Funds: Multi-Manager Series
<PAGE>
also for investment purposes. For instance, the Fund may invest in stock index
futures contracts and related options as an alternative to purchasing
individual stocks to adjust its exposure to a particular foreign market. See
"Characteristics and Risks of Securities and Investment Techniques--Derivative
Instruments--Index Futures." The Fund may also engage in equity index swap
transactions.
Investing in the securities of foreign issuers, and particularly emerging
market issuers, involves special risks and considerations not typically
associated with investing in U.S. companies. For a discussion of such risks,
see "Characteristics and Risks of Securities and Investment Techniques--
Foreign Securities." The Portfolio Manager for the Emerging Markets Fund is
Blairlogie.
INTERNATIONAL DEVELOPED FUND seeks long-term growth of capital. The Fund
invests primarily in a diversified portfolio of international 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 companies located in countries that the Portfolio Manager
determines, on the basis of market capitalization, liquidity, and other
considerations, to have underdeveloped securities markets. 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 and also provides a sell discipline for fully valued securities.
In selecting 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 significant 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 fluctuations 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 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
sell (write) call and put options. The Fund may utilize stock index futures
contracts and options thereon for hedging purposes and also for investment
purposes. For instance, the Fund may invest in stock index futures contracts
and related options as an alternative to purchasing individual stocks to
adjust its exposure to a particular foreign market. See "Characteristics and
Risks of Securities and Investment Techniques--Derivative Instruments--Index
Futures." The Fund may also 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
a discussion of such risks, see "Characteristics and Risks of Securities and
Investment Techniques--Foreign Securities." The Portfolio Manager for the
International Developed Fund is Blairlogie.
July 13, 1998 Prospectus 17
<PAGE>
INTERNATIONAL FUND seeks capital appreciation through investments in an
international portfolio. Income is an incidental consideration. Under normal
market conditions, at least 65% of the International Fund's total assets will
be invested in common stocks, which may or may not pay dividends, as well as
convertible bonds, convertible preferred stocks, warrants, rights or other
equity securities, for a combination of capital appreciation and income.
Convertible securities 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 United States 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 geographic asset distribution and the Fund has the authority to
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 in the world, the Portfolio Manager will consider such factors as the
condition and growth potential of the various economies and securities
markets, currency and taxation considerations and other pertinent financial,
social, national 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 principally 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 investment 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 foreign currencies; buy or sell foreign currencies; and enter
into forward foreign currency contracts. The Fund may utilize stock index
futures contracts and options thereon for hedging purposes and also for
investment purposes. For instance, the Fund may invest in stock index futures
contacts and related options as an alternative to purchasing individual stocks
to adjust its exposure to a particular foreign market. See "Characteristics
and Risks of Securities and Investment Techniques--Derivative Instruments--
Index Futures."
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 markets 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 Depository
Receipts.
Investing in the securities of foreign issuers, and particularly emerging
market issuers, involves special risks and considerations not typically
associated with investing in U.S. companies. For a discussion of such risks,
see "Characteristics and Risks of Securities and Investment Techniques--
Foreign Securities." The Portfolio Manager for the International Fund is
Blairlogie.
CAPITAL APPRECIATION FUND seeks growth of capital. The Fund invests
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 $1 billion at the
time of investment. The
18 PIMCO Funds: Multi-Manager Series
<PAGE>
Fund usually invests in approximately 60 to 100 common stocks. Each issue is
screened and ranked using five distinct computerized models, including: (i) a
dividend growth screen, (ii) an equity growth screen, (iii) an earnings growth
screen, (iv) an earnings momentum screen, and (v) an earnings surprise screen.
The 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 relative price performance. The universe is
rescreened frequently to obtain a favorable composition of growth and value
characteristics for the entire Fund. The Portfolio Manager for the Capital
Appreciation Fund is Cadence.
MID-CAP GROWTH FUND seeks growth of capital. The Fund invests primarily in
common stocks of middle capitalization companies that have improving
fundamentals (such as growth of earnings and dividends) and whose stock is
reasonably valued by the market. Stocks for the Fund are selected from a
universe of companies with market capitalizations in excess of $500 million at
the time of investment, excluding the 200 companies with the highest market
capitalization. The Fund usually invests in approximately 60 to 100 common
stocks. Each issue is screened and ranked using five distinct computerized
models, including: (i) a dividend growth screen, (ii) an equity growth screen,
(iii) an earnings growth screen, (iv) an earnings momentum screen, and (v) an
earnings surprise screen. The 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 relative price
performance. The universe is rescreened frequently to obtain a favorable
composition of growth and value characteristics for the entire Fund. The
Portfolio Manager for the Mid-Cap Growth Fund is Cadence.
MICRO-CAP GROWTH FUND seeks long-term growth of capital. The Fund invests
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. The Fund usually invests in approximately 60 to 100 common stocks
selected from a universe of stocks with publicly available market
capitalizations of less than $100 million at the time of investment. 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 relative price
performance. The universe is rescreened frequently to obtain a favorable
composition of growth and value characteristics for the entire Fund. The Fund
is intended for aggressive investors seeking above-average gains and willing
to accept the greater risks associated therewith. The Portfolio Manager for
the Micro-Cap Growth Fund is Cadence.
SMALL-CAP GROWTH FUND seeks growth of capital. The Fund invests 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.
The Fund usually invests in approximately 60 to 100 common stocks selected
from a universe of stocks with market capitalizations of $50 million to $1
billion at the time of investment. 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 relative price performance. The universe is
rescreened frequently to obtain a favorable composition of growth and value
characteristics for the entire Fund. The Fund is intended for aggressive
investors seeking above-average gains and willing to accept the greater risks
associated therewith. The Portfolio Manager for the Small-Cap Growth Fund is
Cadence.
July 13, 1998 Prospectus 19
<PAGE>
RENAISSANCE FUND seeks long-term growth of capital and income. The Fund
invests primarily in common stocks having below-average valuations whose
issuers are experiencing improvements in their business fundamentals. Relative
valuation is determined using a multi-factor approach that examines
characteristics such as price to book, price to earnings and price to cash
flow ratios. Stocks which pass the valuation screen are further analyzed to
identify the key drivers of financial results and catalysts for change which
indicate that a company may demonstrate improving fundamentals in the future.
Stocks which appear likely to exceed consensus expectations are candidates for
addition to the Fund's portfolio. Stocks are sold from the Fund's portfolio
when the Portfolio Manager believes that their ability to exceed investor
expectations has diminished or when their valuations have become excessive.
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.
securities. For a discussion of such risks, see "Characteristics and Risks of
Securities and Investment Techniques--Foreign Securities." 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. The
Portfolio Manager for the Renaissance Fund is Columbus Circle.
CORE EQUITY FUND seeks long-term growth of capital, with income as a
secondary objective. The Fund attempts to exceed the total return performance
of the S&P 500 over a reasonable measurement period. The Fund usually invests
in approximately 40 to 50 common stocks from companies with market
capitalizations in excess of $3 billion at the time of investment. In
selecting securities, the Portfolio Manager uses an investment discipline
called "Positive Momentum & Positive Surprise." It is based on the premise
that companies performing better than expected will have rising securities
prices, while companies producing less than expected results will not. Through
thorough analysis of company fundamentals in the context of the prevailing
economic environment, the companies selected for purchase remain in the Fund
only if they continue to achieve or exceed expectations, and are sold when
business or earnings results are disappointing. Stock selection may include a
significant portion of middle capitalization companies combined with the large
capitalization stocks.
The Fund may invest a portion of its assets in securities of foreign issuers
traded in foreign securities markets, which will not exceed 15% of the Fund's
net 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. For a discussion of such risks, see
"Characteristics and Risks of Securities and Investment Techniques--Foreign
Securities." 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; and enter into forward foreign
currency contracts. The Portfolio Manager for the Core Equity Fund is Columbus
Circle.
20 PIMCO Funds: Multi-Manager Series
<PAGE>
MID-CAP EQUITY FUND seeks long-term growth of capital. The Fund usually
invests in approximately 40 to 60 common stocks from companies with market
capitalizations of $800 million to $3 billion at the time of investment. In
selecting securities, the Portfolio Manager uses an investment discipline
called "Positive Momentum & Positive Surprise." It is based on the premise
that companies performing better than expected will have rising securities
prices, while companies producing less than expected results will not. Through
thorough analysis of company fundamentals in the context of the prevailing
economic environment, the companies selected for purchase remain in the Fund
only if they continue to achieve or exceed expectations, and are sold when
business or earnings results are disappointing. Stock selection may include
companies that have grown rapidly from small capitalization status.
The Fund may invest a portion of its assets in securities of foreign issuers
traded in foreign securities markets, which will not exceed 15% of the Fund's
net 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. For a discussion of such risks, see
"Characteristics and Risks of Securities and Investment Techniques--Foreign
Securities." 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; and enter into forward foreign
currency contracts. The Portfolio Manager for the Mid-Cap Equity Fund is
Columbus Circle.
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 technologies. Securities will be selected with
minimal emphasis on more traditional factors such as growth potential or value
relative 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, enhanced 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
business sector or industry.
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. For a discussion of such risks, see "Characteristics and Risks of
Securities and Investment Techniques--Foreign Securities." 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. The
Portfolio Manager for the Innovation Fund is Columbus Circle.
INTERNATIONAL GROWTH FUND seeks long-term capital appreciation. The Fund
invests in an international portfolio of equity and equity-related securities
of companies the principal activities of which are in countries other than the
United States. The Fund will normally invest in securities traded in foreign
securities markets and in securities of foreign issuers traded on U.S.
securities markets. As noted below, except for temporary defensive
investments, the Fund will not invest in securities of U.S. issuers traded on
U.S. securities markets. Otherwise, there are no prescribed limits on
geographic asset distribution, and the Fund has the authority to invest in
securities traded in securities markets of any country in the world. Under
certain adverse investment conditions, the Fund may restrict the number of
securities markets in which it invests, although under normal market
conditions, the Fund's investments will include securities principally traded
in at least three different countries (not including the U.S.). The Fund will
not limit its investments to any particular type or size of company. In
pursuing its investment objective, under normal market conditions, the Fund
will invest at least 65%
July 13, 1998 Prospectus 21
<PAGE>
of its assets in equity securities of issuers which exhibit growth
characteristics in accordance with the Portfolio Manager's Positive Momentum &
Positive Surprise investment discipline (see "Management of the Trust--
Portfolio Managers--Columbus Circle"). The Fund may also invest in issuers
which do not exhibit growth characteristics, but whose securities are thought
to be undervalued.
The Fund may invest in developed foreign securities markets and in emerging
markets, where markets may not fully reflect the potential of the developing
economy. The Fund may also invest in shares of companies which are not
presently listed but are in the process of being privatized by the government
and shares of companies that are traded in over-the-counter markets or other
types of unlisted securities markets.
The Fund will apply the Portfolio Manager's Positive Momentum & Positive
Surprise investment discipline to international markets (see "Management of
the Trust--Portfolio Managers--Columbus Circle"). Asset allocation decisions
("top down") and individual stock selections ("bottom up") result from
identification of positively surprising fundamental trends. Fundamental
factors considered and their importance vary by security, but include country
factors (e.g., changes in the political environment or funds flows);
macroeconomic factors (e.g., GDP growth, inflation and interest rates); global
secular trends (e.g., global grain shortages or growth in wireless
communications); and industry and company specific factors. Investments are
made when the relevant factors are improving (Positive Momentum) faster than
expected (Positive Surprise). The relevant factors can be country (top down)
or company (bottom up) specific.
The Portfolio Manager believes that securities markets of many nations can
be expected to move relatively independently of one another, because business
cycles and other economic or political events that influence one country's
securities markets may have little effect on the securities markets of other
countries. By investing in an international portfolio, the Fund seeks to
reduce the risks associated with investing in the economy of only one country.
The Fund may invest up to 10% of its assets in securities of other
investment companies, such as closed-end management investment 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 foreign currencies; buy or sell foreign currencies; and enter
into forward foreign currency contracts. The Fund may utilize stock index
futures contracts and options thereon for hedging purposes and also for
investment purposes. For instance, the Fund may invest in stock index futures
contracts and related options as an alternative to purchasing individual
stocks to adjust its exposure to a particular foreign market. See
"Characteristics and Risks of Securities and Investment Techniques--Derivative
Instruments--Index Futures."
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 markets warrant a defensive investment
strategy, the Fund may temporarily 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 Depository
Receipts. The Fund will not invest in debt securities which are of less than
investment grade quality at the time of purchase (i.e., securities rated Ba or
below by Moody's or BB or below by S&P or, if unrated, considered by the
Portfolio Manager to be of comparable quality).
Investing in the securities of foreign issuers, and particularly emerging
market issuers, involves special risks not typically associated with investing
in U.S. companies. For a discussion of such risks, see "Characteristics and
Risks of Securities and Investment Techniques--Foreign Securities." The
Portfolio Manager for the International Growth Fund is Columbus Circle.
22 PIMCO Funds: Multi-Manager Series
<PAGE>
EQUITY INCOME FUND seeks current income as a primary investment objective,
and long-term growth of capital as a secondary objective. 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 approximately 2,000 stocks by industry, each of which has a minimum market
capitalization of $200 million at the time of investment. The universe is then
screened to find the 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 application 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, replacements 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. The Portfolio Manager for the Equity Income Fund is NFJ.
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 groups. In selecting securities, the Portfolio
Manager classifies a universe of approximately 2,000 stocks by industry, each
of which has a minimum market capitalization of $200 million at the time of
investment. The universe is then screened to find the stocks with the lowest
P/E ratios in each industry, subject to application of quality and price
momentum screens. The stocks in each industry with the lowest P/E ratios that
pass the quality and price momentum screens are then selected for the Fund.
The Fund usually invests in approximately 50 stocks. Although quarterly
rebalancing is a general rule, replacements are made whenever an alternative
stock within the same industry has a significantly lower P/E ratio than the
current Fund holding. The Portfolio Manager for the Value Fund is NFJ.
VALUE 25 FUND seeks long-term growth of capital and income. The Fund invests
primarily in a portfolio of approximately 25 common stocks of companies with
medium market capitalizations and below-average P/E ratios relative to their
industry groups. In selecting securities, the Portfolio Manager classifies a
universe of more than 2,000 stocks by industry, each of which has a minimum
market capitalization of $200 million. The universe is then screened to find
stocks with the lowest P/E ratios in each industry, subject to application of
quality, earnings momentum and price momentum screens. Those stocks which pass
the screenings and satisfy the medium-cap size criteria are further analyzed.
Fundamental research is performed on the companies determined by such process
to be the most undervalued. Approximately 25 stocks, diversified across
industries, are selected on an equal-weighted basis for the Fund's portfolio.
Although quarterly rebalancing is a general rule, replacements are made
whenever an alternative stock has a significantly lower P/E ratio than the
current Fund holdings. Because the Fund concentrates on approximately 25
stocks at any one time (and is not as diversified as many stock funds), it is
intended for aggressive investors seeking above-average capital gains and
willing to accept the greater risks associated therewith. The Portfolio
Manager for the Value 25 Fund is NFJ.
SMALL-CAP VALUE FUND seeks long-term growth of capital and income. The Fund
invests primarily in common stocks of companies with market capitalizations
between $50 million and $1 billion at the time of investment. In selecting
securities, the Portfolio Manager divides a universe of up to approximately
2,000 stocks into quartiles 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 ratio than the S&P 500's P/E ratio or its industry
average P/E ratio, or when an alternative stock within the same industry has a
significantly lower P/E ratio than the
July 13, 1998 Prospectus 23
<PAGE>
current Fund holding. The Fund is intended for aggressive investors seeking
above-average gains and willing to accept the greater risks associated
therewith. The Portfolio Manager for the Small-Cap Value Fund is NFJ.
ENHANCED EQUITY FUND seeks to provide a total return which equals or exceeds
the total return performance of an index that represents the performance of a
reasonably broad spectrum of common stocks that are publicly traded in the
United States. The Fund currently attempts to equal or exceed the total return
performance of the S&P 500. The Portfolio Manager uses quantitative techniques
to construct a portfolio that consists of some, but not all, of the common
stocks that are represented in the S&P 500. The Fund may invest in common
stocks of foreign issuers if included in the S&P 500. The Fund attempts to
provide risk-controlled exposure to the S&P 500 while adding value through
security selection. The Fund is designed to have no greater volatility than
the S&P 500. Stocks in the S&P 500 are ranked by their exposure to growth and
value factors and combined to create a sector-neutral portfolio which exhibits
above average return potential relative to the S&P 500. Approximately 150
positions are owned by the Fund. Stocks with rising earnings expectations,
reasonable valuation of those earnings and positive investor sentiment are
more heavily weighted. The fundamental inputs used in the stock selection
process include company revenues and cash flow, stock price, reported and
estimated earnings, analyst ratings and earnings estimates revisions. A
computer optimization model is used to achieve diversification and risk
control relative to the S&P 500. Frequent and modest rebalancing assures these
exposures are maintained through time. The Trustees reserve the right to
change, without shareholder approval, the index whose total return the Fund
will attempt to equal or exceed, although it is not anticipated that such a
change would be made in the ordinary course of the Fund's operations. The Fund
may engage in the purchase and writing of options on securities indexes, and
may also invest in stock index futures contracts and options thereon. The
Portfolio Manager for the Enhanced Equity Fund is Parametric.
STRUCTURED EMERGING MARKETS FUND seeks long-term growth of capital. The Fund
invests primarily in equity securities of companies located in, or whose
business relates to, emerging markets. The Portfolio Manager will identify
those markets that it considers to be emerging markets, relying primarily on
those countries listed on the MSCI Free Index or the Baring Emerging Markets
Index (the "Baring Index"). However, the Portfolio Manager has discretion in
identifying other countries that qualify as emerging markets on the basis of
market capitalization and liquidity, as well as their inclusion, or
consideration for inclusion, as emerging market countries in other broad-based
market indexes. The Fund seeks to achieve its objective by following a
disciplined and systematic methodology for selecting and weighting countries,
industries, and stocks. Diversification and consistent exposure to opportunity
are emphasized over tactical timing decisions with regard to countries,
industries, or stocks. A disciplined methodology for maintaining the
allocation to countries, industries, and stocks is utilized in portfolio
composition, rather than discretionary shifting in country and industry
concentration levels. First, countries are selected based upon their level of
development and equity market institutions. GNP per capita, local economic
diversification, and freedom of investment flows are the primary
considerations in country selection decisions. Most countries are assigned an
equal weight in the Fund unless the size of their equity market is
prohibitive; countries with smaller markets (i.e., less than $5 billion of
market capitalization) are assigned one-half of the weight assigned to
countries with larger markets. Second, all stocks in each eligible country are
divided into five broad economic sector groups: financial, industrial,
consumer, utilities, and natural resources. The Portfolio Manager will
generally endeavor to maintain exposure across all five sectors in each
country. Finally, stocks are selected and purchased to fill out the country
and industry structure. Stock purchase candidates are examined for liquidity,
industry representation, performance relative to industry, and profitability.
Under normal market conditions and assuming Fund size of at least $5 million,
the Portfolio Manager will endeavor to maintain investment exposure to roughly
20 countries and hold in excess of 200 securities in the Fund. The allocation
methodology described above may
24 PIMCO Funds Multi-Manager Series
<PAGE>
be changed from time to time based on evaluations of economic trends by the
Portfolio Manager, consistent with the principles of broad country and company
diversification of the Fund's investments.
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 Hong Kong Morocco Slovenia
Brazil Hungary Pakistan South Africa
Chile India Peru South Korea
China Indonesia Philippines Sri Lanka
Colombia Israel Poland Taiwan
Czech Republic Jordan Portugal Thailand
Estonia Malaysia Romania Turkey
Greece Mexico Russia Venezuela
Slovakia Zimbabwe
For purposes of allocating the Fund's investments, a company is considered
to be located in the country in which the company is domiciled, and a
company's business "relates to" any emerging market country in which the
company's securities are primarily traded, from which the company derives a
significant portion of its revenues, or in which a significant portion of the
company's 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 foreign 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 Baring Index. Such foreign currency transactions may
include 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. The Fund
may sell (write) call and put options. The Fund may utilize stock index
futures contracts and options thereon for hedging purposes and also for
investment purposes. For instance, the Fund may invest in stock index futures
contracts and related options as an alternative to purchasing individual
stocks to adjust its exposure to a particular foreign market. See
"Characteristics and Risks of Securities and Investment Techniques--Derivative
Instruments--Index Futures." The Fund may also engage in equity index swap
transactions.
Investing in securities of foreign issuers, and particularly emerging market
issuers, involves special risks and considerations not typically associated
with investing in U.S. companies. For a discussion of such risks, see
"Characteristics and Risks of Securities and Investment Techniques--Foreign
Securities." The Portfolio Manager for the Structured Emerging Markets Fund is
Parametric.
TAX-EFFICIENT STRUCTURED EMERGING MARKETS FUND has the same investment
objective and policies as the Structured Emerging Markets Fund, except that
the Fund seeks to achieve superior after-tax returns for its shareholders in
part by minimizing the taxes they incur in connection with the Fund's
investment income and realized capital gains by using the strategies described
under "Tax-Efficient Management Strategies" below. While the Fund seeks to
minimize investor taxes associated with the Fund's investment income and
realized capital gains, the Fund may have taxable investment income and may
realize taxable gains from time to time.
Investing in securities of foreign issuers, and particularly emerging market
issuers, involves special risks and considerations not typically associated
with investing in U.S. companies. For a discussion of such risks, see
"Characteristics and Risk of Securities and Investment Techniques--Foreign
Securities." The Portfolio Manager for the Tax-Efficient Structured Emerging
Markets Fund is Parametric.
July 13, 1998 Prospectus 25
<PAGE>
TAX-EFFICIENT EQUITY FUND seeks maximum after-tax growth of capital. The
Fund attempts to provide a total return which exceeds the return of the S&P
500. In addition, the Fund seeks to achieve superior after-tax returns for its
shareholders in part by minimizing the taxes they incur in connection with the
Fund's investment income and realized capital gains by using the strategies
described under "Tax-Efficient Management Strategies" below. Notwithstanding
these strategies, the Fund may have taxable investment income and may realize
taxable gains from time to time.
The Fund invests primarily in a broadly diversified portfolio of at least
250 common stocks of companies with larger market capitalizations. In
selecting specific securities, the Portfolio Manager uses a proprietary
quantitative model that ranks companies based on long-term (5-10 years) price
appreciation potential through analysis of such factors as growth of
sustainable earnings and dividend behavior. Securities in the top 50% of the
model's ranking are considered for purchase. The Portfolio Manager's sell
discipline incorporates a focus on reducing the realization of capital gains.
Each sell candidate is evaluated based on its cost, current market value, and
anticipated benefit of replacement. Securities in the bottom 20% of the
model's ranking are considered for sale. The Fund may engage in the purchase
and writing of options on securities indexes and may also invest in stock
index futures contracts and options thereon. The Portfolio Manager for the
Tax-Efficient Equity Fund is Parametric.
Tax-Efficient Management Strategies The Portfolio Manager for the Tax-
Efficient Structured Emerging Markets and Tax-Efficient Equity Funds utilizes
a range of active tax management techniques to minimize taxable distributions
for these Funds, including: low portfolio turnover; emphasis towards low-
dividend, growth-oriented companies; tax lot accounting (identification of
specific shares of securities being sold that have the lowest tax cost); and
regular rebalancing to capture available tax credits. The Tax-Efficient
Structured Emerging Markets and Tax-Efficient Equity Funds will generally seek
to avoid realizing net short-term capital gains and, when realizing gains,
will attempt to realize long-term gains (i.e., gains on securities held for
more than 12 months) in such a manner as to maximize the net gains from
securities held for more than 18 months. The Funds intend to notify each
shareholder as to that portion of his or her capital gain dividends which
qualifies for a maximum tax rate of 28% in the hands of the shareholder and
the balance, if any, of such capital gain dividends eligible for a maximum tax
rate of 20%. Net short-term capital gains, when distributed, will be taxed as
ordinary income, at graduated rates of up to 39.6%. When these Funds decide to
sell a particular appreciated security, they will normally select for sale
first those share lots with holding periods exceeding 18 or 12 months and
among those, the share lots with the highest cost basis. The Funds may, when
prudent, sell securities to realize capital losses that can be used to offset
realized capital gains.
To protect against price declines in securities holdings with large
accumulated capital gains, the Tax-Efficient Structured Emerging Markets and
Tax-Efficient Equity Funds may, to the extent permitted by law, use hedging
techniques such as the purchase of put options, the sale of stock index
futures contracts, and equity swaps. By using these techniques rather than
selling such securities, the Funds can reduce their exposure to price declines
in the securities without realizing substantial capital gains. In limited
circumstances, the Funds may follow the practice of distributing selected
appreciated securities to meet redemptions of certain investors and may,
within certain limits, use the selection of securities distributed to meet
such redemptions as a management tool. By distributing appreciated securities
the Funds can reduce their position in such securities without realizing
capital gains. During periods of net withdrawals by investors, using
distributions of securities could enable the Funds to avoid the forced sale of
securities to raise cash for meeting redemptions.
26 PIMCO Funds Multi-Manager Series
<PAGE>
It is expected that by employing the various tax-efficient management
strategies described above, the Tax-Efficient Structured Emerging Markets and
Tax-Efficient Equity Funds can minimize the extent to which shareholders incur
taxes as a result of realized capital gains. The Funds may nevertheless
realize gains and shareholders will incur tax liability from time to time.
BALANCED FUND seeks total return consistent with prudent investment
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 instruments will vary from time to time and will be determined by the
Adviser. In determining the allocation of the Fund's assets among the three
asset classes, the Adviser will employ asset allocation principles which take
into account certain economic factors, 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 income security (other than a short-term instrument) if, at the time of
investment, more than 80% of the Fund's assets would be invested 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 Adviser 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 Adviser
for investment in common stock (the "Common Stock Segment") will be further
allocated by the Adviser for investment by Cadence and NFJ. The portion of the
Common Stock Segment allocated to Cadence will be managed in accordance with
the investment policies of the Capital Appreciation Fund; the portion
allocated to NFJ will be managed in accordance with the investment policies of
the Value Fund. Allocations of the Common Stock Segment to Cadence and NFJ
will vary from time to time as determined by the Adviser.
The portion of the assets of the Fund allocated by the Adviser for
investment in fixed income securities (the "Fixed Income Securities Segment")
will be managed by Pacific Investment Management. 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; corporate debt securities, including convertible securities
and corporate commercial paper; mortgage-related and other asset-backed
securities; inflation-indexed bonds issued by both governments and
corporations; structured notes and loan participations; bank certificates of
deposit, fixed time deposits and bankers' acceptances; repurchase agreements
and reverse repurchase agreements; obligations of foreign governments or their
subdivisions, agencies and instrumentalities; and obligations of international
agencies or supranational entities. Fixed income securities may have fixed,
variable, or floating rates of interest.
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
the Portfolio Manager believes 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 determined by the Portfolio
Manager, 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 the Portfolio Manager to
be of comparable quality. High yield fixed income securities rated lower than
Baa by Moody's or BBB by S&P, or of equivalent quality, are not considered to
be investment
July 13, 1998 Prospectus 27
<PAGE>
grade, and are commonly referred to as "junk bonds." Securities rated below
investment grade and comparable unrated securities are subject to greater
risks than higher quality fixed income securities. See "Characteristics and
Risks of Securities and Investment Techniques--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. Investing
in securities denominated in foreign currencies and securities of foreign
issuers involves special risks and considerations not typically associated
with investing in U.S. securities. For a discussion of such risks, see
"Characteristics and Risks of Securities and Investment Techniques--Foreign
Securities."
Each Portfolio Manager generally invests a portion of its allocation in
liquid securities to facilitate redemptions. In addition, PIMCO Advisors
reserves the right to allocate a portion of the Fund's assets (the "Money
Market Segment") for investment in money market instruments and reserves the
right to manage the investment of such assets. Because of the Fund's flexible
investment policy, portfolio turnover may be greater than for a fund that does
not allocate assets among various types of securities. See "Portfolio
Transactions."
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, entering 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 investment 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 currency fluctuations from one country to another.
STOCK FUNDS
The Emerging Markets, International Developed, Capital Appreciation, Mid-Cap
Growth, Micro-Cap Growth, Small-Cap Growth, Core Equity, Mid-Cap Equity,
Equity Income, Value, Value 25, Small-Cap Value, Enhanced Equity, Structured
Emerging Markets, Tax-Efficient Structured Emerging Markets, and Tax-Efficient
Equity Funds will each invest primarily (normally at least 65% of its assets)
in common stock. Each of these Funds may maintain a portion of its assets,
which will usually not exceed 10%, in U.S. Government securities, high quality
debt securities (whose maturity or remaining maturity will not exceed five
years), money market obligations, and in cash to provide for payment of the
Fund's expenses and to meet redemption requests. 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. The Funds may also invest
in convertible securities, preferred stock, and warrants, subject to certain
limitations.
The International, Renaissance, and Innovation Funds will each invest
primarily (normally at least 65% of its assets) in common stocks, and may also
invest in other equity securities, including preferred stocks and securities
(including debt securities and warrants) convertible into or exercisable for
common stocks. The International Growth Fund will invest primarily in equity
and equity-related securities. Each of these Funds may invest 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.
28 PIMCO Funds Multi-Manager Series
<PAGE>
One or more of the Stock Funds may temporarily not be invested primarily in
equity securities immediately following the commencement of operations or
after receipt of significant new monies. While attempting to identify suitable
investments, the Funds may hold assets in cash, short-term U.S. Government
securities, and other money market instruments. Any of the Stock Funds may
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 Stock 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 Stock Funds may invest in American Depository Receipts
("ADRs"). The Emerging Markets, International Developed, International, Core
Equity, Mid-Cap Equity, International Growth, Structured Emerging Markets, and
Tax-Efficient Structured Emerging Markets Funds may invest in European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs"). The
Stock 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 and other
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, based on the 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 Manager for the Fixed Income Securities Segment of the
Balanced Fund. For more information on investments in fixed income securities,
see "Characteristics and Risks of Securities and Investment Techniques" in
this Prospectus and "Investment Objectives and Policies" in the Statement of
Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies of the
International, Renaissance, Innovation, and International Growth 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. The
investment objective of each of these Funds and the Value 25, Tax-Efficient
Structured Emerging Markets, and Tax-Efficient Equity Funds is non-fundamental
and may be changed with respect to each such Fund by the Trustees without
shareholder approval. Under the following fundamental restrictions, none of
the International, Renaissance, Innovation, and International Growth Funds
may:
July 13, 1998 Prospectus 29
<PAGE>
(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.
(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.
(6) Concentrate more than 25% of the value of its total assets in any one
industry; except that the Innovation Fund will concentrate more than
25% of its assets in companies which use innovative technologies to
gain a strategic, competitive advantage in their industry as well as
companies that provide and service those technologies.
The investment restrictions set forth below are fundamental policies of each
of the Emerging Markets, International Developed, Capital Appreciation, Mid-
Cap Growth, Micro-Cap Growth, Small-Cap Growth, Core Equity, Mid-Cap Equity,
Equity Income, Value, Value 25, Small-Cap Value, Enhanced Equity, Structured
Emerging Markets, Tax-Efficient Structured Emerging Markets, Tax-Efficient
Equity, and Balanced Funds 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. The investment objective of each of these Funds (with the
exception of the Value 25, Tax-Efficient Structured Emerging Markets, and Tax-
Efficient Equity Funds) is also fundamental and may not be changed without
such shareholder approval. Under the following fundamental restrictions, none
of the above-referenced 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.
30 PIMCO Funds Multi-Manager Series
<PAGE>
(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 this Prospectus and in the Statement of
Additional Information (the deposit of assets in escrow in connection
with the writing of covered put and call options and the purchase of
securities on a when-issued or delayed delivery basis and collateral
arrangements with respect to initial or variation margin deposits for
futures contracts, options on futures contracts, and forward foreign
currency contracts will not be deemed to be pledges of 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 Securities and
Exchange Commission ("SEC") and the Trustees of the Trust.
(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.
Unless otherwise noted, the remaining restrictions and policies of each Fund
relating to the investment of its assets and activities are non-fundamental
and may be changed without shareholder approval. As indicated above, certain
fundamental investment restrictions do not apply to certain Funds. However,
certain non-fundamental restrictions, set
July 13, 1998 Prospectus 31
<PAGE>
forth in the Statement of Additional Information, place comparable limitations
on these Funds. See "Investment Restrictions" in the Statement of Additional
Information.
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
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.
CHARACTERISTICS AND RISKS OF SECURITIES
AND INVESTMENT TECHNIQUES
The different types of securities and investment techniques used by the
individual Funds all have attendant risks of varying degrees. For example,
with respect to common stock, there can be no assurance of capital
appreciation, and there is a risk of market decline. With respect to debt
securities, including money market instruments, there is the risk that the
issuer of a security may not be able to meet its obligation to make scheduled
interest or principal payments. 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.
SMALL AND MEDIUM CAPITALIZATION STOCKS
Certain of the Funds may invest in common stock of companies with market
capitalizations that are small compared to those of other publicly traded
companies. Generally, small market capitalization is considered to be less
than $1.5 billion and large market capitalization is considered to be more
than $5 billion. Under normal market conditions, the Small-Cap Growth and
Small-Cap Value Funds will invest primarily in companies with market
capitalizations of $1 billion or less, and the Micro-Cap Growth Fund will
invest primarily in companies with market capitalizations of $100 million or
less. Investments in larger companies present certain advantages in that such
companies generally have greater financial resources, more extensive research
and development, manufacturing, marketing and service capabilities, and more
stability and greater depth of management and technical personnel. Investments
in smaller, less seasoned 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 companies may be subject
to more abrupt or erratic market movements than larger, more established
companies. These companies may have limited product lines, markets or
financial resources, or they may be dependent upon a limited management group.
Their securities may be traded in the over-the-counter market or on a regional
exchange, or may otherwise have limited liquidity. As a result of owning large
positions in this type of security, a Fund is subject to the additional risk
of possibly having to sell portfolio securities at disadvantageous times and
prices if redemptions require the Fund to liquidate its securities positions.
In addition, it may be prudent for a Fund with a relatively large asset size
to limit the number of relatively small positions it holds in securities
having limited
32 PIMCO Funds Multi-Manager Series
<PAGE>
liquidity in order to minimize its exposure to such risks, to minimize
transaction costs, and to maximize the benefits of research. As a consequence,
as a Fund's asset size increases, the Fund may reduce its exposure to illiquid
small capitalization securities, which could adversely affect performance.
Many of the Funds may also invest in stocks of companies with medium market
capitalizations. Whether a U.S. issuer's market capitalization 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 capitalizations. Such investments
share some of the risk characteristics of investments in stocks of companies
with small market capitalizations 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 volatile
than those of smaller capitalization issuers.
REPURCHASE AGREEMENTS
For the purposes of maintaining liquidity and achieving income, each Fund
may enter into repurchase agreements, which entail the purchase of a
portfolio-eligible security from a bank or broker-dealer that agrees to
repurchase the security at the Fund's cost plus interest within a specified
time (normally one day). If the party agreeing to repurchase should default,
as a result of bankruptcy or otherwise, the Fund will seek to sell the
securities which it holds, which action could involve procedural costs or
delays in addition to a loss on the securities if their value should fall
below their repurchase price. Those Funds whose investment objectives do not
include the earning of income will invest in repurchase agreements only as a
cash management technique with respect to that portion of the portfolio
maintained in cash. Each Fund will limit its investment in repurchase
agreements maturing in more than seven days consistent with the Fund's policy
on investment in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS
A reverse repurchase agreement may for some purposes be considered borrowing
that involves the sale of a security by a Fund and its agreement to repurchase
the instrument at a specified time and price. The Fund will maintain a
segregated account consisting of assets determined to be liquid by the Adviser
or a Portfolio Manager in accordance with procedures established by the Board
of Trustees to cover its obligations under reverse repurchase agreements.
Reverse repurchase agreements will be subject to the Funds' limitations on
borrowings. A Fund also may borrow money for investment purposes subject to
any policies of the Fund currently described in this Prospectus or in the
Statement of Additional Information. 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 portfolio and may
cause a Fund to liquidate portfolio positions when it would not be
advantageous to do so.
LOANS OF PORTFOLIO SECURITIES
For the purpose of achieving income, each Fund may lend its portfolio
securities to brokers, dealers, and other financial institutions, provided:
(i) the loan is secured continuously by collateral consisting of U.S.
Government securities, cash or cash equivalents (negotiable
certificates of deposit, bankers' acceptances or letters of credit)
maintained on a daily mark-to-market basis in an amount at least equal
to the current market value of the securities loaned;
(ii) the Fund may at any time call the loan and obtain the return of the
securities loaned;
(iii) the Fund will receive any interest or dividends paid on the loaned
securities; and
July 13, 1998 Prospectus 33
<PAGE>
(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 interest,
through investment of cash collateral by the Fund in permissible investments, or
a fee, if the collateral is U.S. Government securities. Securities lending
involves the risk of loss of rights in the collateral or delay in recovery of
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.
FOREIGN SECURITIES
The Emerging Markets, International Developed, International, International
Growth, Structured Emerging Markets, and Tax-Efficient Structured Emerging
Markets Funds may invest directly in foreign equity securities; U.S. dollar-
or foreign currency-denominated foreign corporate debt securities; 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 supranational entities; and securities represented
by ADRs, EDRs, or GDRs. ADRs are dollar-denominated receipts issued generally
by domestic banks and representing the deposit with the bank of a security of
a foreign issuer, and are publicly traded on exchanges or over-the-counter in
the United States. 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 Core Equity and Mid-Cap
Equity Funds 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). In addition, these Funds may invest in ADRs, EDRs, and GDRs. The
remaining Funds may also invest in ADRs. The Enhanced Equity Fund may invest
in common stock of foreign issuers if included in the index from which stocks
are selected. The Balanced Fund may invest up to 20% of its 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. The Renaissance 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 securities issued by companies and governments of
foreign nations. These risks include: differences in accounting, auditing and
financial reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country); and political instability which could affect U.S. investments
in foreign countries. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resources, self-sufficiency,
and balance of payments position. The securities markets, values of
securities, yields, and risks associated with securities markets may change
independently of each other. Additionally, foreign securities and dividends
and interest payable on those securities may be subject to foreign taxes,
including taxes withheld from payments on those securities. Foreign securities
often trade with less frequency and volume than domestic securities and
therefore may exhibit greater price volatility. Additional costs associated
with an investment in foreign securities may include higher custodial fees
than apply to domestic custodial arrangements and transaction costs of foreign
34 PIMCO Funds Multi-Manager Series
<PAGE>
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 obligations 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 constitute 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, Structured
Emerging Markets, and Tax-Efficient Structured Emerging Markets Funds, 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 countries. A number of emerging market countries restrict, to
varying degrees, foreign investment in securities. 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 periods of relative illiquidity, and
are characterized by significant price volatility. There is a risk in emerging
market countries that a future economic or political crisis could lead to
price controls, forced mergers of companies, expropriation or confiscatory
taxation, seizure, nationalization, or creation of government 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, economic and political
uncertainty and instability (including the risk of war); more substantial
governmental involvement in the economy; less governmental supervision and
regulation of the securities markets and participants in those markets;
unavailability of currency hedging techniques in certain emerging market
countries; 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 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 significantly smaller market capitalization of securities
markets. Also, any change in the leadership or politics of emerging market
countries, or the countries that exercise a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and adversely affect existing investment
opportunities.
In addition, emerging securities markets may have different clearance and
settlement procedures, which may be unable to keep pace with the volume of
securities transactions or otherwise make it difficult to engage in such
transactions. Settlement problems may cause a Fund to miss attractive
investment opportunities, hold a portion of its assets in cash pending
investment, or delay in disposing of a portfolio security. Such a delay could
result in possible liability to a purchaser of the security.
Special Risks of Investing in Russian and Other Eastern European
Securities The Emerging Markets, International, International Growth,
Structured Emerging Markets, and Tax-Efficient Structured Emerging Markets
Funds may invest a portion of their assets in securities of issuers located in
Russia and in other Eastern European countries. While investments in
securities of such issuers are subject generally to the same risks associated
with investments in other emerging market countries described above, the
political, legal and operational risks of investing in Russian and other
July 13, 1998 Prospectus 35
<PAGE>
Eastern European issuers, and of having assets custodied within these
countries, may be particularly acute. A risk of particular note with respect
to direct investment in Russian securities is the way in which ownership of
shares of companies is normally recorded. When a Fund invests in a Russian
issuer, it will normally receive a "share extract," but that extract is not
legally determinative of ownership. The official record of ownership of a
company's share is maintained by the company's share registrar. Such share
registrars are completely under the control of the issuer, and investors are
provided with few legal rights against such registrars. Please refer to
"Investment Objectives and Policies--Foreign Securities" in the Statement of
Additional Information for a more complete description of these and other
risks associated with investments in securities of Russian and other Eastern
European issuers.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention (or the
failure to intervene) by U.S. or foreign governments or central banks, or by
currency controls or political developments in the U.S. or abroad. For
example, significant uncertainty surrounds the proposed introduction of the
euro (a common currency unit for the European Union) in January 1999 and its
effect on the value of securities denominated in local European currencies.
These and other currencies in which the Funds' assets are denominated may be
devalued against the U.S. dollar, resulting in a loss to the Funds.
The Emerging Markets, International Developed, International, Renaissance,
Core Equity, Mid-Cap Equity, Innovation, International Growth, Structured
Emerging Markets, Tax-Efficient Structured Emerging Markets, 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, International Developed, International, International Growth,
Structured Emerging Markets, Tax-Efficient Structured Emerging Markets, 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 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. The effect on the value of a Fund
is similar to selling securities denominated in one currency and purchasing
securities denominated in another. Contracts to sell foreign currency would
limit any potential gain which might be realized by a Fund if the value of the
hedged currency increases. A Fund may enter into these contracts for the
purpose of hedging against foreign exchange risk arising from the Fund's
investment or anticipated investment in securities denominated in foreign
currencies. 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 Emerging Markets, International Developed,
International, International Growth, Structured Emerging Markets, and Tax-
Efficient Structured Emerging Markets Funds also may enter into these
contracts for purposes of increasing exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another.
To the extent that they do so, the Emerging Markets, International Developed,
International, International Growth, Structured Emerging Markets, and Tax-
Efficient 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. These Funds may use one currency
(or a basket of currencies) to hedge against adverse changes in the value of
another currency (or a basket of
36 PIMCO Funds Multi-Manager Series
<PAGE>
currencies) when exchange rates between the two currencies are positively
correlated. Each Fund will segregate assets determined to be liquid by the
Adviser or a Portfolio Manager in accordance with procedures established by
the Board of Trustees in a segregated account to cover its obligations under
forward foreign currency exchange contracts entered into for non-hedging
purposes.
HIGH YIELD SECURITIES ("JUNK BONDS")
The Renaissance and Balanced Funds may invest a portion of their assets in
fixed income securities rated lower than Baa by Moody's or lower than BBB by
S&P but rated at least B by Moody's or S&P or, if not rated, determined by the
Portfolio Manager to be of comparable quality. In addition, the Renaissance
Fund may invest in convertible securities rated below B by Moody's or S&P (or,
if unrated, considered by the Portfolio Manager 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 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 higher grade securities.
The following chart provides information on the weighted average percentage
of rated and unrated debt or fixed income securities in the portfolios of each
Fund that invested at least 5% of its average assets in high yield securities
during the fiscal year ended June 30, 1997. The numerical rating designations
correspond to the associated rating categories. The designation "1st"
corresponds 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 Additional Information. The columns
related to unrated securities present the percentage of a Fund's total net
assets invested during such fiscal year (1) in unrated high yield securities
believed by the Adviser 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.
<TABLE>
<CAPTION>
RATED
----------------------------------------------------------
1ST 2ND 3RD 4TH 5TH 6TH 7TH 8TH 9TH 10TH
--- ---- ---- ---- ---- ---- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Renaissance*........ -- 1.08% 4.13% 1.55% 4.01% 3.67% -- -- -- --
<CAPTION>
UNRATED BUT CONSIDERED EQUIVALENT TO
----------------------------------------------------------
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*........ -- -- -- -- -- 6.41% -- -- -- -- 6.41%
</TABLE>
- --------
* Represents holdings of the Renaissance Fund for the period of October 1,
1996 through June 30, 1997. Although the Fund reserves the right to do so
at any time, as of the date of this Prospectus, it does not invest or have
the present intention to invest 5% or more of its assets in high yield
securities.
For additional discussion of the characteristics of lower rated fixed income
securities, see the Statement of Additional Information. Ratings assigned to
fixed income securities are described in the Appendix to the Statement of
Additional Information.
July 13, 1998 Prospectus 37
<PAGE>
DERIVATIVE INSTRUMENTS
To the extent permitted by the investment objective and policies of each
Fund, a Fund may purchase and write call and put options on securities,
securities indexes and foreign currencies, and enter into futures contracts
and use options on futures contracts as further described below. In pursuit of
their investment objectives, the Emerging Markets, International Developed,
International, Renaissance, Core Equity, Mid-Cap Equity, Innovation,
International Growth, Structured Emerging Markets, Tax-Efficient Structured
Emerging Markets, Tax-Efficient Equity, and Balanced Funds may engage in the
purchase and writing of call and put options on securities and enter into
futures contracts and options thereon; each of these Funds, along with the
Enhanced Equity Fund, may engage in the purchase and writing of options on
securities indexes and enter into securities index futures contracts and
options thereon. The Funds that may invest in foreign currency denominated
securities may engage in the purchase and writing of call and put options on
foreign currencies. The Emerging Markets, International Developed, Structured
Emerging Markets, Tax-Efficient Structured Emerging Markets, Tax-Efficient
Equity, and Balanced Funds also may 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 interest rates, foreign currency
exchange rates or securities prices; and for the Emerging Markets,
International Developed, International, International Growth, Structured
Emerging Markets, and Tax-Efficient Structured Emerging 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 Adviser or a Portfolio Manager in
accordance with procedures established by the Board of Trustees (or, as
permitted by applicable regulation, enter into certain offsetting positions)
to cover its obligations under options, futures, and swaps to limit leveraging
of the Fund.
Derivative instruments are considered for these purposes to consist of
securities or other instruments whose value is derived from or related to the
value of some other instrument or asset, and not to include those securities
whose payment of principal and/or interest depends upon cash flows from
underlying assets, such as mortgage-related or asset-backed securities. See
"Mortgage-Related and Other Asset-Backed Securities." The value of some
derivative instruments in which the Funds invest may be particularly sensitive
to changes in prevailing interest rates, and, like the other investments of
the Funds, the ability of a Fund to successfully utilize these instruments may
depend in part upon the ability of the Portfolio Manager to forecast interest
rates and other economic factors correctly. If the Portfolio Manager
incorrectly forecasts such factors and has taken positions in derivative
instruments contrary to prevailing market trends, the Funds could be exposed
to the risk of loss.
The Funds might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If the Portfolio
Manager incorrectly forecasts interest rates, market values or other economic
factors in utilizing a derivatives strategy for a Fund, the Fund might have
been in a better position if it had not entered into the transaction at all.
The use of these strategies involves certain special risks, including a
possible imperfect correlation, or even no correlation, between price
movements of derivative instruments and price movements of related
investments. While some strategies involving derivative instruments can reduce
the risk of loss, they can also reduce the opportunity for gain or even result
in losses by offsetting favorable price movements in related investments or
otherwise, due to the possible inability of a Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable or the possible
need to sell a portfolio security at a disadvantageous time because the Fund
is required to maintain asset coverage or offsetting positions in connection
with transactions in derivative instruments, and the possible inability of a
Fund to close out or to liquidate its derivatives positions.
Options on Securities, Securities Indexes, and Currencies 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
38 PIMCO Funds Multi-Manager Series
<PAGE>
in market value. These Funds may also purchase call options on securities. One
purpose of purchasing call options is to protect against substantial increases
in prices of securities the Fund intends to purchase pending its ability to
invest in such securities in an orderly manner. A Fund may sell put or call
options it has previously purchased, which could result in a net gain or loss
depending on whether the amount realized on the sale is more or less than the
premium and other transaction costs paid on the put or call option which is
sold. A Fund may write a call or put option only if the option is "covered" by
the Fund holding a position in the underlying securities or by other means
which would permit immediate satisfaction of the Fund's obligation as writer
of the option. Prior to exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series.
The 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 exercise price, but, as long as its obligation
as a writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying 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 market will exist when a Fund seeks to close out an option position.
Furthermore, if trading restrictions or suspensions are imposed on the options
markets, a Fund may be unable to close out a position.
For each of the International, Renaissance, Innovation, and International
Growth 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 Emerging Markets, International Developed, International, Core Equity,
Mid-Cap Equity, International Growth, Structured Emerging Markets, Tax-
Efficient Structured Emerging Markets, 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 in which certain Funds may invest 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 Emerging Markets, International Developed, Structured
Emerging Markets, Tax-Efficient Structured Emerging Markets, and Tax-Efficient
Equity Funds may enter into equity index swap agreements for purposes of
gaining exposure to the stocks making up an index of securities 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,
July 13, 1998 Prospectus 39
<PAGE>
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." Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). A Fund's current obligations under a swap agreement will be accrued
daily (offset against amounts owed to the Fund), and any accrued but unpaid
net amounts owed to a swap counterparty will be covered by the maintenance of
a segregated account consisting of 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.
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 investments. Moreover, a Fund bears the risk of loss
of the amount expected to be received under a swap agreement in the event of
the default or bankruptcy of a swap agreement counterparty. The Funds will
enter into swap agreements only with counterparties that meet certain
standards for creditworthiness (generally, such counterparties would have to
be eligible counterparties under the terms of the Funds' repurchase agreement
guidelines). Certain restrictions imposed on the Funds by the Internal Revenue
Code may limit the Funds' ability to use swap agreements. The swaps market is
a relatively new market and is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect a Fund's ability to terminate existing swap agreements
or to realize amounts to be received under such agreements.
Futures Contracts and Options on Futures Contracts Certain Funds may enter
into futures contracts and options thereon. The Balanced Fund may invest in
interest rate futures contracts and options thereon. The Emerging Markets,
International Developed, International, Core Equity, Mid-Cap Equity,
International Growth, Structured Emerging Markets, Tax-Efficient Structured
Emerging Markets, 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. 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 portfolio return might have been greater had hedging not been attempted.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or a futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid
40 PIMCO Funds Multi-Manager Series
<PAGE>
market for any reason may prevent a Fund from liquidating an unfavorable
position, and the Fund would remain obligated to meet margin requirements
until the position is closed.
Index Futures The Emerging Markets, International Developed, International,
Renaissance, Core Equity, Mid-Cap Equity, Innovation, International Growth,
Enhanced Equity, Structured Emerging Markets, Tax-Efficient Structured
Emerging Markets, Tax-Efficient Equity, and Balanced Funds may purchase and
sell futures contracts on various securities indexes ("Index Futures") and
related options for hedging purposes and for investment purposes. A Fund's
purchase and sale of Index Futures is limited to contracts and exchanges which
have been approved by the Commodity Futures Trading Commission ("CFTC").
Each of the Emerging Markets, International Developed, International,
International Growth, Structured Emerging Markets, and Tax-Efficient
Structured Emerging Markets Funds may invest to a significant degree in Index
Futures on stock indexes and related options (including those which may trade
outside of the United States) as an alternative to purchasing individual
stocks in order to adjust the Fund's exposure to a particular market. These
Funds may invest in Index Futures and related options when a Portfolio Manager
believes that there are not enough attractive securities available to maintain
the standards of diversification and liquidity set for a Fund pending
investment in such securities if or when they do become available. Through the
use of Index Futures and related options, a Fund may diversify risk in its
portfolio without incurring the substantial brokerage costs which may be
associated with investment in the securities of multiple issuers. A Fund may
also avoid potential market and liquidity problems which may result from
increases in positions already held by the Fund.
A Fund may close open positions on the futures exchanges on which Index
Futures are traded at any time up to and including the expiration day. All
positions which remain open at the close of the last business day of the
contract's life are required to settle on the next business day (based upon
the value of the relevant index on the expiration day), with settlement made
with the appropriate clearing house. Because the specific procedures for
trading foreign stock Index Futures on futures exchanges are still under
development, additional or different margin requirements as well as settlement
procedures may be applicable to foreign stock Index Futures at the time a Fund
purchases such instruments.
Positions in Index Futures may be closed out by a Fund only on the futures
exchanges upon which the Index Futures are then traded. There can be no
assurance that a liquid market will exist for any particular contract at any
particular time. Also, the price of Index Futures may not correlate perfectly
with movement in the relevant index due to certain market distortions. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Second, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market, and as a
result, the futures market may attract more speculators than does the
securities market. Increased participation by speculators in the futures
market may also cause temporary price distortions. In addition, trading hours
for foreign stock Index Futures may not correspond perfectly to hours of
trading on the foreign exchange to which a particular foreign stock Index
Future relates. This may result in a disparity between the price of Index
Futures and the value of the relevant index due to the lack of continuous
arbitrage between the Index Futures price and the value of the underlying
index.
The Funds will only enter into futures contracts or futures options which
are standardized and traded on a U.S. or foreign exchange or board of trade,
or similar entity, or quoted on an automated quotation system. Each Fund will
use futures contracts and related options for "bona fide hedging" purposes, as
such term is defined in applicable regulations of the CFTC, or, with respect
to positions in futures and related options that do not qualify as "bona fide
hedging" positions,
July 13, 1998 Prospectus 41
<PAGE>
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.
SHORT SALES
Each Fund may from time to time make short sales involving securities held
in the Fund's portfolio or which the Fund has the right to acquire without the
payment of further consideration. For these purposes, a Fund may also hold or
have the right to acquire securities which, without the payment of any further
consideration, are convertible into or exchangeable for the securities sold
short. Short sales expose the Fund to the risk that it will be required to
acquire, convert or exchange securities to cover its short position at a time
when the securities sold short have appreciated in value, thus resulting in a
loss to the Fund.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT TRANSACTIONS
Each Fund may purchase securities which it is eligible to purchase on a
when-issued basis, may purchase and sell such securities for delayed delivery
and may make contracts to purchase securities for a fixed price at a future
date beyond normal settlement time (forward commitments). When-issued
transactions, delayed delivery purchases and forward commitments involve a
risk of loss if the value of the securities declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
Fund's other assets. Typically, no income accrues on securities a Fund has
committed to purchase prior to the time delivery of the securities is made,
although a Fund may earn income on securities it has deposited in a segregated
account.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
All Funds that may purchase debt securities for investment purposes (and in
particular the Balanced Fund) may invest in mortgage-related securities, and
in other asset-backed securities (unrelated to mortgage loans) that are
offered to investors currently or in the future. The value of some mortgage-
related or asset-backed securities in which the Funds invest may be
particularly sensitive to changes in prevailing interest rates, and, like
other fixed income investments, the ability of a Fund to successfully utilize
these instruments may depend in part upon the ability of the Portfolio Manager
to forecast interest rates and other economic factors correctly.
Mortgage Pass-Through Securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property
in which payments of both interest and principal on the securities are
generally made monthly, in effect "passing through" monthly payments made by
the individual borrowers on the mortgage loans which underlie the securities
(net of fees paid to the issuer or guarantor of the securities). Early
repayment of principal on some mortgage-related securities (arising from
prepayments of principal due to sale of the underlying property, refinancing,
or foreclosure, net of fees and costs which may be incurred) may expose a Fund
to a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, the value of the
premium would be lost in the event of prepayment. Like other fixed income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; however, when interest rates are declining, the value
of mortgage-related securities with prepayment features may not increase as
much as other fixed income securities. The rate of prepayments on underlying
mortgages will affect the price and volatility of a mortgage-related security,
and may have the effect of shortening or extending the effective maturity of
the security beyond what was anticipated at the time of purchase. To the
extent that unanticipated rates of prepayment on underlying mortgages increase
the effective maturity of a mortgage-related security, the volatility of such
security can be expected to increase.
42 PIMCO Funds Multi-Manager Series
<PAGE>
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")); or
guaranteed by agencies or instrumentalities of the U.S. Government (in the
case of securities 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
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. Similar to a bond, interest and pre-paid principal on a CMO are
paid, in most cases, on a monthly basis. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are
structured into multiple classes, with each class bearing a different stated
maturity. Monthly payments of principal, including prepayments, are first
returned to investors holding the shortest maturity class; investors holding
the longer maturity classes receive principal only after the first class has
been retired. CMOs that are issued or guaranteed by the U.S. Government or by
any of its agencies or instrumentalities will be considered U.S. Government
securities by a 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 a Fund's diversification tests.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property.
The market for commercial mortgage-backed securities developed more recently
and in terms of total outstanding principal amount of issues is relatively
small compared to the market for residential single-family mortgage-backed
securities. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans. These risks reflect the effects of local and other
economic conditions on real estate markets, the ability of tenants to make
loan payments, and the ability of a property to attract and retain tenants.
Commercial mortgage-backed securities may be less liquid and exhibit greater
price volatility than other types of mortgage-related or asset-backed
securities.
Mortgage-Related Securities include securities other than those described
above that directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property, such as CMO residuals or
stripped mortgage-backed securities ("SMBS"), and may be structured in classes
with rights to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only,
or "IO" class), while the other class will receive all of the principal (the
principal-only, or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on a Fund's yield to maturity from
these securities. For a discussion of the characteristics of some of these
instruments, see the Statement of Additional Information.
July 13, 1998 Prospectus 43
<PAGE>
CONVERTIBLE SECURITIES
Many of the Funds may invest in convertible securities. Convertible
securities are generally preferred stocks or fixed income securities 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 convertible 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 convertible 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 convertible
securities," which are composed of two or more different securities whose
investment characteristics, taken together, resemble those of convertible
securities. For example, the Renaissance Fund may purchase a non-convertible
debt security and a warrant or option. The synthetic convertible differs from
the true convertible security in several respects. Unlike a true convertible
security, which is a single security having a unitary market value, a
synthetic convertible comprises two or more separate securities, 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
convertible security may respond differently to market fluctuations.
INVESTMENT IN INVESTMENT COMPANIES
The Emerging Markets, International Developed, International, and
International Growth Funds may invest in securities of other investment
companies, such as closed-end management investment companies, or in pooled
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 MARKET RISK OF FIXED INCOME SECURITIES
All fixed income securities are subject to market risk and credit risk.
Market risk relates to market-induced changes in a security's value, usually
as a result of changes in interest rates. The value of a Fund's investments in
fixed income securities 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.
MONEY MARKET INSTRUMENTS
Each of the Funds may invest at least a portion of its assets in the
following kinds of money market 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 Adviser or a Portfolio Manager. Bank
44 PIMCO Funds Multi-Manager Series
<PAGE>
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 obligations") or foreign
branches of U.S. banks ("Eurodollar obligations");
(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 Adviser or a Portfolio Manager;
(4) corporate obligations with a remaining maturity of 397 days or less
whose issuers have outstanding short-term debt obligations rated in
the highest rating category by at least two NRSROs, or, if rated by
only one NRSRO, in such agency's highest grade, or, if unrated,
determined to be of comparable quality by the Adviser or a Portfolio
Manager; and
(5) repurchase agreements with domestic commercial banks or registered
broker-dealers.
ILLIQUID SECURITIES
Each Fund may invest in securities that are illiquid so long as no more than
15% of the net assets of the Fund (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 those for transactions in liquid securities.
The term "illiquid securities" for this purpose means securities that cannot
be disposed of within seven days in the ordinary course of business at
approximately the amount at which a Fund has valued the securities. Illiquid
securities are considered to include, among other things, written over-the-
counter options, securities or other liquid assets being used as cover for such
options, repurchase agreements with maturities in excess of seven days, certain
loan participation interests, fixed time deposits which are not subject to
prepayment or provide for withdrawal penalties upon prepayment (other than
overnight deposits), securities that are subject to legal or contractual
restrictions on resale (such as privately placed debt securities), and other
securities which legally or in the Adviser's or a Portfolio Manager's opinion
may be deemed illiquid (not including securities issued pursuant to Rule 144A
under the Securities Act of 1933 and certain commercial paper that the Adviser
or a Portfolio Manager has determined to be liquid under procedures approved by
the Board of Trustees).
SERVICE SYSTEMS -- YEAR 2000 PROBLEM
Many of the services provided to the Funds depend on the smooth functioning
of computer systems. Many systems in use today cannot distinguish between the
year 1900 and the year 2000. Should any of the service systems fail to process
information properly, that could have an adverse impact on the Funds'
operations and services provided to shareholders. The Adviser, Distributor,
Shareholder Servicing and Transfer Agent, Custodian, and certain other service
providers to the Funds have reported that each is working toward mitigating the
risks associated with the so-called "year 2000 problem." However, there can be
no assurance that the problem will be corrected in all respects and that the
Funds' operations and services provided to shareholders will not be adversely
effected.
"FUNDAMENTAL" POLICIES
The investment objective of each of the International, Renaissance,
Innovation, International Growth, Value 25, Tax-Efficient Structured Emerging
Markets, and Tax-Efficient Equity Funds described in this Prospectus may be
changed by the
July 13, 1998 Prospectus 45
<PAGE>
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.
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 Additional Information under the
heading "Management of the Trust."
INVESTMENT ADVISER
PIMCO Advisors serves as investment adviser to the Funds pursuant to an
investment advisory agreement with the Trust. PIMCO Advisors is a Delaware
limited partnership organized in 1987. PIMCO Advisors provides investment
management and advisory services to private accounts of institutional and
individual clients and to mutual funds. Total assets under management by PIMCO
Advisors and its subsidiary partnerships as of May 31, 1998 were approximately
$223.2 billion. The general partners of PIMCO Advisors are PIMCO Partners,
G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO Partners, G.P. is a
general partnership between PIMCO Holding LLC, a Delaware limited liability
company and an indirect wholly-owned subsidiary of Pacific Life Insurance
Company, and PIMCO Partners LLC, a California limited liability company
controlled by the Managing Directors of Pacific Investment Management. PIMCO
Partners, G.P. is the sole general partner of PAH. PIMCO Advisors is governed
by a Management Board, which exercises substantially all of the governance
powers of the general partner and serves 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 SEC. PIMCO Advisors currently has seven subsidiary
investment adviser partnerships, the following six of which manage one or more
of the Funds: Blairlogie, Cadence, Columbus Circle, NFJ, Pacific Investment
Management, and Parametric.
Under the investment advisory agreement, PIMCO Advisors, subject to the
supervision of the Board of Trustees, is responsible for providing advice and
guidance with respect to the Funds and for managing, either directly or
through others selected by the Adviser, the investment of the Funds. PIMCO
Advisors also furnishes to the Board of Trustees periodic reports on the
investment performance of each Fund.
PORTFOLIO MANAGERS
Pursuant to portfolio management agreements, PIMCO Advisors employs
Portfolio Managers for all of the Funds. Each Portfolio Manager is an
affiliate of PIMCO Advisors. PIMCO Advisors (and not the Funds or the Trust)
compensates the Portfolio Managers from its advisory fee. Under these
agreements, 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 portion 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.
BLAIRLOGIE manages the Emerging Markets Fund, the International Developed
Fund, and the International Fund (the "Blairlogie Funds"). Blairlogie is an
investment management firm, organized as a limited partnership under the laws
of the United Kingdom, with 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 subsidiary of PIMCO Advisors,
which
46 PIMCO Funds Multi-Manager Series
<PAGE>
serves as the managing partner. The limited partner is Blairlogie Partners
L.P., a limited partnership, the general partner of which is Pacific Asset
Management LLC (a subsidiary of Pacific Life Insurance Company), and the
limited partners of which are the principal executive officers of Blairlogie
Capital Management. Blairlogie Capital Management Ltd., the predecessor
investment adviser to Blairlogie, commenced operations in 1992. Accounts
managed by Blairlogie had combined assets as of May 31, 1998 of approximately
$800 million. Blairlogie's address is 4th Floor, 125 Princes Street, Edinburgh
EH2 4AD, Scotland. Blairlogie is registered as an investment adviser with the
SEC in the United States and with the Investment Management Regulatory
Organisation ("IMRO") in the United Kingdom.
James Smith is primarily responsible for the day-to-day management 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
six 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.
CADENCE manages the Capital Appreciation Fund, the Mid-Cap Growth Fund, the
Micro-Cap Growth Fund, the Small-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 Management
Corporation, the predecessor investment adviser to Cadence, commenced
operations in 1988. Accounts managed by Cadence had combined assets as of May
31, 1998 of approximately $6.6 billion. Cadence's address is Exchange Place,
53 State Street, Boston, Massachusetts 02109. Cadence is registered as an
investment adviser with the SEC.
David B. Breed, William B. Bannick, Katherine A. Burdon, 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 24 years' investment management
experience. He has been the driving force in developing the firm's growth-
oriented stock screening and selection process and has been with Cadence (or
its predecessor) since its inception. Mr. Breed graduated from the University
of Massachusetts and received his MBA from the Wharton School of Business. He
is a Chartered Financial Analyst. Mr. Bannick is a Managing Director and
Executive Vice President of Cadence and has 12 years' investment management
experience. He previously served as Executive Vice President of George D.
Bjurman & Associates and as Supervising Portfolio Manager 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 University. Mr. Bannick is a Chartered Financial
Analyst. Ms. Burdon is a Managing Director and Portfolio Manager of Cadence
and has nine years' investment management experience. She previously served as
a Vice President and Portfolio Manager of The Boston Company. Ms. Burdon
joined the predecessor of Cadence in 1993. She graduated from Stanford
University and received a Master of Science degree from Northeastern
University. Ms. Burdon is a Chartered Financial Analyst and Certified Public
Accountant. Mr. McManus is Director of Fund Management of Cadence and has 20
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 he is certified as a Financial
Planner.
COLUMBUS CIRCLE manages the Renaissance Fund, the Core Equity Fund, the Mid-
Cap Equity Fund, the Innovation Fund, and the International Growth Fund (the
"Columbus Circle Funds"). Columbus Circle is an investment management firm
organized as a general partnership. Columbus Circle has two partners: PIMCO
Advisors as the supervisory partner,
July 13, 1998 Prospectus 47
<PAGE>
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 May 31,
1998 of approximately $9.5 billion. Columbus Circle's address is Metro Center,
One Station Place, 8th Floor, Stamford, Connecticut 06902. Columbus Circle is
registered as an investment adviser with the SEC.
At the center of Columbus Circle's equity investment strategy is its theory
of Positive Momentum & Positive Surprise. This theory asserts that a good
company doing better than generally expected 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 with a view to investing in
growing companies that are surprising the market with business results that
are better than anticipated.
Investment decisions made by Columbus Circle are generally made by one or
more committees, although the following individuals have primary
responsibility for the noted Columbus Circle Funds. Clifford G. Fox is
primarily responsible for the day-to-day management of the Renaissance Fund.
Mr. Fox, a Managing Director of Columbus Circle, has 16 years of investment
management experience. He received his bachelor's degree from the University
of Pennsylvania and his MBA from New York University, and he is a Chartered
Financial Analyst. Anthony Rizza is primarily responsible for the day-to-day
management of the Core Equity Fund. Mr. Rizza, a Managing Director of Columbus
Circle, has 11 years of investment management experience. He received his
bachelor's degree from the University of Connecticut, and he is a Chartered
Financial Analyst. Amy H. Hogan is primarily responsible for the day-to-day
management of the Mid-Cap Equity Fund. Ms. Hogan, a Managing Director of
Columbus Circle, has 12 years of investment management experience. She
received her bachelor's degree and MBA from the University of Wisconsin, and
she is a Chartered Financial Analyst. Anthony Rizza (see above) is primarily
responsible for the day-to-day management of the Innovation Fund. Andrew
Jacobson is primarily responsible for the day-to-day management of the
International Growth Fund. Mr Jacobson, a Vice President of Columbus Circle,
has 7 years of investment management experience. He received his bachelor's
degree from Princeton University and his MBA from the Wharton School of
Business, and he is a Chartered Financial Analyst.
NFJ manages the Equity Income Fund, the Value Fund, the Value 25 Fund, the
Small-Cap Value Fund, and a portion of the Common Stock Segment of the
Balanced 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 May 31, 1998 of
approximately $2.7 billion. NFJ's address is 2121 San Jacinto, Suite 1840,
Dallas, Texas 75201. NFJ is registered as an investment adviser with the SEC.
Chris Najork and Benjamin Fischer are responsible for the day-to-day
management of the Equity Income 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 29 years' experience
encompassing equity research and portfolio management. He received his
bachelor's degree and MBA from Southern Methodist University, and he is a
Chartered Financial Analyst. Mr. Fischer is a Managing Director and a founding
partner of NFJ and has 31 years' experience encompassing equity research and
portfolio management. He received his bachelor's degree from Oklahoma
University and his MBA from the New York University Graduate School of
Business. He is a Chartered Financial Analyst. Messrs. Najork, Fischer and
Paul A. Magnuson are primarily responsible for the day-to-day management of
the Value Fund and the Small-Cap Value Fund. Mr. Magnuson, a research analyst
at NFJ, has 12 years' experience in equity research and portfolio management.
He received his bachelor's degree in Finance from the University of Nebraska-
Lincoln. Messrs. Najork,
48 PIMCO Funds Multi-Manager Series
<PAGE>
Fischer, and Cliff Hoover are primarily responsible for the day-to-day
management of the Value 25 Fund. Mr. Hoover is a principal at NFJ and has 23
years' experience in portfolio management and banking. He received his
bachelor's degree and MBA from Texas Tech University. He is a Chartered
Financial Analyst.
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. 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 Pacific Investment Management, commenced
operations in 1971. Pacific Investment Management had approximately $133.6
billion of assets under management as of May 31, 1998. Pacific Investment
Management's address is 840 Newport Center Drive, Suite 360, Newport Beach,
California 92660. Pacific Investment Management is registered as an investment
adviser with the SEC 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 Management or its predecessor for more than 27 years.
He has extensive investment experience in both credit research and fixed
income portfolio management. 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 Society of
Financial Analysts.
PARAMETRIC manages the Enhanced Equity Fund, the Structured Emerging Markets
Fund, the Tax-Efficient Structured Emerging Markets Fund, and the Tax-
Efficient Equity Fund (the "Parametric Funds"). Parametric is an investment
management firm organized as a general partnership. 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.
Accounts managed by Parametric had combined assets as of May 31, 1998 of
approximately $3 billion. Parametric's address is 7310 Columbia Center, 701
Fifth Avenue, Seattle, Washington 98104-7090. Parametric is registered as an
investment adviser with the SEC and as a commodity trading advisor with the
CFTC.
David Stein, Brian Langstraat, Linda Mauzy, and Cliff Quisenberry are
primarily responsible for the day-to-day management of the Parametric Funds,
except for the Tax-Efficient Equity Fund, for which Messrs. Stein and
Langstraat are primarily responsible . Mr. Stein is a Managing Director of
Parametric and has been associated with Parametric since June, 1996. He also
directs research and product development for Parametric. Mr. Stein graduated
with bachelor's and master's degrees in Applied Mathematics from the
University of Witwatersrand, South Africa, and received a Ph.D. in Applied
Mathematics from Harvard University. Prior to joining Parametric, Mr. Stein
served as the Director of Investment Research at GTE Investment Management,
Director of Active Equity Strategies at the Vanguard Group, and Director of
Quantitative Portfolio Management and Research at IBM. Mr. Langstraat is a
Managing Director of Parametric and has been associated with Parametric since
1990. He is responsible for product and portfolio management in the areas of
taxable and international investing. Mr. Langstraat graduated from the
University of Washington with a bachelor's degree in Economics. He is a
Chartered Financial Analyst. Ms. Mauzy is a Senior Investment Manager of
Parametric and has been with Parametric or its predecessor since 1988. Ms.
Mauzy graduated from California State University with a bachelor's degree in
Chemistry, and from the University of California with a master's degree in
Economics. She is a Chartered Financial Analyst. Mr. Quisenberry is a Senior
Investment Manager and Research Manager of Parametric and has been with
Parametric since 1994. He previously served as a Vice President and Portfolio
July 13, 1998 Prospectus 49
<PAGE>
Manager at Cutler & Co., and as a Security Analyst and Portfolio Manager at
Fred Alger Management. Mr. Quisenberry graduated from Yale University with a
bachelor's degree in Economics. He is a Chartered Financial Analyst.
Registration as an investment adviser with the SEC does not involve
supervision by the SEC over investment advice, and registration with the CFTC
as a commodity trading advisor does not involve supervision by the CFTC over
commodities trading. The portfolio management agreements are not exclusive,
and Blairlogie, Cadence, Columbus Circle, NFJ, Parametric, and Pacific
Investment Management may provide, and currently are providing, investment
management services to other clients, including other investment companies.
FUND ADMINISTRATOR
PIMCO Advisors also serves as administrator (the "Administrator") for the
Funds' Institutional Class and Administrative Class shares pursuant to an
administration agreement with the Trust. The Administrator provides or
procures administrative services for Institutional Class and Administrative
Class shareholders of 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 Adviser, 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 service and/or distribution fees
payable with respect to the Administrative Class shares, and may include
certain other expenses as permitted by the Trust's Multiple Class Plan adopted
pursuant to Rule 18f-3 under the Investment Company Act of 1940 (the "1940
Act"), subject to review and approval by the Trustees.
ADVISORY AND ADMINISTRATIVE FEES
The Funds feature fixed advisory and administrative fees. For providing or
arranging for the provision of investment advisory services to the Funds as
described above, PIMCO Advisors receives 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>
Capital Appreciation, Mid-Cap Growth, Equity Income, Value,
Enhanced Equity,
Structured Emerging Markets, Tax-Efficient Structured Emerging
Markets, Tax-Efficient Equity, and Balanced Funds................ .45%
Value 25 Fund..................................................... .50%
International Fund................................................ .55%
Core Equity Fund.................................................. .57%
</TABLE>
50 PIMCO Funds Multi-Manager Series
<PAGE>
<TABLE>
<CAPTION>
ADVISORY
FUND FEE RATE
---- --------
<S> <C>
International Developed, Renaissance, and Small-Cap Value Funds.... .60%
Mid-Cap Equity Fund................................................ .63%
Innovation Fund.................................................... .65%
Emerging Markets and International Growth Funds.................... .85%
Small-Cap Growth Fund.............................................. 1.00%
Micro-Cap Growth Fund.............................................. 1.25%
</TABLE>
For providing or procuring administrative services for 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 Institutional Class and Administrative Class shares as
follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE
FUND FEE RATE
---- --------------
<S> <C>
Emerging Markets, International Developed, International,
International Growth,
Structured Emerging Markets, and Tax-Efficient Structured
Emerging Markets Funds...................................... .50%
All Other Funds.............................................. .25%
</TABLE>
The investment advisory, administration, and sub-administration agreements
for the Funds may be terminated by the Trustees, 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 International,
Renaissance, and Innovation Funds 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 agreements will continue from year to year if approved by
the Trustees.
Pursuant to the portfolio management agreements between the Adviser and each
of the Portfolio Managers, PIMCO Advisors (and not the Funds or the Trust)
pays each Portfolio Manager a fee based on a percentage of the average daily
net assets of a Fund as follows: Blairlogie--.40% for the International Fund,
.50% for the International Developed Fund, and .75% for the Emerging Markets
Fund; Cadence--.35% for the Capital Appreciation Fund, .35% for the Mid-Cap
Growth Fund, .35% for the portion of the Common Stock Segment of the Balanced
Fund allocated to Cadence, .90% for the Small-Cap Growth Fund, and 1.15% for
the Micro-Cap Growth Fund; Columbus Circle--.38% for the Renaissance Fund,
.38% for the Innovation Fund, .47% for the Core Equity Fund, .53% for the Mid-
Cap Equity Fund, and .75% for the International Growth Fund; NFJ--.35% for the
Equity Income Fund, .35% for the Value Fund, .35% for the portion of the
Common Stock Segment of the Balanced Fund allocated to NFJ, .40% for the Value
25 Fund, and .50% for the Small-Cap Value Fund; Pacific Investment
Management--.25% for the Fixed Income Securities Segment of the Balanced Fund;
and Parametric--.35% for the Enhanced Equity Fund, .35% for the Structured
Emerging Markets Fund, .35% for the Tax-Efficient Structured Emerging Markets
Fund, and .35% for the Tax-Efficient Equity Fund.
SERVICE AND DISTRIBUTION FEES
The Trust has adopted an Administrative Services Plan and a Distribution
Plan (the "Plans") with respect to the Administrative Class shares of each
Fund except for the Emerging Markets, Capital Appreciation, and Small-Cap
Growth Funds, for which the Trust has adopted only an Administrative Services
Plan. Under the terms of the Plans, the Trust is permitted to reimburse, out
of the Administrative Class assets of each Fund, in an amount up to .25% on an
annual basis of the average daily net assets of that class, financial
intermediaries that provide services in connection with the distribution and
marketing of shares and/or the provision of certain shareholder services (in
the case of the Distribution Plan) or the administration of plans or programs
that use Fund shares as their funding medium (in the case of the
July 13, 1998 Prospectus 51
<PAGE>
Administrative Services Plan), and to reimburse certain other related
expenses. Total reimbursements under the Plans may be paid in an amount up to
.25% on an annual basis of the average daily net assets attributable to the
Administrative Class shares of each Fund. The same entity may not receive both
distribution and administrative services fees with respect to the same assets
but may with respect to separate assets receive fees under each Plan. Fees
paid pursuant to either Plan may be paid for shareholder services and the
maintenance of accounts, and therefore may constitute "service fees" for
purposes of applicable rules of the National Association of Securities
Dealers, Inc. Each Plan has been adopted in accordance with the requirements
of Rule 12b-1 under the 1940 Act and will be administered in accordance with
the provisions of that rule, except that shareholders will not have the voting
rights set forth in Rule 12b-1 with respect to the Administrative Services
Plan that they will have with respect to the Distribution Plan. For more
complete disclosure regarding the Plans and their terms, see the Statement of
Additional Information.
Institutional Class shares of the Trust may also be offered through certain
brokers and financial intermediaries ("service agents") that have established
a shareholder servicing relationship with the Trust on behalf of their
customers. The Trust pays no compensation to such entities. Service agents may
impose additional or different conditions on the purchase or redemption of
Fund shares by their customers and may charge their customers transaction or
other account fees on the purchase and redemption of Fund shares. Each service
agent is responsible for transmitting to its customers a schedule of any such
fees and information regarding any additional or different conditions
regarding purchases and redemptions. Shareholders who are customers of service
agents should consult their service agents for information regarding these
fees and conditions.
DISTRIBUTOR
Shares of the Trust are distributed through PIMCO Funds Distributors LLC
(the "Distributor"), a wholly owned subsidiary of PIMCO Advisors. The
Distributor, located at 2187 Atlantic Street, Stamford, Connecticut 06902, is
a broker-dealer registered with the SEC.
PURCHASE OF SHARES
With certain exceptions, each Fund may offer its shares in up to six
classes: Institutional Class, Administrative Class, Class A, Class B, Class C,
and Class D. This Prospectus relates only to the Institutional Class shares
and Administrative Class shares of the Funds. For information regarding Class
A, Class B, Class C, and Class D shares, see "Other Information--Multiple
Classes of Shares" below.
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 their 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 and/or distribution fees to such entities for services they provide to
shareholders of that class.
Except as described below under "Fund Reimbursement Fees," shares of either
the Institutional Class or the Administrative Class of the Funds may be
purchased at the relevant net asset value of that class without a sales charge
or other fee. The minimum initial investment for shares of either class is $5
million, except that the minimum initial investment for a registered
investment adviser purchasing Institutional Class shares for its clients
through omnibus accounts is $250,000 per Fund. Shares may also be offered to
clients of Blairlogie, Cadence, Columbus Circle, NFJ, Pacific Investment
Management, Parametric, and their affiliates, and to the benefit plans of
PIMCO Advisors and its
52 PIMCO Funds Multi-Manager Series
<PAGE>
affiliates. In addition, the minimum initial investment does not apply to
shares of the Institutional Class offered through fee-based programs sponsored
and maintained by a registered broker-dealer and approved by the Distributor
pursuant to which each investor pays an asset based fee at an annual rate of
at least .50% of the assets in the account to a financial intermediary for
investment advisory and/or administrative services.
Pension and profit-sharing plans, employee benefit trusts and employee
benefit plan alliances and "wrap account" programs established with broker-
dealers or financial intermediaries may purchase shares of either class only
if the plan or program for which the shares are being acquired will maintain
an omnibus or pooled account for each Fund and will not require a Fund to pay
any type of administrative payment per participant account to any third party.
The investment minimums discussed in this section and the limitations set
forth in "Investment Limitations" below do not apply to participants in PIMCO
Advisors Portfolio Strategies, a managed product sponsored by PIMCO Advisors.
INITIAL INVESTMENT
An account may be opened by completing and signing a Client Registration
Application and mailing it to PIMCO Funds at the following address: 840
Newport Center Drive, Suite 360, Newport Beach, California 92660. A Client
Registration Application may be obtained by calling (800) 800-0952.
Except as provided below, purchases of Institutional Class and
Administrative Class shares can only be made by wiring federal funds to
Investors Fiduciary Trust Company (the "Transfer Agent"), 801 Pennsylvania,
Kansas City, Missouri 64105. Before wiring federal funds, the investor must
first telephone the Trust at (800) 927-4648 to receive instructions for wire
transfer, and the following information will be requested: name of authorized
person; shareholder name; shareholder account number; name of Fund and share
class; amount being wired; and wiring bank name.
Shares may be purchased without first wiring federal funds if the proceeds
of the investment are derived from an advisory account maintained by the
investor with PIMCO Advisors or one of its affiliates; from surrender or other
payment from an annuity, insurance, or other contract held by Pacific Life
Insurance Company; or from an investment by broker-dealers, institutional
clients or other financial intermediaries which have established a shareholder
servicing relationship with the Trust on behalf of their customers.
A purchase order, together with payment in proper form, received by the
Transfer Agent prior to the close of regular trading (normally 4:00 p.m.,
Eastern time) on the New York Stock Exchange (the "Exchange"), on a day the
Trust is open for business, will be effected at that day's net asset value. An
order received after the close of regular trading on the Exchange will be
effected at the net asset value determined on the next business day. However,
orders received by certain retirement plans and other financial intermediaries
on a business day prior to the close of regular trading on the Exchange and
communicated to the Transfer Agent prior to 9:00 a.m., Eastern time, on the
following business day will be effected at the net asset value determined on
the prior business day. The Trust is "open for business" on each day the
Exchange is open for trading, which excludes the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Purchase orders will be accepted only on days on which the Trust is open for
business.
ADDITIONAL INVESTMENTS
Additional investments may be made at any time at the relevant net asset
value for the particular class by calling the Trust and wiring federal funds
to the Transfer Agent as outlined above.
July 13, 1998 Prospectus 53
<PAGE>
FUND REIMBURSEMENT FEES
Investors in Institutional Class and Administrative Class shares of the
Structured Emerging Markets and Tax-Efficient Structured Emerging Markets
Funds are subject to a fee ("Fund Reimbursement Fee"), both at the time of
purchase and at the time of redemption, equal to 1.00% of the net asset value
of the shares purchased or redeemed. Fund Reimbursement Fees are deducted
automatically from the amount invested or the amount to be received in
connection with a redemption; the fees are not paid separately. Fund
Reimbursement Fees are paid to and retained by the Funds to defray certain
costs described below and no portion of such fees are paid to or retained by
the Adviser, the Distributor, or the Portfolio Manager. Fund Reimbursement
Fees are not sales loads or contingent deferred sales charges. Reinvestment of
dividends and capital gains distributions paid to shareholders by the Funds
are not subject to Fund Reimbursement Fees, but redemptions of shares acquired
by such reinvestments are subject to Fund Reimbursement Fees.
The purpose of Fund Reimbursement Fees is to defray the costs associated
with investing the proceeds of the sale of shares to investors (in the case of
purchases) or the costs associated with the sale of portfolio securities to
satisfy redemption requests (in the case of redemptions), thus insulating
existing shareholders from such costs. The amount of a Fund Reimbursement Fee
represents the Portfolio Manager's estimate of the costs reasonably
anticipated to be incurred by the Funds in connection with the purchase or
sale of portfolio securities, including international stocks, associated with
an investor's purchase or redemption proceeds. These costs include brokerage
costs, market impact costs (i.e., the increase in market prices which may
result when a Fund purchases or sells thinly traded stocks), and the effect of
"bid/asked" spreads in international markets. Transaction costs incurred when
purchasing or selling stocks of companies in foreign countries, and
particularly emerging market countries, may be significantly higher than those
in more developed countries. This is due, in part, to less competition among
brokers, underutilization of technology on the part of foreign exchanges and
brokers, the lack of less expensive investment options (such as derivative
instruments), and lower levels of liquidity in foreign and underdeveloped
markets.
On July 1, 1998, the Structured Emerging Markets and Tax-Efficient
Structured Emerging Markets Funds commenced investment operations immediately
following a transaction (the "Transaction") in which each Fund issued
Institutional Class shares to unit holders of the Parametric Portfolio
Associates Emerging Markets Trust, a separate account managed by Parametric
(the "EM Trust"), in exchange for the EM Trust's assets. The EM Trust's unit
holders were divided into two categories: participants who pay taxes ("Taxable
Participants") and participants that are non-taxable entities ("Non-Taxable
Participants"; together with the Taxable Participants, the "Participants").
Assets in the EM Trust equal in value to the value of the Taxable
Participants' participation in the EM Trust were transferred to the Tax-
Efficient Structured Emerging Markets Fund in exchange for Institutional Class
shares of that Fund. Assets in the EM Trust equal in value to the value of the
Non-Taxable Participants' participation in the EM Trust were transferred to
the Structured Emerging Markets Fund in exchange for Institutional Class
shares of that Fund. The Participants' interests in the EM Trust were then
terminated and Institutional Class shares of the Tax-Efficient Structured
Emerging Markets Fund were distributed to the Taxable Participants and
Institutional Class shares of the Structured Emerging Markets Fund were
distributed to the Non-Taxable Participants, in each case in proportion to
each Participant's interest in the EM Trust. After the completion of the
Transaction, the portfolio securities which were owned by the EM Trust became
portfolio securities of the Funds (allocated to the Funds on a substantially
pro-rata basis), to be held or sold as Parametric deems appropriate.
Portfolio securities transferred to the Funds pursuant to the Transaction
will have the same tax basis as they had when held by the EM Trust. Such
securities have "built-in" capital gains if their market value at the time of
the Transaction was greater than their tax basis (other securities may have
"built-in" capital losses for tax purposes if their market value at the time
of the Transaction was less than their tax basis). Built-in capital gains
realized upon the
54 PIMCO Funds Multi-Manager Series
<PAGE>
disposition of these securities will be distributed to all Fund shareholders
who are shareholders of record on the record date for the distribution, even
if such shareholders were not Participants in the EM Trust prior to the
Transaction. This means that investors purchasing Fund shares after the date
of this Prospectus may be required to pay taxes on distributions that
economically represent a return of a portion of the amount invested. For
further information, see "Dividends, Distributions and Taxes" below and
"Taxation--Distributions" in the Statement of Additional Information.
In connection with the Transaction, the Participants in the EM Trust will
not be subject to Fund Reimbursement Fees with respect to any shares of these
Funds they acquired through June 30, 1998, and will not be subject to Fund
Reimbursement Fees upon the subsequent redemption (including any redemption in
connection with an exchange) of any shares acquired by any such Participant
through June 30, 1998. Such Participants will be subject to such Fund
Reimbursement Fees to the same extent as any other shareholder on any shares
of either Fund acquired (whether by reinvestment of dividends or capital gain
distributions or otherwise) after June 30, 1998.
OTHER PURCHASE INFORMATION
Purchases of a Fund's Institutional Class and Administrative Class shares
will be made in full and fractional shares. In the interest of economy and
convenience, certificates for shares will not be issued.
The Trust and the Distributor each reserves the right, in its sole
discretion, to suspend the offering of shares of the Funds or to reject any
purchase order, in whole or in part, when, in the judgment of management, such
suspension or rejection is in the best interests of the Trust. The Trust and
the Distributor may also waive the minimum initial investment for certain
investors.
Purchases and sales should be made for long-term investment purposes only.
The Trust and Adviser each reserves the right to restrict purchases of Fund
shares (including exchanges) when a pattern of frequent purchases and sales
made in response to short-term fluctuations in share price appears evident.
Institutional Class and Administrative Class shares of the Trust are not
qualified or registered for sale in all states. Prospective investors should
inquire as to whether shares of a particular Fund are available for offer and
sale in their state of residence. Shares of the Trust may not be offered or
sold in any state unless registered or qualified in that jurisdiction or
unless an exemption from registration or qualification is available.
Investors may, subject to the approval of the Trust, purchase shares of a
Fund with liquid securities that are eligible for purchase by the Fund
(consistent with such Fund's investment policies and restrictions) and that
have a value that is readily ascertainable in accordance with the Trust's
valuation policies. These transactions will be effected only if the Portfolio
Manager intends to retain the security in the Fund as an investment. Assets so
purchased by a Fund will be valued in generally the same manner as they would
be valued for purposes of pricing the Fund's shares, if such assets were
included in the Fund's assets at the time of purchase. The Trust reserves the
right to amend or terminate this practice at any time.
INVESTMENT LIMITATIONS
Shares of the Micro-Cap Growth and Small-Cap Growth Funds are normally not
available for purchase by new investors, although purchase orders may be
accepted in certain circumstances. Existing shareholders may continue to
invest in these Funds. In addition, Institutional Class and Administrative
Class shares of the International and Innovation Funds are not offered as of
the date of this Prospectus; however, investment opportunities in these Funds
may be available in the future. These restrictions may be changed or
eliminated at any time at the discretion of the Trust's Board of Trustees.
July 13, 1998 Prospectus 55
<PAGE>
RETIREMENT PLANS
Shares of the Funds are available for purchase by retirement and savings
plans, including Keogh plans, 401(k) plans, 403(b) plans, and Individual
Retirement Accounts. The administrator of a plan or employee benefits office
can provide participants or employees with detailed information on how to
participate in the plan and how to elect a Fund as an investment option.
Participants in a retirement or savings plan may be permitted to elect
different investment options, alter the amounts contributed to the plan, or
change how contributions are allocated among investment options in accordance
with the plan's specific provisions. The plan administrator or employee
benefits office should be consulted for details. For questions about
participant accounts, participants should contact their employee benefits
office, the plan administrator, or the organization that provides
recordkeeping services for the plan. Investors who purchase shares through
retirement plans should be aware that plan administrators may aggregate
purchase and redemption orders for participants in the plan. Therefore, there
may be a delay between the time the investor places an order with the plan
administrator and the time the order is forwarded to the Transfer Agent for
execution.
REDEMPTION OF SHARES
REDEMPTIONS BY MAIL
Institutional Class and Administrative Class shares may be redeemed by
submitting a written request to PIMCO Funds, 840 Newport Center Drive, Suite
360, Newport Beach, California 92660, stating the Fund from which the shares
are to be redeemed, the class of shares, the number or dollar amount of the
shares to be redeemed and the account number. The request must be signed
exactly as the names of the registered owners appear on the Trust's account
records, and the request must be signed by the minimum number of persons
designated on the Client Registration Application that are required to effect
a redemption.
REDEMPTIONS BY TELEPHONE OR OTHER WIRE COMMUNICATION
If an election is made on the Client Registration Application (or
subsequently in writing), redemptions of shares may be requested by calling
the Trust at (800) 927-4648, by sending a facsimile to (714) 760-4456, or by
other means of wire communication. Investors should state the Fund and class
from which the shares are to be redeemed, the number or dollar amount of the
shares to be redeemed and the account number. Redemption requests of an amount
of $10 million or more may be initiated by telephone, but must be confirmed in
writing by an authorized party prior to processing.
In electing a telephone redemption, the investor authorizes Pacific
Investment Management and the Transfer Agent to act on telephone instructions
from any person representing himself to be the investor, and reasonably
believed by Pacific Investment Management and the Transfer Agent to be
genuine. Neither the Trust nor its Transfer Agent may be liable for any loss,
cost or expense for acting on instructions (whether in writing or by
telephone) believed by the party receiving such instructions to be genuine and
in accordance with the procedures described in this Prospectus. Shareholders
should realize that by electing the telephone or wire redemption option, they
may be giving up a measure of security that they might have if they were to
redeem their shares in writing. Furthermore, interruptions in telephone
service may mean that a shareholder will be unable to effect a redemption by
telephone when desired. The Transfer Agent also provides written confirmation
of transactions initiated by telephone as a procedure designed to confirm that
telephone instructions are genuine (written confirmation is also provided for
redemption requests received in writing). All telephone transactions are
recorded, and Pacific Investment Management or the Transfer Agent may request
certain information in order to verify that the person giving instructions is
authorized to do so. If the Trust or Transfer Agent fails to employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
it may be liable for any losses due to unauthorized or fraudulent telephone
transactions. All redemptions, whether initiated by letter
56 PIMCO Funds Multi-Manager Series
<PAGE>
or telephone, will be processed in a timely manner, and proceeds will be
forwarded by wire in accordance with the redemption policies of the Trust
detailed below. See "Redemption of Shares--Other Redemption Information."
Shareholders may decline telephone exchange or redemption privileges after
an account is opened by instructing the Transfer Agent in writing at least
seven business days prior to the date the instruction is to be effective.
Shareholders may experience delays in exercising telephone redemption
privileges during periods of abnormal market activity. During periods of
volatile economic or market conditions, shareholders may wish to consider
transmitting redemption orders by telegram, facsimile or overnight courier.
Defined contribution plan participants may request redemptions by contacting
the employee benefits office, the plan administrator or the organization that
provides recordkeeping services for the plan.
OTHER REDEMPTION INFORMATION
Redemption requests for Fund shares are effected at the net asset value per
share next determined after receipt in good order of the redemption request by
the Trust or its designee. A redemption request received by the Trust or its
designee prior to the close of regular trading on the Exchange (normally 4:00
p.m., Eastern time), on a day the Trust is open for business, is effective on
that day. A redemption request received after that time becomes effective on
the next business day.
Unless eligible for a waiver, shareholders of the Structured Emerging
Markets and Tax-Efficient Structured Emerging Markets Funds who redeem their
shares will pay a Fund Reimbursement Fee equal to 1.00% of the net asset value
of the shares redeemed. See "Purchase of Shares--Fund Reimbursement Fees."
Payment of the redemption price will ordinarily be wired to the investor's
bank within three business days after the redemption request, but may take up
to seven business days. Redemption proceeds will be sent by wire only to the
bank name designated on the Client Registration Application. The Trust may
suspend the right of redemption or postpone the payment date at times when the
Exchange is closed, or during certain other periods as permitted under the
federal securities laws.
For shareholder protection, a request to change information contained in an
account registration (for example, a request to change the bank designated to
receive wire redemption proceeds) must be received in writing, signed by the
minimum number of persons designated on the Client Registration Application
that are required to effect a redemption, and accompanied by a signature
guarantee from any eligible guarantor institution, as determined in accordance
with the Trust's procedures. Shareholders should inquire as to whether a
particular institution is an eligible guarantor institution. A signature
guarantee cannot be provided by a notary public. In addition, corporations,
trusts, and other institutional organizations are required to furnish evidence
of the authority of the persons designated on the Client Registration
Application to effect transactions for the organization.
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem Institutional Class and 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 redemption by the investor, the
shares in the account do not have a value of at least $100,000. A shareholder
will receive advance notice of a mandatory redemption and will be given at
least 30 days to bring the value of its account up to at least $100,000. This
mandatory redemption policy does not apply to participants in PIMCO Advisors
Portfolio Strategies, a managed product sponsored by PIMCO Advisors.
The Trust agrees to redeem shares of each Fund solely in cash up to the
lesser of $250,000 or 1% of the Fund's net assets during any 90-day period for
any one shareholder. In consideration of the best interests of the remaining
shareholders, the Trust reserves the right to pay any redemption proceeds
exceeding this amount in whole or in part by a
July 13, 1998 Prospectus 57
<PAGE>
distribution in kind of securities held by a Fund in lieu of cash. Except for
Funds with a tax-efficient management strategy, it is highly unlikely that
shares would ever be redeemed in kind. When shares are redeemed in kind, the
redeeming shareholder should expect to incur transaction costs upon the
disposition of the securities received in the distribution.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for shares of the same class of any other
Fund based on the respective net asset values of the shares involved. An
exchange may be made by following the redemption procedure described above
under "Redemptions by Mail" or, if the telephone redemption option has been
elected, by calling the Trust at (800) 927-4648. Shares of a Fund may also be
exchanged for shares of the same class of a series of PIMCO Funds: Pacific
Investment Management Series, an affiliated mutual fund family composed
primarily of fixed income portfolios managed by Pacific Investment Management.
Shareholders interested in such an exchange may request a prospectus for these
funds by contacting PIMCO Funds: Pacific Investment Management Series at the
same address and telephone number as the Trust.
Unless eligible for a waiver, shareholders who exchange their Institutional
Class or Administrative Class shares of any PIMCO Fund for the same class of
shares of the Structured Emerging Markets Fund or Tax-Efficient Structured
Emerging Markets Fund will be subject to a Fund Reimbursement Fee of 1.00% of
the net asset value of the shares of these Funds acquired in connection with
the exchange. Also, shareholders who exchange their shares of the Structured
Emerging Markets Fund or Tax-Efficient Structured Emerging Markets Fund for
shares of any other PIMCO Fund will be subject to a Fund Reimbursement Fee of
1.00% of the net asset value of the shares of these Funds redeemed in
connection with the exchange. See "Purchase of Shares--Fund Reimbursement
Fees."
Exchanges may be made only with respect to Funds, or series of PIMCO Funds:
Pacific Investment Management Series, registered in the state of residence of
the investor or where an exemption from registration is available. An exchange
order is treated the same for tax purposes as a redemption followed by a
purchase and may result in a capital gain or loss, and special rules may apply
in computing tax basis when determining gain or loss. See "Taxation" in the
Statement of Additional Information.
The Trust reserves the right to modify or revoke the exchange privilege of
any shareholder or to limit or reject any exchange. Although the Trust will
attempt to give shareholders prior notice whenever it is reasonably able to do
so, it may impose additional restrictions on exchanges at any time.
PORTFOLIO TRANSACTIONS
Pursuant to the portfolio management agreements, a Portfolio Manager places
orders for the purchase and sale of portfolio investments 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
Funds' 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 factor in the selection of broker-dealers to
execute portfolio transactions for the Trust.
A change in the securities held by a Fund is known as "portfolio turnover."
With the exception of the Tax-Efficient Structured Emerging Markets and Tax-
Efficient Equity Funds (which may attempt to minimize portfolio turnover as a
tax-efficient management strategy), the Portfolio Managers manage 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. The use of futures contracts and other derivative
instruments with relatively short maturities may tend to exaggerate
58 PIMCO Funds Multi-Manager Series
<PAGE>
the portfolio turnover rate for some of the Funds. The use of futures
contracts may involve the payment of commissions to futures commission
merchants. High portfolio turnover (e.g., over 100%) involves correspondingly
greater expenses to a Fund, including brokerage commissions 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 "Dividends, Distributions and Taxes." Portfolio turnover rates for
each Fund for which financial highlights are provided in this Prospectus is
set forth under "Financial Highlights." Portfolio turnover rates for the
remaining Funds which have not recently commenced operations were as follows
for the fiscal years ended June 30, 1997 and September 30, 1996, respectively:
International--59% and 110%; Renaissance--131% and 203%; and Innovation--80%
and 123%. The annual portfolio turnover rate for each of the Tax-Efficient
Structured Emerging Markets and Tax-Efficient Equity Funds is expected to be
less than 40%. The annual portfolio turnover rate for the Structured Emerging
Markets Fund is expected to be less than 100% and for the Value 25 Fund is
expected to be less than 150%.
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, transactions in such securities will be allocated among
the Fund and clients in a manner deemed fair and reasonable by the Portfolio
Manager. Particularly when investing in less liquid or illiquid securities of
smaller capitalization companies, such allocation may take into account the
asset size of a Fund in determining whether the allocation of an investment is
suitable. As a result, larger Funds may become more concentrated in more
liquid securities than smaller Funds or private accounts of a Portfolio
Manager pursuing a small capitalization investment strategy, which could
adversely affect performance. A Portfolio Manager may aggregate orders for the
Funds with simultaneous transactions entered into on behalf of its other
clients so long as price and transaction expenses are averaged either for the
portfolio transaction or for that day.
NET ASSET VALUE
The net asset values of Institutional and Administrative Class shares of
each Fund 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 Exchange. Net asset value will not be determined on days
on which the Exchange is closed.
Portfolio securities and other assets for which market quotations are
readily available are stated at market value. Fixed income securities are
normally valued on the basis of quotations obtained from brokers and dealers
or pricing services, which take into account appropriate factors such as
institutional-sized trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data. Certain fixed income securities for which daily market quotations
are not readily available may be valued, pursuant to guidelines established by
the Board of Trustees, with reference to fixed income securities whose prices
are more readily obtainable and whose durations are comparable to the
securities being valued. Short-term investments having a maturity of 60 days
or less are valued at amortized cost, when the Board of Trustees determines
that amortized cost is their fair value. 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 converted to U.S.
dollar equivalents using foreign exchange quotations received from independent
dealers. The calculation of the net asset value of the Emerging Markets,
International Developed, International, International Growth, Structured
Emerging Markets, and Tax-Efficient Structured Emerging Markets Funds may not
take place contemporaneously 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 securities are determined
using information derived from pricing services and other sources. Information
that becomes known to
July 13, 1998 Prospectus 59
<PAGE>
the Trust or its agents after the time that net asset value is calculated 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 values of portfolio securities that occur
between the time their prices are determined and the close of regular trading
on the Exchange (normally 4:00 p.m., Eastern time) may not be reflected in the
calculation of net asset value. If events materially affecting the value of
such securities occur during such period, then these securities may be valued
at fair value as determined by the Adviser 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 specially 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
Administrative Class shares of the Funds may be lower than the per share net
asset value of the Institutional Class shares as a result of the daily expense
accruals of the service and/or distribution fees applicable to the
Administrative Class shares. Generally, for Funds that pay income dividends,
those dividends are expected to differ over time by approximately the amount
of the expense accrual differential between a particular Fund's classes.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Shares begin earning dividends on the effective date of purchase, provided
notification deadlines are met. See "Purchase of Shares." Net investment
income from interest and dividends, if any, will be declared and paid
quarterly to shareholders of record by the Renaissance, Equity Income, 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
other Funds. Any net capital gains from the sale of portfolio securities will
be distributed no less frequently than once annually. Net short-term capital
gains may be paid more frequently. Dividend and capital gain distributions of
a Fund will be reinvested in additional shares of that Fund unless the
shareholder elects to have them paid in cash. Dividends from net investment
income with respect to Administrative Class shares will be lower than those
paid with respect to Institutional Class shares, reflecting the payment of
service and/or distribution fees by that class.
Each Fund intends to qualify as a regulated investment company annually and
to elect to be treated as a regulated investment company under the Internal
Revenue Code of 1986, as amended (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 generally 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 dividends, exempt-interest dividends, and dividends
that represent a return of capital to shareholders, as ordinary income. In
particular, distributions derived from short-term gains will be treated as
ordinary income. Dividends derived from interest on certain U.S. Government
securities may be exempt from state and local taxes, although interest on
mortgage-backed U.S. Government securities is generally not so exempt. While
the Tax-Efficient Structured Emerging Markets and Tax-Efficient Equity Funds
seek to minimize taxable distributions, the Funds may be expected to earn and
distribute taxable income and may also be expected to realize and distribute
capital gains from time to time.
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.
Under the Taxpayer Relief Act of 1997, long-term
60 PIMCO Funds Multi-Manager Series
<PAGE>
capital gains will generally be taxed at a 28% or 20% rate, depending upon the
holding period of the portfolio security. Any distributions that are not from
a Fund's net investment income or net capital gain may be characterized as a
return of capital to shareholders or, in some cases, as capital gain. Certain
dividends declared in October, November or December of a calendar year are
taxable to shareholders (who otherwise are subject to tax on dividends) as
though received on December 31 of that year if paid to shareholders during
January of the following calendar year. Each Fund will advise shareholders
annually of the amount and nature of the dividends paid to them.
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 purchased, even though the holder
receives no interest payment in cash on the security during the year. In
addition, pay-in-kind securities will give rise to income which is required to
be distributed and is taxable even though the Fund holding the security
receives no interest payment in cash on the security during the year. Also, a
portion of the yield on certain high yield securities (including certain pay-
in-kind securities) issued after July 10, 1989 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 shareholders 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 investment 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.
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.
OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on August 24,
1990, and currently consists of twenty-five portfolios that are operational,
twenty-one 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.
July 13, 1998 Prospectus 61
<PAGE>
MULTIPLE CLASSES OF SHARES
In addition to Institutional Class shares and Administrative Class shares,
certain Funds also offer up to four additional classes of shares, Class A,
Class B, Class C and Class D, through separate prospectuses. This Prospectus
relates only to Institutional Class and Administrative Class shares of the
Funds. The other classes of the Funds have different sales charges and expense
levels, which will affect performance accordingly. To obtain more information
about the other classes of shares, please call the Distributor at 800-426-0107
(for Class A, Class B, and Class C) or 888-87-PIMCO (for Class D).
Institutional Class and Administrative Class shares of each Fund represent
interests in the assets of that Fund, and each class has identical dividend,
liquidation and other rights and the same terms and conditions, except that
expenses related to the distribution and/or shareholder servicing of
Administrative Class 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. The Administrative Class shares
have exclusive voting rights with respect to matters pertaining to any
Distribution 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
Plan or agreement 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 proportionate
voting for fractional shares). As of June 30, 1998, the following were
shareholders of record of at least 25% of the outstanding voting securities of
the indicated Funds: Charles Schwab & Co., Inc. (San Francisco, California)
with respect to PIMCO Emerging Markets Fund; The Jewish Federation of
Metropolitan Chicago (Chicago, Illinois) with respect to PIMCO Small-Cap
Growth Fund; The Bank of New York as Trustee for Melville Corporation (New
York, New York) with respect to PIMCO Core Equity Fund; and Pacific Life
Insurance Company (Newport Beach, California) with respect to PIMCO Mid-Cap
Equity Fund and PIMCO Enhanced Equity Fund. To the extent such shareholders
are also the beneficial owners of such securities, they may be deemed to
control (as that term is defined in the 1940 Act) the relevant Fund. As used
in this Prospectus, the phrase "vote of a majority of the outstanding shares"
of a Fund (or the Trust) means the vote of the lesser of: (1) 67% of the
shares of the Fund (or the Trust) present at a meeting, if the holders of more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the Fund (or the Trust).
62 PIMCO Funds Multi-Manager Series
<PAGE>
PERFORMANCE INFORMATION
From time to time the Trust may make available certain information about the
performance of the Institutional Class and Administrative Class shares of some
or all of the Funds. Information about a Fund's performance is based on that
Fund's (or its predecessor's) record to a recent date and is not intended to
indicate future performance. Performance information is computed separately
for each Fund's Institutional Class and Administrative Class shares in
accordance with the formulas described below. Because Administrative Class
shares bear the expense of service and/or distribution fees, it is expected
that, under normal circumstances, the level of performance of a Fund's
Administrative Class shares will be lower than that of the Fund's
Institutional Class shares.
The total return of Institutional Class and Administrative Class shares of
all Funds may be included in advertisements or other written material. When a
Fund's total return is advertised with respect to its Institutional Class and
Administrative Class 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 establishment of the Fund or its predecessor series of PIMCO
Advisors Funds, as more fully described in the Statement of Additional
Information. For periods prior to the initial offering date of Institutional
Class or Administrative Class shares, total return presentations for a class
will be based on the historical performance of an older class of the Fund (if
any) restated, as necessary, to reflect that there are no sales charges
associated with Institutional Class or Administrative Class shares. The older
class to be used in each case is set forth in the Statement of Additional
Information. For these purposes, the performance of the older class will also
be restated to reflect any different operating expenses (such as different
administrative fees and/or 12b-1/servicing fee charges) associated with the
newer class. In certain cases, such a restatement will result in Institutional
Class or Administrative Class performance which is higher than if the
performance of the older class were not restated to reflect the different
operating expenses of the newer class. In such cases, the Trust's
advertisements will also, to the extent appropriate, show the lower
performance figure reflecting the actual operating expenses incurred by the
older class for periods prior to the initial offering date of the newer class.
Total return for each class is measured by comparing the value of an
investment in the Fund at the beginning of the relevant period 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). Total return may be advertised using
alternative methods that reflect all elements of return, but that may be
adjusted to reflect the cumulative impact of alternative fee and expense
structures, such as the currently effective advisory and administrative 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 SEC) during a particular 30-day (or one-
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and will be computed by dividing net
investment income by the maximum public offering price per share on the last
day of the period.
The Funds may also provide current distribution information to their
shareholders in shareholder reports or other shareholder communications, or in
certain types of sales literature provided to prospective investors. Current
distribution information for a particular class of a Fund will be based on
distributions for a specified period (i.e., total dividends from net
investment income), divided by the relevant class net asset value per share on
the last day of the period and annualized. The rate of current distributions
does not reflect deductions for unrealized losses from transactions in
derivative instruments such as options and futures, which may reduce total
return. Current distribution rates differ from standardized yield rates in
that they represent what a class of a Fund has declared and paid to
shareholders as of the end of a specified period rather than the Fund's actual
net investment income for that period.
The Adviser 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
July 13, 1998 Prospectus 63
<PAGE>
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 Fund's investment
objectives and policies, characteristics and quality of the Funds, and the
market conditions during the time period indicated, and should not be
considered to be representative of what may be achieved in the future.
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. The Trust's Annual and Semi-Annual Reports
contain additional performance information for the Funds and are available
upon request, without charge, by calling (800) 927-4648 (Current
Shareholders), or (800) 800-0952 (New Accounts).
PERFORMANCE INFORMATION REGARDING COLUMBUS CIRCLE'S INTERNATIONAL ACCOUNTS
Columbus Circle, the Portfolio Manager of the International Growth Fund,
also advises other accounts that have investment objectives and policies that
are substantially similar to those of the International Growth Fund and are
managed by the same Columbus Circle personnel responsible for the management
of the International Growth Fund (these accounts, together with the
International Growth Fund, the "Columbus Circle International Accounts").
The following table sets forth average total return information for the
Columbus Circle International Accounts. The information has been adjusted to
give effect to the level of expenses that will be borne by Institutional Class
and Administrative Class shareholders of the International Growth Fund. With
the exception of the International Growth Fund, the Columbus Circle
International Accounts are not registered under the 1940 Act and, therefore,
are not subject to certain investment restrictions imposed by the 1940 Act. If
such accounts had been registered under the 1940 Act, their performance might
have been adversely effected. As of June 30, 1998, the Columbus Circle
International Accounts had approximately $225.5 million in assets under
management.
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
(INSTITUTIONAL (ADMINISTRATIVE
PERIOD CLASS*) CLASS**)
- ------ -------------- ---------------
<S> <C> <C>
Quarter ended 9/30/96... 2.07% 2.01%
Quarter ended 12/31/96.. 8.45% 8.39%
Quarter ended 3/31/97... 9.15% 9.08%
Quarter ended 6/30/97... 21.84% 21.77%
Quarter ended 9/30/97... 14.58% 14.52%
Quarter ended 12/31/97.. (6.92)% (6.98)%
Quarter ended 3/31/98... 21.33% 21.26%
Quarter ended 6/30/98... 10.83% 10.76%
Year ended 6/30/98...... 43.42% 43.07%
Inception (7/1/96)
through 6/30/98
(Annualized)........... 45.30% 44.95%
</TABLE>
- --------
*Adjusted to reflect the expense levels of the Institutional Class shares of
the International Growth Fund.
**Adjusted to reflect the expense levels of the Administrative Class shares of
the International Growth Fund.
THE INFORMATION SET FORTH ABOVE REPRESENTS THE PERFORMANCE OF THE
INTERNATIONAL GROWTH FUND AND ALL SIMILAR INTERNATIONAL ACCOUNTS ADVISED BY
COLUMBUS CIRCLE. THE INTERNATIONAL GROWTH FUND COMMENCED OPERATIONS IN JANUARY
1998 AND THE PERFORMANCE INFORMATION SET FORTH ABOVE FOR PERIODS PRIOR TO
FEBRUARY 1, 1998 DOES NOT INCLUDE ANY PERFORMANCE OF THE FUND. FROM INCEPTION
THROUGH JUNE 30, 1998, THE TOTAL RETURN PERFORMANCE OF INSTITUTIONAL CLASS
SHARES OF THE INTERNATIONAL GROWTH FUND WAS 35.50% (THIS FIGURE IS NOT
ANNUALIZED). THE FUND HAD NO ADMINISTRATIVE CLASS SHARES OUTSTANDING THROUGH
JUNE 30, 1998. THE INFORMATION IN THE TABLE ABOVE SHOULD NOT BE CONSIDERED TO
REPRESENT THE PAST PERFORMANCE OF THE INTERNATIONAL GROWTH FUND OR A
PREDICTION OF THE FUTURE PERFORMANCE OF THE FUND. THE FUND'S PERFORMANCE MAY
DIFFER FROM ANY FUND OR ACCOUNT WHICH HAS SUBSTANTIALLY SIMILAR INVESTMENT
OBJECTIVES AND POLICIES AND, ACCORDINGLY, MAY BE HIGHER OR LOWER THAN THE
PERFORMANCE SHOWN ABOVE.
64 PIMCO Funds Multi-Manager Series
<PAGE>
[LOGO OF PIMCO FUNDS APPEARS HERE]
Multi-Manager Series
INVESTMENT ADVISER AND ADMINISTRATOR
PIMCO Advisors L.P.
800 Newport Center Drive
Newport Beach, CA 92660
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, MO 64105
ACCOUNTANTS
PricewaterhouseCoopers LLP (formerly, Price Waterhouse LLP)
1055 Broadway
Kansas City, MO 64105
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
PROSPECTUS
- --------------------------------------------------------------------------------
July 13, 1998
<PAGE>
PIMCO Funds Prospectus
Multi-Manager STOCK FUNDS
Series: Class Equity Income Fund
D Shares Value Fund
July 13, 1998 Renaissance Fund
Tax-Efficient Equity Fund
Capital Appreciation Fund
Mid-Cap Growth Fund
SPECIALIZED STOCK FUNDS
Innovation Fund
P I M C O
FUNDS Access to the highest standard
<PAGE>
PIMCO Funds: Multi-Manager Series
Prospectus
July 13, 1998
PIMCO Funds: Multi-Manager Series (the "Trust") is an open-end se-
ries management investment company offering seven separate diver-
sified investment portfolios (each a "Fund") in this Prospectus,
each with different investment objectives and strategies. The ad-
dress of PIMCO Funds: Multi-Manager Series is 840 Newport Center
Drive, Suite 360, Newport Beach, CA 92660.
Each Fund offers Class D shares in this Prospectus. Through sepa-
rate prospectuses, certain Funds and other series of the Trust of-
fer up to five additional classes of shares, Class A, Class B,
Class C, Institutional Class and Administrative Class shares. See
"Description of the Trust--Multiple Classes of Shares."
This Prospectus concisely describes the information investors
should know before investing in Class D shares of the Funds.
Please read this Prospectus carefully and keep it for further ref-
erence. 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 re-
strictions applicable to each Fund, are set forth in this Prospec-
tus. 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.
Class D shares are offered only through financial service firms,
such as broker-dealers or registered investment advisers, with
which the Funds' distributor has an agreement for the use of the
Funds in particular investment products, programs or accounts for
which a fee may be charged. See "How to Buy Shares." If you wish
to purchase shares directly from the Trust or the Funds' distribu-
tor, please consider one of the other classes of shares. See "De-
scription of the Trust--Multiple Classes of Shares."
A Statement of Additional Information, dated July 13, 1998, as
amended or supplemented from time to time, is available free of
charge by writing to PIMCO Funds Distributors LLC (the "Distribu-
tor"), 2187 Atlantic Street, Stamford, Connecticut 06902, or by
telephoning 888-87-PIMCO. The Statement of Additional Information,
which contains more detailed information about the Trust, has been
filed with the Securities and Exchange Commission and is incorpo-
rated by reference in this Prospectus. The Securities and Exchange
Commission maintains an Internet World Wide Web site (at
http://www.sec.gov) which contains the Statement of Additional In-
formation, materials that are incorporated by reference into this
Prospectus and the Statement of Additional Information, and other
information about the Funds.
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, AND INVOLVE
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PIMCO Funds Overview..........................................................3
Schedule of Fees..............................................................4
Investment Objectives and Policies............................................5
Characteristics and Risks of Securities
and Investment Techniques....................................................8
Performance Information......................................................19
How to Buy Shares............................................................20
Exchange Privilege...........................................................21
How to Redeem................................................................21
Distributor..................................................................22
How Net Asset Value Is Determined............................................22
Distributions................................................................23
Taxes........................................................................23
Management of the Trust......................................................24
Description of the Trust.....................................................29
</TABLE>
2 PIMCO Funds: Multi-Manager Series
<PAGE>
PIMCO Funds Overview
PIMCO Advisors L.P. ("PIMCO Advisors" or the "Advisor") is the in-
vestment advisor of all the Funds. PIMCO Advisors is one of the
largest investment management firms in the U.S. As of May 31,
1998, PIMCO Advisors and its subsidiary partnerships had approxi-
mately $223.2 billion in assets under management. Each of the
Funds also has a sub-advisor (each a "Portfolio Manager") respon-
sible for portfolio investment decisions. All of the Funds' Port-
folio Managers are affiliates of PIMCO Advisors and are listed be-
low.
<TABLE>
<CAPTION>
INVESTMENT SPECIALTY
---------------------------------------------------------------------------------
<S> <C>
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
------------------------------------------------------
COLUMBUS CIRCLE Stocks, using its "Positive Momentum & Positive
INVESTORS ("Columbus Surprise" discipline
Circle")
------------------------------------------------------
PARAMETRIC PORTFOLIO Stocks, using quantitatively-driven fundamental
ASSOCIATES ("Parametric") analysis and economic methods, with a specialty in
tax-efficient products
</TABLE>
<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVE PRIMARY INVESTMENTS (/1/) PORTFOLIO MANAGER
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FUND STOCK FUNDS Equity Current income as a Common stocks with below- NFJ
PROFILES 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
-------------------------------------------------------------------------------------
Value Long-term growth of Common stocks with below- NFJ
capital and income average price to earnings
ratios relative to their
industry groups
-------------------------------------------------------------------------------------
Renaissance Long-term growth of Common stocks with below- Columbus Circle
capital and income average valuations that
have improving business
fundamentals
-------------------------------------------------------------------------------------
Tax-Efficient Maximum after-tax growth A broadly diversified Parametric
Equity of capital portfolio of at least 250
common stocks of companies
with larger market
capitalizations
-------------------------------------------------------------------------------------
Capital Growth of capital Common stocks of companies Cadence
Appreciation with market
capitalizations of at
least $1 billion that have
improving fundamentals and
whose stock is reasonably
valued by the market
-------------------------------------------------------------------------------------
Mid-Cap Growth of capital Common stocks of companies Cadence
Growth with market
capitalizations in excess
of $500 million that have
improving fundamentals and
whose stock is reasonably
valued by the market
------------------------------------------------------------------------------------------------
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)
</TABLE>
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.
July 13, 1998 Prospectus 3
<PAGE>
Schedule of Fees
<TABLE>
<CAPTION>
ALL FUNDS--CLASS D SHARES
---------------------------------------------------------------
<S> <C>
SHAREHOLDER MAXIMUM INITIAL SALES CHARGE IMPOSED ON PURCHASES
TRANSACTION (as a percentage of offering price at time of purchase) None
EXPENSES ---------------------------------------------------------------
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS
(as a percentage of net asset value at time of purchase) None
---------------------------------------------------------------
MAXIMUM DEFERRED SALES CHARGE
(as a percentage of original purchase price) None
---------------------------------------------------------------
EXCHANGE FEE None
</TABLE>
<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) with or
(As a percentage of average net without redemption at the end
assets): of each time period:
TOTAL
ADMINI- 12B-1 FUND
ADVISORY STRATIVE (SERVICE) OPERATING YEAR
FUND FEES FEES(/1/) FEES(/1/) EXPENSES 1 3 5 10
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY INCOME .45% .40% .25% 1.10% $11 $35 $61 $134
----------------------------------------------------------------------------------------------
VALUE .45 .40 .25 1.10 11 35 61 134
----------------------------------------------------------------------------------------------
RENAISSANCE .60 .40 .25 1.25 13 40 69 151
----------------------------------------------------------------------------------------------
TAX-EFFICIENT EQUITY .45 .40 .25 1.10 11 35 -- --
----------------------------------------------------------------------------------------------
CAPITAL APPRECIATION .45 .40 .25 1.10 11 35 61 134
----------------------------------------------------------------------------------------------
MID-CAP GROWTH .45 .40 .25 1.10 11 35 61 134
----------------------------------------------------------------------------------------------
INNOVATION .65 .40 .25 1.30 13 41 71 157
</TABLE>
1. The Funds' administration agreement includes a plan for Class D
shares that has been adopted in conformity with the requirements
set forth in Rule 12b-1 under the Investment Company Act of 1940.
The plan provides that up to .25% per annum of the total fees paid
under the administration agreement may represent reimbursement for
expenses in respect of activities ("subject activities") that may
be deemed to be primarily intended to result in the sale of Class
D shares. Each Fund will pay a total of .65% per annum under the
administration agreement regardless of whether a portion or none
of the .25% authorized under the plan is paid for subject servic-
es. To the extent that any payments are deemed to be made pursuant
to the plan, the Funds intend to treat such payments as "service
fees" for purposes of applicable rules of the National Association
of Securities Dealers, Inc. (the "NASD"). See "Management of the
Trust--Fund Administrator." To the extent that such payments for
subject activities are deemed not to be "service fees," Class D
shareholders 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 NASD.
The purpose of the foregoing tables is to assist investors in un-
derstanding the various costs and expenses of the Trust that are
borne directly or indirectly by Class D shareholders of the Funds.
The information is based upon each Fund's current fees and ex-
penses.
NOTE: THE FIGURES SHOWN IN THE EXAMPLE ARE ENTIRELY HYPOTHETICAL.
THEY ARE NOT REPRESENTATIONS OF PAST OR FUTURE PERFORMANCE OR EX-
PENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS
THAN SHOWN.
4 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. Specific portfolio
securities eligible for purchase by the Funds, investment tech-
niques that may be used by the Funds, and the risks associated
with these securities and techniques are described more fully un-
der "Characteristics and Risks of Securities and Investment Tech-
niques" in this Prospectus and "Investment Objectives and Poli-
cies" in the Statement of Additional Information.
FUND EQUITY INCOME FUND seeks current income as a primary investment
DESCRIP- objective, and long-term growth of capital as a secondary objec-
TIONS 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. The Portfolio Manager for the
Equity Income Fund is NFJ.
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 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 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. The Portfolio Manager for the Value Fund is
NFJ.
RENAISSANCE FUND seeks long-term growth of capital and income. The
Fund invests primarily in common stocks having below-average valu-
ations whose issuers are experiencing improvements in their busi-
ness fundamentals. Relative valuation is determined using a multi-
factor approach that examines characteristics such as price to
book, price to earnings and price to cash flow ratios. Stocks
which pass the valuation screen are further analyzed to identify
the key drivers of financial results and catalysts for change
which indicate that a company may demonstrate improving fundamen-
tals in the future. Stocks which appear likely to exceed consensus
expectations are candidates for addition to the Fund's portfolio.
Stocks are sold from the Fund's portfolio when the Portfolio Man-
ager believes that their ability to exceed investor expectations
has diminished or when their valuations have become excessive.
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. securities.
For a discussion of such risks, see "Characteristics and Risks of
Securities and Investment Techniques--Foreign Securities." 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. The Portfolio Man-
ager for the Renaissance Fund is Columbus Circle.
July 13, 1998 Prospectus 5
<PAGE>
TAX-EFFICIENT EQUITY FUND seeks maximum after-tax growth of capi-
tal. The Fund attempts to provide a total return which exceeds the
return of the Standard & Poor's 500 Composite Stock Price Index
(the "S&P 500"). In addition, the Fund seeks to achieve superior
after-tax returns for its shareholders in part by minimizing the
taxes they incur in connection with the Fund's investment income
and realized capital gains by using the strategies described be-
low. Notwithstanding these strategies, the Fund may have taxable
investment income and may realize taxable gains from time to time.
The Fund invests primarily in a broadly diversified portfolio
of at least 250 common stocks of companies with larger market cap-
italizations. In selecting specific securities, the Portfolio Man-
ager uses a proprietary quantitative model that ranks companies
based on long-term (5-10 years) price appreciation potential
through analysis of such factors as growth of sustainable earnings
and dividend behavior. Securities in the top 50% of the model's
ranking are considered for purchase. The Portfolio Manager's sell
discipline incorporates a focus on reducing the realization of
capital gains. Each sell candidate is evaluated based on its cost,
current market value, and anticipated benefit of replacement. Se-
curities in the bottom 20% of the model's ranking are considered
for sale. The Fund may engage in the purchase and writing of op-
tions on securities indexes and may also invest in stock index
futures contracts and options thereon.
The Portfolio Manager utilizes a range of active tax management
techniques to minimize taxable distributions, including: low port-
folio turnover; emphasis towards low-dividend, growth-oriented
companies; tax lot accounting (identification of specific shares
of securities being sold that have the lowest tax cost); and regu-
lar rebalancing to capture available tax credits. The Fund will
generally seek to avoid realizing net short-term capital gains
and, when realizing gains, will attempt to realize long-term gains
(i.e., gains on securities held for more than 12 months) in such a
manner as to maximize the net gains from securities held for more
than 18 months. The Fund intends to notify each shareholder as to
that portion of his or her capital gain dividends which qualifies
for a maximum tax rate of 28% in the hands of the shareholder and
the balance, if any, of such capital gain dividends eligible for a
maximum tax rate of 20%. Net short-term capital gains, when dis-
tributed, will be taxed as ordinary income, at graduated rates of
up to 39.6%. When the Fund decides to sell a particular appreci-
ated security, it will normally select for sale first those share
lots with holding periods exceeding 18 or 12 months and among
those, the share lots with the highest cost basis. The Fund may,
when prudent, sell securities to realize capital losses that can
be used to offset realized capital gains.
To protect against price declines in securities holdings with
large accumulated capital gains, the Fund may, to the extent per-
mitted by law, use hedging techniques such as the purchase of put
options, the sale of stock index futures contracts and equity
swaps. By using these techniques rather than selling such securi-
ties, the Fund can reduce its exposure to price declines in the
securities without realizing substantial capital gains. In limited
circumstances, the Fund may follow the practice of distributing
selected appreciated securities to meet redemptions of certain in-
vestors and may, within certain limits, use the selection of secu-
rities distributed to meet such redemptions as a management tool.
By distributing appreciated securities the Fund can reduce its po-
sition in such securities without realizing capital gains. During
periods of net withdrawals by investors, using distributions of
securities could enable the Fund to avoid the forced sale of secu-
rities to raise cash for meeting redemptions.
It is expected that by employing the various tax-efficient man-
agement strategies described above, the Fund can minimize the ex-
tent to which shareholders incur taxes as a result of realized
capital gains. The Fund may nevertheless realize gains and share-
holders will incur tax liability from time to time. The Portfolio
Manager for the Tax-Efficient Equity Fund is Parametric.
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 $1 billion 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
6 PIMCO Funds: Multi-Manager Series
<PAGE>
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 sur-
prise screen. The Portfolio Manager believes that the models iden-
tify 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 relative price performance. The universe is
rescreened frequently to obtain a favorable composition of growth
and value characteristics for the entire Fund. The Portfolio Man-
ager for the Capital Appreciation Fund is Cadence.
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 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. The Portfolio Manager for the Mid-Cap Growth
Fund is Cadence.
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.
For a discussion of such risks, see "Characteristics and Risks of
Securities and Investment Techniques--Foreign Securities." 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. The Portfolio Man-
ager for the Innovation Fund is Columbus Circle.
STOCK The Equity Income, Value, Tax-Efficient Equity, Capital Apprecia-
INVESTMENTS tion and Mid-Cap Growth Funds will each invest primarily (normally
at least 65% of its assets) in common stock. Each of these Funds
may maintain a portion of its assets, which will usually not ex-
ceed 10%, in U.S. Government securities, high quality debt securi-
ties (whose maturity or remaining maturity will not exceed five
years), money market obligations, and in cash to provide for pay-
ment 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 pos-
ture (although these Funds may invest in such securities to pro-
vide for payment of expenses and to meet redemption requests). Ac-
cordingly, investors in these Funds bear the risk of general de-
clines 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 convertible securities, preferred
stocks, and warrants, subject to certain limitations.
July 13, 1998 Prospectus 7
<PAGE>
The Renaissance and Innovation Funds will invest primarily
(normally at least 65% of its assets) in common stocks, and may
also invest in other equity securities, including preferred stocks
and securities (including debt securities and warrants) convert-
ible into or exercisable for common stocks. Each of these Funds
may invest a portion of its assets in debt securities and, for
temporary defensive purposes, up to 100% of its assets in short-
term U.S. Government securities and other money market instru-
ments.
One or more of the Funds may temporarily not be invested pri-
marily in equity securities immediately following the commencement
of operations or after receipt of significant new monies. While
attempting to identify suitable investments, the Funds may hold
assets in cash, short-term U.S. Government Securities and other
money market instruments. Any of the Funds may temporarily not
contain the number of securities in which it 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 Funds may also lend portfolio securities; enter into repur-
chase 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 Funds
may invest in American Depository Receipts ("ADRs"). For more in-
formation 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 Addi-
tional 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. There-
fore, investors should carefully consider the investment objec-
tive, investment policies and potential risks of any Fund or Funds
before investing.
The following describes potential risks associated with differ-
ent types of investment techniques that may be used by the indi-
vidual 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 Certain of the Funds may invest in common stock of companies with
IN market capitalizations that are small compared to other publicly
COMPANIES traded companies. Generally, small market capitalization is con-
WITH SMALL sidered to be less than $1.5 billion and large market capitaliza-
AND MEDIUM tion is considered to be more than $5 billion. Investments in
MARKET larger companies present certain advantages in that such companies
CAPITALIZ- generally have greater financial resources, more extensive re-
ATIONS search and development, manufacturing, marketing and service capa-
bilities, and more stability and greater depth of management and
technical personnel. Investments in smaller, less seasoned compa-
nies may present greater opportunities for growth but also may in-
volve greater risks than customarily are associated with more es-
tablished companies. The securities of smaller companies may be
subject to more abrupt or erratic market movements than larger,
more established companies. These companies may have limited prod-
uct lines, markets or financial resources, or they may be depen-
dent upon a limited management group. Their securities may be
traded in the over-the-counter market or on a regional exchange,
or may otherwise have limited liquidity. As a result of owning
large positions in this type of security, a Fund is subject to the
additional risk of possibly having to sell portfolio securities at
disadvantageous times and prices if redemptions require the Fund
to liquidate its securities positions. In addition, it may be pru-
dent for a Fund with a
8 PIMCO Funds: Multi-Manager Series
<PAGE>
relatively large asset size to limit the number of relatively
small positions it holds in securities having limited liquidity in
order to minimize its exposure to such risks, to minimize transac-
tion costs, and to maximize the benefits of research. As a conse-
quence, as a Fund's asset size increases, the Fund may reduce its
exposure to illiquid small capitalization securities, which could
adversely affect performance.
Many of the Funds may also invest in stocks of companies with
medium market capitalizations. Whether a U.S. issuer's market cap-
italization is medium is determined by reference to the capital-
ization 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 Renaissance and Innovation Funds may invest up to 15% of their
SECURITIES respective assets in securities which are traded principally in
securities markets outside the United States (Eurodollar certifi-
cates 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. Each of the Funds may invest in ADRs.
ADRs are dollar denominated receipts issued generally by domestic
banks and representing the deposit with the bank of a security of
a foreign issuer, and are publicly traded on exchanges or over-
the-counter in the United States.
Investing in the securities of issuers in any foreign country
involves special risks and considerations not typically associated
with investing in U.S. companies. Shareholders should consider
carefully the substantial risks involved in investing in 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. Individual foreign economies may differ favorably or unfa-
vorably from the U.S. economy in such respects as growth of gross
domestic product, rate of inflation, capital reinvestment, re-
sources, self-sufficiency, and balance of payments position. The
securities markets, values of securities, yields, and risks asso-
ciated with securities markets may change independently of each
other. 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 higher custodial fees than apply to domestic cus-
todial arrangements and transaction costs of foreign currency con-
versions. 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.
To the extent that the Renaissance and Innovation Funds invest
in foreign securities, these Funds 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 countries. A number of emerging market coun-
tries restrict, to varying degrees, foreign investment in securi-
ties. Repatriation of investment income, capital, and the proceeds
of sales by foreign investors may require governmental registra-
tion 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
July 13, 1998 Prospectus 9
<PAGE>
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 ef-
fects on the economies and securities markets of certain emerging
market countries. Many of the emerging securities markets are rel-
atively small, have low trading volumes, suffer periods of rela-
tive illiquidity, and are characterized by significant price vola-
tility. There is a risk in emerging market countries that a future
economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, sei-
zure, nationalization, or creation of government 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. Also, any change in the leadership or policies of
emerging market countries, or the countries that exercise a sig-
nificant influence over those countries, may halt the expansion of
or reverse the liberalization of foreign investment policies now
occurring and adversely affect existing investment opportunities.
In addition, emerging securities markets may have different
clearance and settlement procedures, which may be unable to keep
pace with the volume of securities transactions or otherwise make
it difficult to engage in such transactions. Settlement problems
may cause a Fund to miss attractive investment opportunities, hold
a portion of its assets in cash pending investment, or delay in
disposing of a portfolio security. Such a delay could result in
possible liability to a purchaser of the security.
FOREIGN Foreign currency exchange rates may fluctuate significantly over
CURRENCY short periods of time. They generally are determined by the forces
TRANS- of supply and demand in the foreign exchange markets and the rela-
ACTIONS 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. For example, significant uncertainty surrounds the pro-
posed introduction of the euro (a common currency unit for the Eu-
ropean Union) in January 1999 and its effect on the value of secu-
rities denominated in local European currencies. These and other
currencies in which the Funds' assets are denominated may be de-
valued against the U.S. dollar, resulting in a loss to the Funds.
The Renaissance and Innovation Funds may enter into forward
foreign currency exchange contracts to reduce the risks of adverse
changes in foreign exchange rates. 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 for-
eign 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 ex-
posure 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 for-
eign currency would limit any potential gain which might be real-
ized 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.
10 PIMCO Funds: Multi-Manager Series
<PAGE>
Such hedging transactions may not be successful and may eliminate
any chance for a Fund to benefit from favorable fluctuations in
relevant foreign currencies.
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 obligations") or foreign
branches of U.S. banks ("Eurodollar obligations");
(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, deter-
mined to be of comparable quality by the Advisor or a Port-
folio Manager;
(4) corporate obligations with a remaining maturity of 397 days
or less whose issuers have outstanding short-term debt ob-
ligations rated in the highest rating category by at least
two NRSROs, or, if rated by only one NRSRO, in such
agency's highest grade, or, if unrated, determined to be of
comparable quality by the Advisor or a Portfolio Manager;
and
(5) repurchase agreements with domestic commercial banks or reg-
istered broker-dealers.
MORTGAGE- The Renaissance and Innovation Funds may invest in mortgage-re-
RELATEDAND lated securities, and in other asset-backed securities (unrelated
OTHERASSET- to mortgage loans) that are offered to investors currently or in
BACKED the future. The value of some mortgage-related or asset-backed se-
SECURITIES curities in which the Funds invest may be particularly sensitive
to changes in prevailing interest rates, and, like other fixed in-
come investments, the ability of a Fund to successfully utilize
these instruments may depend in part upon the ability of the Port-
folio Manager to forecast interest rates and other economic fac-
tors 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 foreclosure, net of fees and costs which may
be incurred) may expose a Fund to a lower rate of return upon re-
investment of principal. Also, if a security subject to prepayment
has been purchased at a premium, the value of the premium would be
lost in the event of prepayment. Like other fixed income securi-
ties, when interest rates rise, the value of a mortgage-related
security generally will decline; however, when interest rates are
declining, the value of mortgage-related securities with prepay-
ment features may not increase as much as other fixed income secu-
rities. The rate of prepayments on underlying mortgages will af-
fect the price and volatility of a mortgage-related security, and
may have the effect of shortening or extending the effective matu-
rity of the security beyond what was anticipated at the time of
purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mort-
gage-related security, the volatility of such security can be ex-
pected 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
July 13, 1998 Prospectus 11
<PAGE>
non-governmental issuers (such as commercial banks, savings and
loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers) may be supported by
various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit,
which may be issued by governmental entities, private insurers or
the mortgage poolers.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") are hybrid mortgage-
related instruments. Similar to a bond, interest and pre-paid
principal on a CMO are paid, in most cases, on a monthly basis.
CMOs may be collateralized by whole mortgage loans but are more
typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured
into multiple classes, with each class bearing a different stated
maturity. Monthly payments of principal, including prepayments,
are first returned to investors holding the shortest maturity
class; investors holding the longer maturity classes receive 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 a Fund, while other CMOs, even if collateralized by U.S.
Government securities, will have the same status as other pri-
vately issued securities for purposes of applying a Fund's diver-
sification 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 all of the principal (the prin-
cipal-only, or "PO" class). The yield to maturity on an IO class
is extremely sensitive to the rate of principal payments (includ-
ing prepayments) on the related underlying mortgage assets, and a
rapid rate of principal payments may have a material adverse ef-
fect on a Fund's yield to maturity from these securities. For a
discussion of the characteristics of some of these instruments,
see the Statement of Additional Information.
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.
12 PIMCO Funds: Multi-Manager Series
<PAGE>
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 Fund may invest a portion of its assets in fixed
HIGH YIELD income securities rated lower than Baa by Moody's or lower than
SECURITIES BBB by S&P but rated at least B by Moody's or S&P or, if not rat-
("JUNK ed, determined by the Portfolio Manager to be of comparable quali-
BONDS") ty. In addition, the Renaissance Fund may invest in convertible
securities rated below B by Moody's or S&P (or, if unrated, con-
sidered by the Portfolio Manager to be of comparable quality). Se-
curities rated lower than Baa by Moody's or lower than BBB by S&P
are sometimes referred to as "high yield" or "junk" bonds. Invest-
ors should consider the risks associated with high yield securi-
ties 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 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 ex-
tent 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 se-
curities. 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 portfolio of the Renaissance Fund invested in high
yield securities during the fiscal year ended June 30, 1997. The
numerical rating designations correspond to the associated rating
categories. The designation "1st" corresponds to the top rating
category (i.e., Aaa by Moody's and/or AAA by S&P), "2nd" corre-
sponds 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 catego-
ries, see the Appendix to the Statement of Additional Information.
The columns related to unrated securities present the percentage
of the Fund's total net assets invested during such fiscal year
(1) in unrated high yield securities believed by the Advisor or
the 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>
Renaissance* -- 1.08% 4.13% 1.55% 4.01% 3.67% -- -- -- --
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* -- -- -- -- -- 6.41% -- -- -- -- 6.41%
</TABLE>
*Represents holdings of the Renaissance Fund for the period of Oc-
tober 1, 1996 through June 30, 1997. Although the Fund reserves
the right to do so at any time, as of the date of this Prospectus,
it does not invest or have the present intention to invest 5% or
more of its assets in high yield securities.
July 13, 1998 Prospectus 13
<PAGE>
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 To the extent permitted by the investment objective and policies
INSTRUMENTS of each Fund, a Fund may purchase and write call and put options
on securities, securities indexes and foreign currencies, and en-
ter into futures contracts and use options on futures contracts as
further described below. In pursuit of their investment objec-
tives, the Renaissance, Tax-Efficient Equity and Innovation Funds
may engage in the purchase and writing of call and put options on
securities and securities indexes and enter into futures contracts
and options thereon, including securities index futures contracts
and options thereon. The Funds that may invest in foreign-currency
denominated securities may engage in the purchase and writing of
call and put options on foreign currencies. The Funds may use
these techniques to hedge against changes in interest rates, for-
eign currency exchange rates or securities prices. 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 established by the Board of Trustees (or, as permitted
by applicable regulation, enter into certain offsetting positions)
to cover its obligations under options and futures to limit
leveraging of the Fund.
Derivative instruments are considered for these purposes to
consist of securities or other instruments whose value is derived
from or related to the value of some other instrument or asset,
and not to include those securities whose payment of principal
and/or interest depend upon cash flows from underlying assets,
such as mortgage-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 other-
wise, due to the possible inability of a Fund to purchase or sell
a portfolio security at a time that would be favorable or the pos-
sible need to sell a portfolio security at a disadvantageous time
because the Fund is required to maintain asset coverage or offset-
ting positions in connection with transactions in derivative in-
struments, and the possible inability of a Fund to close out or to
liquidate its derivatives positions.
OPTIONS ON SECURITIES, SECURITIES INDEXES AND CURRENCIES Certain
Funds may purchase put options on securities. One purpose of pur-
chasing put options is to protect holdings in an underlying or re-
lated security against a substantial decline in market value.
These Funds may also purchase call options on securities. One pur-
pose of purchasing call options is to protect against substantial
increases in prices of securities the Fund intends to purchase
pending its ability to invest in such securities in an orderly
manner. A Fund may sell put or call options it has previously pur-
chased, which could result in a net gain or loss depending on
whether the amount realized on the sale is more or less than the
premium and other transaction costs paid on the put or call option
which is sold. A Fund may write a call or put option only if the
option is "covered" by the Fund holding a position in the under-
lying securities or by other means which would permit immediate
satisfaction of the Fund's obligation as writer of the option.
Prior to exercise or expiration, an option may be closed out by an
offsetting purchase or sale of an option of the same series.
14 PIMCO Funds: Multi-Manager Series
<PAGE>
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.
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 and Innovation 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.
Over-the-counter options in which certain Funds may invest dif-
fer 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 cer-
tain written over-the-counter options.
SWAP AGREEMENTS The Tax-Efficient Equity Fund may enter into eq-
uity index swap agreements for purposes of gaining exposure to the
stocks making up an index of securities without actually purchas-
ing those stocks. 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 Fund calculate the ob-
ligations of the parties to the agreement on a "net basis." Conse-
quently, the 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"). The 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 the Fund's investment restric-
tion concerning senior securities. The 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 the 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, the 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 Fund 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
July 13, 1998 Prospectus 15
<PAGE>
of the Fund's repurchase agreement guidelines). Certain restric-
tions imposed on the Fund by the Internal Revenue Code may limit
the Fund's 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 govern-
ment regulation, could adversely affect the Fund's ability to ter-
minate existing swap agreements or to realize amounts to be re-
ceived under such agreements.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS Certain Funds
may enter into futures contracts and options thereon. These Funds
may engage in such futures transactions as an adjunct to their se-
curities 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.
INDEX FUTURES The Renaissance, Tax-Efficient Equity and Innovation
Funds may purchase and sell futures contracts on various securi-
ties indexes ("Index Futures") and related options for hedging
purposes and for investment purposes. A Fund's purchase and sale
of Index Futures is limited to contracts and exchanges which have
been approved by the Commodity Futures Trading Commission
("CFTC").
A Fund may close open positions on the futures exchanges on
which Index Futures are traded at any time up to and including the
expiration day. All positions which remain open at the close of
the last business day of the contract's life are required to set-
tle on the next business day (based upon the value of the relevant
index on the expiration day), with settlement made with the appro-
priate clearing house. Because the specific procedures for trading
foreign stock Index Futures on futures exchanges are still under
development, additional or different margin requirements as well
as settlement procedures may be applicable to foreign stock Index
Futures at the time a Fund purchases such instruments.
Positions in Index Futures may be closed out by a Fund only on
the futures exchange upon which the Index Futures are then traded.
There can be no assurance that a liquid market will exist for any
particular contract at any particular time. Also, the price of In-
dex Futures may not correlate perfectly with movement in the rele-
vant index due to certain market distortions. First, all partici-
pants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close future contracts through
offsetting transactions which could distort the normal relation-
ship between the index and futures markets. Second, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market, and as a result, the
futures market may attract more speculators than does the securi-
ties market. Increased participation by speculators in the futures
market may also cause temporary price distortions. In addition,
trading hours for foreign stock Index Futures may not correspond
perfectly to hours of trading on the foreign exchange to which a
particular foreign stock Index Future relates. This may result in
a disparity between the price of Index Futures and the value of
the relevant index due to the lack of continuous arbitrage between
the Index Futures price and the value of the underlying index.
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 CFTC, or,
with respect to positions in financial futures and related options
that do not
16 PIMCO Funds: Multi-Manager Series
<PAGE>
qualify as "bona fide hedging" positions, will enter such posi-
tions 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.
LOANS OF For the purpose of achieving income, each Fund may lend its port-
PORTFOLIO folio securities to brokers, dealers, and other financial institu-
SECURITIES tions, provided:
(i) the loan is secured continuously by collateral consisting
of U.S. Government securities, cash or cash equivalents
(negotiable certificates of deposit, bankers' acceptances
or letters of credit) maintained on a daily mark-to-market
basis in an amount at least equal to the current market
value of the securities loaned;
(ii) the Fund may at any time call the loan and obtain the
return of the securities loaned;
(iii) the Fund will receive any interest or dividends paid on
the loaned securities; and
(iv) the aggregate market value of securities loaned will not at
any time exceed 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 interest, through investment of cash collateral by the
Fund in permissible investments, or a fee, if the collateral is
U.S. Government securities. Securities lending involves the risk
of loss of rights in the collateral or delay in recovery of 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. For these
purposes, a Fund may also hold or have the right to acquire secu-
rities which, without the payment of any further consideration,
are convertible into or exchangeable for the securities sold
short. Short sales expose the Fund to the risk that it will be re-
quired to acquire, convert or exchange securities to cover its
short position at a time when the securities sold short have ap-
preciated 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,
TRANS- which risk is in addition to the risk of decline in the value of
ACTIONS the Fund's other assets. Typically, no income accrues on securi-
ties a Fund has committed to purchase prior to the time delivery
of the securities is made, although a Fund may earn income on se-
curities it has deposited in a segregated account.
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
July 13, 1998 Prospectus 17
<PAGE>
with procedures established by the Board of Trustees to cover its
obligations under reverse repurchase agreements. Reverse repur-
chase agreements will be subject to the Funds' limitations on
borrowings. A Fund also may borrow money for investment purposes
subject to any policies of the Fund currently described in this
Prospectus or in the Statement of Additional Information. 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 in-
crease or decrease in the value of a Fund's portfolio 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. See
"Management of the Trust--Portfolio Transactions." Such sales may
result in realization of taxable capital gains. See "Taxes." The
Portfolio turnover rates for the Funds (with the exception of the
Tax-Efficient Equity Fund) were as follows for the 1997 and 1996
fiscal years, respectively: Equity Income--45% and 52%; Value--71%
and 29%; Renaissance--131% and 203%; Capital Appreciation--87% and
73%; Mid-Cap Growth--82% and 79%; and Innovation-- 80% and 123%.
The annual portfolio turnover rate for the Tax-Efficient Equity
Fund is expected to be less than 40%.
ILLIQUID Each Fund may invest in securities that are illiquid so long as no
SECURITIES more than 15% of the value of the Fund's net assets (taken at mar-
ket value at the time of investment) would be invested in such se-
curities. 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 signifi-
cant delays in disposing of illiquid securities, and transactions
in illiquid securities may entail registration expenses and other
transaction costs that are higher than those for 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 in-
clude, among other things, written over-the-counter options, secu-
rities or other liquid assets being used as cover for such op-
tions, 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 pen-
alties 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
which legally or in the Advisor's or a Portfolio Manager's opinion
may be deemed illiquid (not including securities issued pursuant
to Rule 144A under the Securities Act of 1933 and certain commer-
cial paper that the Advisor or a Portfolio Manager has determined
to be liquid under procedures approved by the Board of Trustees).
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 secu-
rities generally decline. Credit risk relates to the ability of
the issuer to make payments of principal and interest.
SERVICE Many of the services provided to the Funds depend on the smooth
SYSTEMS -- functioning of computer systems. Many systems in use today cannot
YEAR 2000 distinguish between the year 1900 and the year 2000. Should any of
PROBLEM the service systems fail to process information properly, that
could have an adverse impact on the Funds' operations and services
provided to shareholders. The Advisor, Distributor, Shareholder
Servicing and Transfer Agent, Custodian, and certain other service
providers to the Funds have reported that each is working toward
mitigating the risks associated with the so-called "year 2000
problem." However, there can be no assurance that the problem will
be corrected in all respects and that the Funds' operations and
services provided to shareholders will not be adversely effected.
18 PIMCO Funds: Multi-Manager Series
<PAGE>
"FUNDA- The investment objective of each of the Renaissance, Tax-Efficient
MENTAL" Equity and Innovation Funds described in this Prospectus may be
POLICIES 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 share-
holder 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 D shares of some or all of the
Funds. Information about a Fund's performance is based on that
Fund's (or its predecessor's) record to a recent date and is not
intended to indicate future performance.
The total return of Class D shares of all Funds may be included
in advertisements or other written material. When a Fund's total
return is advertised with respect to its Class D 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 establishment of the Fund or its predecessor series of
PIMCO Advisors Funds, as more fully described in the Statement of
Additional Information. For periods prior to the initial offering
date of Class D shares, total return presentations for the class
will be based on the historical performance of an older class of
the Fund (if any) restated, as necessary, to reflect that there
are no sales charges associated with Class D shares. The older
class to be used in each case is set forth in the Statement of Ad-
ditional Information. For these purposes, the performance of the
older class will also be restated to reflect any different operat-
ing expenses (such as different administrative fees and/or 12b-
1/servicing fee charges) associated with Class D shares. In cer-
tain cases, such a restatement will result in Class D performance
which is higher than if the performance of the older class were
not restated to reflect the different Class D operating expenses.
In such cases, the Trust's advertisements will also, to the extent
appropriate, show the lower performance figure reflecting the ac-
tual operating expenses incurred by the older class for periods
prior to the initial offering date of Class D shares. Total return
is measured by comparing the value of an investment in Class D
shares of the Fund at the beginning of the relevant period to the
redemption value of the investment in Class D shares of the Fund
at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions at net asset value). To-
tal return may be advertised using alternative methods that re-
flect all elements of return, but that may be adjusted to reflect
the cumulative impact of alternative fee and expense structures,
such as the currently effective advisory and administrative fees
for Class D shares of the Funds.
Quotations of yield for Class D shares of a Fund will be based
on the investment income per share (as defined by the Securities
and Exchange Commission) during a particular 30-day (or one-month)
period (including dividends and interest), less expenses accrued
during the period ("net investment income"), and will be computed
by dividing net investment income by the maximum public offering
price per Class D share on the last day of the period.
The Funds may also provide current distribution information to
its shareholders in shareholder reports or other shareholder com-
munications, or in certain types of sales literature provided to
prospective investors. Current distribution information for Class
D shares of a Fund will be based on distributions for a specified
period (i.e., total dividends from net investment income), divided
by the net asset value per Class D 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 de-
rivative instruments such as options and futures, which may reduce
total return. Current distribution rates differ from standardized
yield rates in that they represent what Class D shares of a Fund
have declared and paid to shareholders as of the end of a speci-
fied 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 advisor to clients other than the Funds, and on its
comparative performance or standing
July 13, 1998 Prospectus 19
<PAGE>
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 Advisor or the Portfolio Managers, should be
considered in light of the Funds' investment objectives and poli-
cies, 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 fu-
ture.
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 D shares of each Fund are continuously offered through fi-
nancial service firms, such as broker-dealers or registered in-
vestment advisers, with which the Trust's principal underwriter,
PIMCO Funds Distributors LLC (the "Distributor"), has an agreement
for the use of the Funds in particular investment products, pro-
grams or accounts for which a fee may be charged. See "Financial
Service Firms" below.
You may purchase Class D shares only through your financial
service firm. In connection with purchases, your financial service
firm is responsible for forwarding all necessary documentation to
the Distributor, and may charge you for such services. Investors
who wish to purchase shares of the Funds directly from the Trust
or the Distributor should inquire as to the other classes of
shares. See "Description of the Trust--Multiple Classes of
Shares."
Class D shares may be purchased at a price equal to their net
asset value per share next determined after receipt of an order.
Purchase payments for Class D shares are fully invested at the net
asset value next determined after acceptance of the trade. All
purchase orders received by the Distributor from your financial
service firm prior to the close of regular trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange (the "Ex-
change"), on a regular business day, are processed at that day's
offering price. In addition, orders received by the Distributor
from financial service firms after the offering price is deter-
mined that day will receive such offering price if the orders were
received by the firm 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 7:00 p.m., Easterm time).
Purchase orders received on other than a regular business day will
be executed on the next succeeding regular business day.
The Distributor, in its sole discretion, may accept or reject
any order for purchase of Fund shares. The sale of shares will be
suspended during any period in which the Exchange is closed for
other than weekends or holidays, or if permitted by the rules of
the Securities and Exchange Commission, when trading on the Ex-
change is restricted or during an emergency which makes it imprac-
ticable for the Funds to dispose of their securities or to deter-
mine fairly the value of their net assets, or during any other pe-
riod as permitted by the Securities and Exchange Commission for
the protection of investors.
Class D shares of the Funds will be held in your account with
your financial service firm and, generally, your firm will hold
your Class D shares in nominee or street name as your agent. Ac-
cordingly, in most cases, the Trust's transfer agent will have no
information with respect to or control over accounts of specific
Class D shareholders and you may obtain information about your ac-
counts only through your financial service firm. In certain cir-
cumstances, your firm may arrange to have your shares held in your
own name or you may subsequently become a holder of record for
some other reason (for instance, if you terminate your relation-
ship with your firm). In such circumstances, please contact the
Distributor at 888-87-PIMCO for information about your account. If
you wish to invest in the Funds through your own account with the
Trust or the Distributor, please inquire as to the other classes
of shares of the Funds. See "Description of the Trust--Multiple
Classes of Shares." In the interest of economy and convenience,
certificates for Class D shares will not be issued.
20 PIMCO Funds: Multi-Manager Series
<PAGE>
FINANCIAL Broker-dealers, registered investment advisers and other financial
SERVICE service firms provide varying investment products, programs or ac-
FIRMS counts, pursuant to arrangements with the Distributor, through
which their clients may purchase and redeem Class D shares of the
Funds. Firms will generally provide or arrange for the provision
of some or all of the shareholder servicing and account mainte-
nance services required by your account, including, without limi-
tation, transfers of registration and dividend payee changes; and
may perform functions such as generation of confirmation state-
ments and disbursement of cash dividends. Firms may also arrange
with their clients for other investment or administrative servic-
es. Your firm may independently establish and charge you transac-
tion fees and/or other additional amounts for such services, which
charges could reduce your investment returns on Class D shares of
the Funds.
Your financial service firm may have omnibus accounts and simi-
lar arrangements with the Trust and may be paid for providing sub-
transfer agency and other services. A firm may be paid for its
services directly or indirectly by the Funds, the Advisor or an
affiliate (normally not to exceed an annual rate of 0.35% of a
Fund's average daily net assets attributable to its Class D shares
and purchased through such firm for its clients). Your firm may
establish various minimum investment requirements for Class D
shares of the Funds and may also establish certain privileges with
respect to purchases, redemptions and exchanges of Class D shares
or the reinvestment of dividends.
This Prospectus should be read in connection with your firm's
materials regarding its fees and services.
Exchange Privilege
A shareholder may exchange Class D shares of any Fund for Class D
shares of any other Fund in an account with identical registration
on the basis of their respective net asset values. Class D shares
of each Fund may also be exchanged for Class D shares of certain
series of PIMCO Funds: Pacific Investment Management Series, an
affiliated mutual fund family composed primarily of fixed income
portfolios managed by Pacific Investment Management Company, an
affiliate of the Advisor. There are currently no exchange fees or
charges imposed by the Trust, although your financial service firm
may impose various fees and charges, investment minimums and other
requirements with respect to exchanges. Please contact your finan-
cial service firm for details. An exchange will constitute a tax-
able sale for federal income tax purposes.
The Trust reserves the right to refuse exchange purchases if,
in the judgment of the Advisor, the purchase would adversely af-
fect a Fund and its shareholders. In particular, a pattern of ex-
changes characteristic of "market-timing" strategies may be deemed
by the Advisor to be detrimental to the Trust or a particular
Fund. Currently, the Trust limits the number of "round trip" ex-
changes an investor may make. An investor makes a "round trip" ex-
change when the investor purchases shares of a particular Fund,
subsequently exchanges those shares for shares of a different Fund
and then exchanges back into the originally purchased Fund. The
Trust has the right to refuse any exchange for any investor who
completes (by making the exchange back into the shares of the
originally purchased Fund) more than six round trip exchanges in
any twelve-month period. Although the Trust has no current inten-
tion of terminating or modifying the exchange privilege other than
as set forth in the preceding sentence, it reserves the right to
do so at any time. Except as otherwise permitted by Securities and
Exchange Commission regulations, the Trust will give 60 days' ad-
vance notice to your financial service firm of any termination or
material modification of the exchange privilege. For further in-
formation about exchange privileges, please contact your financial
service firm.
How to Redeem
Class D shares may be redeemed through your financial service firm
on any day the Exchange is open. Shares are redeemed at their net
asset value next determined after a proper redemption request has
been received from your firm. There is no charge by the Trust or
the Distributor with respect to a redemption, although your finan-
cial service firm
July 13, 1998 Prospectus 21
<PAGE>
may charge you for its services in processing your redemption re-
quest. Please contact your firm for details. If you are the holder
of record of your Class D shares, you may contact the Distributor
at 888-87-PIMCO for information regarding how to redeem your
shares directly from the Trust.
Your financial service firm is obligated to transmit your re-
demption orders to the Distributor promptly and is responsible for
ensuring that your redemption request is in proper form. Requests
for redemption received by financial service 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. Your financial service firm will be respon-
sible for furnishing all necessary documentation to the Distribu-
tor or the Trust's transfer agent and may charge you for its serv-
ices. Redemption proceeds will be forwarded to your financial
service firm as promptly as possible and in any event within seven
days after the redemption request is received by the Distributor
in good order. Under unusual circumstances, the Trust may suspend
redemptions or postpone payment for more than seven days, as per-
mitted by federal securities law.
REDEMPTIONS The Trust agrees to redeem shares of each Fund solely in cash up
IN KIND to the lesser of $250,000 or 1% of the Fund's net assets during
any 90-day period for any one shareholder. In consideration of the
best interests of the remaining shareholders, the Trust reserves
the right to pay any redemption proceeds exceeding this amount in
whole or in part by a distribution in kind of securities held by a
Fund in lieu of cash. Except for Funds with a tax-efficient
management strategy, it is highly unlikely that shares would ever be
redeemed in kind. When shares are redeemed in kind, the redeeming
shareholder should expect to incur transaction costs upon the
disposition of the securities received in the distribution.
Distributor
PIMCO Funds Distributors LLC (the "Distributor"), a wholly owned
subsidiary of the Advisor, is the principal underwriter of the
Trust's shares. Pursuant to a Distribution Agreement with the
Trust, with respect to each Fund's Class D shares, the Distributor
may bear various expenses, including the cost of printing and
mailing prospectuses to persons other than current shareholders.
The Distributor, located at 2187 Atlantic Street, Stamford, Con-
necticut 06902, is a broker-dealer registered with the SEC.
How Net Asset Value Is Determined
The net asset value of Class D 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 Exchange. Net asset value will not
be determined on days on which the Exchange is closed.
Portfolio securities and other assets for which market quota-
tions are readily available are stated at market value. Fixed in-
come securities are normally valued on the basis of quotations ob-
tained from brokers and dealers or pricing services, which take
into account appropriate factors such as institutional-sized trad-
ing 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 quo-
tations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to
fixed income securities whose prices are more readily obtainable
and whose durations are comparable to the securities being valued.
Short-term investments having a maturity of 60 days or less are
valued at amortized cost, when the Board of Trustees determines
that amortized cost is their fair value. 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 direc-
tion.
22 PIMCO Funds: Multi-Manager Series
<PAGE>
Quotations of foreign securities in foreign currency are con-
verted to U.S. dollar equivalents using foreign exchange quota-
tions received from independent dealers. Under the Trust's proce-
dures, the prices of foreign securities are determined using in-
formation derived from pricing services and other sources. Infor-
mation that becomes known to the Trust or its agents after the
time that net asset value is calculated 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 retroac-
tively adjust the price of the security so determined earlier or
on a prior day. Events affecting the values of portfolio securi-
ties that occur between the time their prices are determined and
the close of regular trading on the Exchange (normally 4:00 p.m.,
Eastern time) may not be reflected in the calculation of net asset
value. If events materially affecting the value of such securities
occur during such period, then these securities may be valued at
fair value as determined 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. Generally, for Funds that pay income dividends, those divi-
dends are expected to differ over time by approximately the amount
of the expense accrual differential between a particular Fund's
classes.
Distributions
Shares begin earning dividends on the day after the date that
funds are received by the Trust for the purchase of Class D
shares. Net investment income from interest and dividends, if any,
will be declared and paid quarterly to shareholders of record by
the Equity Income, Value and Renaissance Funds. Net investment
income from interest and dividends, if any, will be declared and
paid at least annually to shareholders of record by the Tax-
Efficient Equity, Capital Appreciation, Mid-Cap Growth and
Innovation Funds. Any net capital gains from the sale of portfolio
securities will be distributed no less frequently than once
annually. Net short-term capital gains may be paid more
frequently.
All dividends and/or distributions will be paid in the form of
additional Class D shares of the Fund to which the dividends
and/or distributions relate or, at the election of the sharehold-
er, of another Fund of the Trust or PIMCO Funds: Pacific Invest-
ment Management Series as described below, at net asset value, un-
less the shareholder elects to receive cash (either paid to share-
holders directly or credited to their account with their financial
services firm). If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other
delivery service is unable to deliver checks to the shareholder's
address of record, such shareholder's distributions will automati-
cally be invested in the Money Market Fund of PIMCO Funds: Pacific
Investment Management Series, until such shareholder is located.
Dividends paid by each Fund with respect to each class of shares
are calculated in the same manner and at the same time.
Your financial service firm may offer a program pursuant to
which you may elect to invest dividends and/or distributions paid
by any Fund in Class D shares of any other Fund or series of PIMCO
Funds: Pacific Investment Management Series which offers Class D
shares. Please contact your financial service firm for details.
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.
July 13, 1998 Prospectus 23
<PAGE>
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 generally 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 dividends, exempt-interest dividends and dividends that rep-
resent a return of capital to shareholders, as ordinary income. In
particular, distributions derived from short-term gains will be
treated as ordinary income. Dividends designated by a Fund as cap-
ital 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 ex-
emption. Under the Taxpayer Relief Act of 1997, long-term capital
gains will generally be taxed at a 28% or 20% rate, depending upon
the holding period of the portfolio security. Any distributions
that are not from a Fund's net investment income or net capital
gain may be characterized as a return of capital to shareholders
or, in some cases, as capital gain. Certain dividends declared in
October, November or December of a calendar year are taxable to
shareholders (who otherwise are subject to tax on dividends) as
though received on December 31 of that year if paid to
shareholders during January of the following calendar year. Each
Fund will advise shareholders annually of the amount and nature of
the dividends paid to them. Dividends derived from interest on
certain U.S. Government securities may be exempt from state and
local taxes, although interest on mortgage-backed U.S. Government
securities is generally not so exempt. While the Tax-Efficient Eq-
uity Fund seeks to minimize taxable distributions, the Fund may be
expected to earn and distribute taxable income and may also be ex-
pected to realize and distribute capital gains from time to time.
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, 1989 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."
24 PIMCO Funds: Multi-Manager Series
<PAGE>
INVESTMENT PIMCO ADVISORS serves as investment advisor 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 May 31, 1998 were approximately
$223.2 billion. The general partners of PIMCO Advisors are PIMCO
Partners, G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO
Partners, G.P. is a general partnership between PIMCO Holding LLC,
a Delaware limited liability company and an indirect wholly-owned
subsidiary of Pacific Life Insurance Company, and PIMCO Partners
LLC, a California limited liability company controlled by the Man-
aging Directors of Pacific Investment Management Company. PIMCO
Partners, G.P. is the sole general partner of PAH. PIMCO Advisors
is governed by a Management Board, which exercises substantially
all of the governance powers of the general partner and serves 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
advisor with the Securities and Exchange Commission. PIMCO Advi-
sors currently has seven subsidiary partnerships, the following
four of which manage one or more of the Funds: Cadence, Columbus
Circle, NFJ and Parametric.
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. Each Portfolio Manager is an affiliate of
PIMCO Advisors. PIMCO Advisors (and not the Funds or the Trust)
compensates the Portfolio Managers from its advisory fee. Under
these agreements, a Portfolio Manager has full investment discre-
tion and makes all determinations with respect to the investment
of a Fund's assets and makes all determinations respecting the
purchase and sale of a Fund's securities and other investments.
CADENCE manages the Capital Appreciation Fund and the Mid-Cap
Growth Fund (the "Cadence Funds"). Cadence is an investment man-
agement firm organized as a general partnership. Cadence has two
partners: PIMCO Advisors as the supervisory partner, and Cadence
Capital Management Inc. as the managing partner. Cadence Capital
Management Corporation, the predecessor investment advisor to Ca-
dence, commenced operations in 1988. Accounts managed by Cadence
had combined assets as of May 31, 1998 of approximately $6.6 bil-
lion. Cadence's address is Exchange Place, 53 State Street, Bos-
ton, Massachusetts 02109. Cadence is registered as an investment
advisor with the Securities and Exchange Commission.
David B. Breed, William B. Bannick, Katherine A. Burdon and Pe-
ter B. McManus are primarily responsible for the day-to-day man-
agement of the Cadence Funds. Mr. Breed is a Managing Director,
the Chief Executive Officer, and a founding partner of Cadence,
and has 24 years' investment management experience. He has been
the driving force in developing the firm's growth-oriented stock
screening and selection process and has been with Cadence or its
predecessor since its inception. Mr. Breed graduated from the Uni-
versity of Massachusetts and received his MBA from the Wharton
School of Business. He is a Chartered Financial Analyst. Mr.
Bannick is a Managing Director and Executive Vice President of Ca-
dence and has 12 years' investment management experience. He pre-
viously served as Executive Vice President of George D. Bjurman &
Associates and as Supervising Portfolio Manager of Trinity Invest-
ment Management Corporation. Mr. Bannick joined the predecessor of
Cadence in 1992. He graduated from the University of Massachusetts
and received his MBA from Boston University. Mr. Bannick is
a Chartered Financial Analyst. Ms. Burdon is a Managing Director
and Portfolio Manager of Cadence and has nine years' investment
management experience. She previously served as a Vice President
and Portfolio Manager of The Boston Company. Ms. Burdon joined the
predecessor of Cadence in 1993. She graduated from Stanford Uni-
versity and received a Master of Science degree from
July 13, 1998 Prospectus 25
<PAGE>
Northeastern University. Ms. Burdon is a Chartered Financial Ana-
lyst and Certified Public Accountant. Mr. McManus is Director of
Fund Management of Cadence and has 20 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 he is certified as a Financial
Planner.
NFJ manages the Equity Income Fund and the Value 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 advisor to NFJ, commenced opera-
tions in 1989. Accounts managed by NFJ had combined assets as of
May 31, 1998 of approximately $2.7 billion. NFJ's address is 2121
San Jacinto, Suite 1840, Dallas, Texas 75201. NFJ is registered as
an investment advisor with the Securities and Exchange Commission.
Chris Najork and Benjamin Fischer are responsible for the day-
to-day management of the Equity Income Fund. Mr. Najork is a Man-
aging Director and a founding partner of NFJ and has 29 years' ex-
perience encompassing equity research and portfolio management. He
received his bachelor's degree and MBA from Southern Methodist
University, and he is a Chartered Financial Analyst. Mr. Fischer
is a Managing Director and a founding partner of NFJ and has 31
years' experience encompassing equity research and portfolio man-
agement. He received his bachelor's degree and JD from Oklahoma
University and his MBA from New York University Graduate School of
Business. He is a Chartered Financial Analyst. Messrs. Najork and
Fischer and Paul A. Magnuson are primarily responsible for the
day-to-day management of the Value Fund. Mr. Magnuson, a research
analyst at NFJ, has 12 years' experience in equity research and
portfolio management. He received his bachelor's degree in Finance
from the University of Nebraska-Lincoln.
COLUMBUS CIRCLE manages the Renaissance Fund and the Innovation
Fund (the "Columbus Circle Funds"). Columbus Circle is an invest-
ment management firm organized as a general partnership. Columbus
Circle has two partners: PIMCO Advisors as the supervisory part-
ner, and Columbus Circle Investors Management Inc. as the managing
partner. Columbus Circle Investors Division of Thomson Advisory
Group L.P. ("TAG"), the predecessor investment advisor to Columbus
Circle, commenced operations in 1975. Accounts managed by Columbus
Circle had combined assets as of May 31, 1998 of approximately
$9.5 billion. Columbus Circle's address is Metro Center, One Sta-
tion Place, 8th Floor, Stamford, Connecticut 06902. Columbus Cir-
cle is registered as an investment advisor 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 with a view to investing in grow-
ing companies that are surprising the market with business results
that are better than anticipated.
Investment decisions made by Columbus Circle are generally made
by one or more committees, although the following individuals have
primary responsibility for the noted Columbus Circle Funds. Clif-
ford G. Fox is primarily responsible for the day-to-day management
of the Renaissance Fund. Mr. Fox, a Managing Director of Columbus
Circle, has 16 years of investment management experience. He re-
ceived his bachelor's degree from the University of Pennsylvania
and his MBA from New York University, and he is a Chartered Finan-
cial Analyst. Anthony Rizza is primarily responsible for the day-
to-day management of the Innovation Fund. Mr. Rizza, a Managing
Director of Columbus Circle, has 11 years of investment management
experience. He received his bachelor's degree from the University
of Connecticut, and he is a Chartered Financial Analyst.
PARAMETRIC manages the Tax-Efficient Equity Fund. Parametric is an
investment management firm organized as a general partnership.
Parametric has two partners: PIMCO Advisors as the supervisory
partner, and Parametric Management Inc. as the managing partner.
Parametric Portfolio Associ-ates, Inc., the predecessor investment
adviser to
26 PIMCO Funds: Multi-Manager Series
<PAGE>
Parametric, commenced operations in 1987. Accounts managed by Par-
ametric had combined assets as of May 31, 1998 of approximately $3
billion. Parametric's address is 7310 Columbia Center, 701 Fifth
Avenue, Seattle, Washington 98104-7090. Parametric is registered
as an investment adviser with the Securities and Exchange Commis-
sion and as a commodity trading advisor with the CFTC.
David Stein and Brian Langstraat are primarily responsible for
the day-to-day management of the Tax-Efficient Equity Fund. Mr.
Stein is a Managing Director of Parametric and has been associated
with Parametric since June 1996. He also directs research and
product development for Parametric. Mr. Stein graduated with bach-
elor's and master's degrees in Applied Mathematics from the Uni-
versity of Witwatersrand, South Africa, and received a Ph.D. in
Applied Mathematics from Harvard University. Prior to joining Par-
ametric, Mr. Stein served as the Director of Investment Research
at GTE Investment Management, Director of Active Equity Strategies
at the Vanguard Group, and Director of Quantitative Portfolio Man-
agement and Research at IBM. Mr. Langstraat is a Managing Director
of Parametric and has been associated with Parametric since 1990.
He is responsible for product and portfolio management in the
areas of taxable and international investing. Mr. Langstraat grad-
uated from the University of Washington with a bachelor's degree
in Economics. He is a Chartered Financial Analyst.
Registration as an investment advisor 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 and Parametric may provide, and currently are provid-
ing, investment management services to other clients, including
other investment companies.
FUND PIMCO Advisors also serves as administrator (the "Administrator")
ADMINIS- for the Funds' Class D shares pursuant to an administration agree-
TRATOR ment with the Trust. The Administrator provides or procures admin-
istrative services for Class D shareholders of 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 Manage-
ment Company, its affiliate, to provide such services as sub-ad-
ministrator. 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 cur-
rent shareholders.
PIMCO Advisors or an affiliate may pay financial service firms
a portion of the Class D administration fees in return for the
firms' services (normally not to exceed an annual rate of .35% of
a Fund's average daily net assets attributable to Class D shares
purchased through such firms). The Funds' administration agreement
includes a plan for Class D shares that has been adopted in con-
formity with the requirements set forth in Rule 12b-1 under the
1940 Act. The plan provides that up to .25% per annum of the Class
D administrative fees paid under the administration agreement may
represent reimbursement for expenses in respect of activities that
may be deemed to be primarily intended to result in the sale of
Class D shares. The principal types of activities for which such
payments may be made are services in connection with the distribu-
tion of Class D shares and/or the provision of shareholder services.
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 Company, or their subsidiaries or affili-
ates; (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 ex-
penses, including costs of litigation and indemnification ex-
penses; (vii) expenses which are capitalized in accordance with
generally accepted accounting principles; and (viii) any expenses
allocated or allocable to a specific class of
July 13, 1998 Prospectus 27
<PAGE>
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
AND
ADMINISTRATIVE
FEES
The Funds feature fixed advisory and administrative fees. For pro-
viding or arranging for the provision of investment advisory serv-
ices to the Funds as described above, PIMCO Advisors receives
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>
Equity Income, Value,
Tax-Efficient Equity,
Capital Appreciation
and Mid-Cap Growth
Funds .45%
--------------------------------
Renaissance Fund .60%
--------------------------------
Innovation Fund .65%
</TABLE>
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 to the Fund's Class D shares as follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE
FEE RATE*
---------------------------------------------------------------------
<S> <C>
All Funds .65%
</TABLE>
* As described under "Fund Administrator," the administration
agreement includes a plan adopted in conformity with Rule 12b-1
which provides for the payment of up to .25% of the .65% Adminis-
trative Fee Rate as reimbursement for expenses in respect of ac-
tivities that may be deemed to be primarily intended to result in
the sale of Class D shares. The "Annual Fund Operating Expenses"
table on page 4 of this Prospectus shows the .65% Administrative
Fee Rate under two separate columns entitled "Administrative Fees"
(.40%) and "12b-1 (Service) Fees" (.25%).
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 Company (as the
case may be) on 60 days' written notice. In addition, the invest-
ment advisory agreement may be terminated with regard to the Re-
naissance and Innovation Funds by a majority of the Trustees that
are not interested persons of the Trust, PIMCO Advisors or Pacific
Investment Management Company (as the case may be) on 60 days'
written notice. Following their initial terms, the agreements 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 (and not
the Funds or the Trust) pays each Portfolio Manager a fee based on
a percentage of the average daily net assets of a Fund as follows:
Columbus Circle--.38% for the Renaissance Fund and .38% for the
Innovation Fund; Cadence--.35% for the Capital Appreciation Fund
and .35% for the Mid-Cap Growth Fund; NFJ--.35% for the Equity In-
come Fund and .35% for the Value Fund; and Parametric-- .35% for
the Tax-Efficient Equity Fund.
PORTFOLIO Pursuant to the portfolio management agreements, a Portfolio Man-
TRANS- ager places orders for the purchase and sale of portfolio invest-
ACTIONS 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.
28 PIMCO Funds: Multi-Manager Series
<PAGE>
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. Particularly when investing in less liquid or illiquid
securities of smaller capitalization companies, such allocation
may take into account the asset size of a Fund in determining
whether the allocation of an investment is suitable. As a result,
larger Funds may become more concentrated in more liquid securi-
ties than smaller Funds or private accounts of a Portfolio Manager
pursuing a small capitalization investment strategy, which could
adversely affect performance. A Portfolio Manager may aggregate
orders for the Funds with simultaneous transactions entered into
on behalf of its other clients so long as price and transaction
expense are averaged either for the particular transaction or for
that day.
Description of the Trust
CAPITAL- The Trust was organized as a Massachusetts business trust on Au-
IZATION gust 24, 1990, and currently consists of twenty-five portfolios
that are operational, seven of which are described in this Pro-
spectus. Other portfolios may be offered by means of a separate
prospectus. The Board of Trustees may establish additional portfo-
lios 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 cir-
cumstances, be held liable for the obligations of the Trust. How-
ever, the Second Amended and Restated Agreement and Declaration of
Trust (the "Declaration of Trust") of the Trust disclaims share-
holder liability for acts or obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obliga-
tion or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust also provides for indemnifica-
tion 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 fi-
nancial 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 In addition to Class D shares, certain Funds also offer up to five
CLASSES OF additional classes of shares, Class A, Class B, Class C, Institu-
SHARES tional Class and Administrative Class shares, through separate
prospectuses. This Prospectus relates only to Class D shares of
the Funds. Unlike Class D shares, which may be purchased only
through financial service firms, the other classes may be pur-
chased directly from the Trust and/or the Distributor. The other
classes may be subject to sales charges and different levels of
operating expenses than Class D shares. As a result of different
charges and expense levels, the other five classes are expected to
achieve different investment returns than Class D shares. Share-
holders of a particular class may also receive additional services
or services different from those received by the other classes. To
obtain more information about Class A, Class B and Class C shares,
please call the Distributor at 800-426-0107. To obtain more infor-
mation about Institutional Class and Administrative Class shares,
please call 800-927-4648.
Each class of shares of each Fund represents interests in the
assets of that Fund, and each class has identical dividend, liqui-
dation and other rights and the same terms and conditions, except
that expenses related to the distribution and shareholder servic-
ing of a particular class of shares are borne solely by such class
and each class may, at the Trustees' discretion, also pay a dif-
ferent share of other expenses, not including advisory or custo-
dial fees or other expenses related to the management of the
Trust's assets, if these expenses are actually incurred in a dif-
ferent 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.
July 13, 1998 Prospectus 29
<PAGE>
VOTING Each class of shares of each Fund has identical voting rights, ex-
cept 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 distribu-
tion and servicing plan or agreement applicable only to that
class. These shares are entitled to vote at meetings of sharehold-
ers. 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 de-
termined 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 to-
gether, except with respect to a distribution and servicing plan
or agreement 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 de-
clared by the Trustees and, in liquidation of the Trust, are enti-
tled to receive the net assets of their Fund, but not of the other
Funds. The Trust does not generally hold annual meetings of share-
holders 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
proportionate voting for fractional shares). As of June 30, 1998,
the Trust believes that there were no shareholders of record of
25% or more of the outstanding voting securities of any Fund. As
used in this Prospectus, the phrase "vote of a majority of the
outstanding shares" of a Fund (or the Trust) means the vote of the
lesser of: (1) 67% of the shares of the Fund (or the Trust)
present at a meeting, if the holders of more than 50% of the
outstanding shares are present in person or by proxy; or (2) more
than 50% of the outstanding shares of the Fund (or the Trust).
30 PIMCO Funds: Multi-Manager Series
<PAGE>
--------------------------------------------------------------------
PIMCO INVESTMENT ADVISOR AND ADMINISTRATOR
FUNDS:
MULTI- PIMCO Advisors L.P., 800 Newport Center Drive, Newport Beach, CA
MANAGER 92660
SERIES --------------------------------------------------------------------
PORTFOLIO MANAGERS
Cadence Capital Management, NFJ Investment Group, Columbus Circle
Investors, Parametric Portfolio Associates
--------------------------------------------------------------------
DISTRIBUTOR
PIMCO Funds Distributors LLC, 2187 Atlantic Street, Stamford, CT
06902
--------------------------------------------------------------------
CUSTODIAN
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
MO 64105
--------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
Shareholder Services, Inc. P.O. Box 5866, Denver, CO 80217
--------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP (formerly, Price Waterhouse LLP), 1055
Broadway, Kansas City, MO 64105
--------------------------------------------------------------------
LEGAL COUNSEL
Ropes & Gray, One International Place, Boston, MA 02110
--------------------------------------------------------------------
For further information about the PIMCO Funds, call 1-888-87-PIMCO
or visit our Web site at www.pimcofunds.com.
<PAGE>
PIMCO Funds is on the Web
w w w . p i m c o f u n d s . c o m
A Partial List of [PICTURE OF PC SCREEN APPEARS HERE]
What's Available:
PIMCO Funds Distributors LLC is pleased to announce the
Daily Manager launch of its Web site. We can be found on the World-
Commentary wide Web at www.pimcofunds.com.
Fund Manager Bios You now have around-the-clock access to the most timely
and comprehensive information available on all of the
Current and PIMCO Funds. In addition, the site includes daily
Historical Fund commentary from our fund managers, with insights on the
Performance economy and other factors affecting the stock and bond
markets.
Lipper Rankings
[PICTURE OF PC SCREEN APPEARS HERE]
Morningstar Ratings
You'll find the site to be informative and easy-to-use.
Listing of Fund There are several functions that can help you navigate
Portfolio Holdings your way around the site. Among the major sections are
Investment Insight and Fund Information.
Risk Analysis
[PICTURE OF PC SCREEN APPEARS HERE]
Daily Share Prices
Investment Insight
Resources for The Investment Insight section provides an overview of six
Investment of the investment management firms which are part of
Professionals PIMCO Advisors L.P. You'll find an explanation of each
firm's investment process, biographies of the investment
team, manager updates and more.
[PICTURE OF PC SCREEN APPEARS HERE]
Fund Information
In the Fund Information section you'll access detailed
profiles of the PIMCO Funds, including a summary of each
fund's portfolio, risk analysis data, Lipper rankings and
Morningstar ratings. You can also obtain daily fund
share prices. Additionally, beginning in August of 1998
we'll provide current and historical performance for
Class D shares.
Questions?
We're sure you will find the PIMCO Funds Web site to be
an invaluable tool. If you have any comments or questions
about the site, please call us today at 1-888-87-PIMCO. Or,
use the e-mail feature of the site to contact us.
Please read the relevant prospectus carefully before you
invest in any PIMCO Fund.
P I M C O
-------------------
F U N D S
<PAGE>
PIMCO FUNDS:
MULTI-MANAGER SERIES
STATEMENT OF ADDITIONAL INFORMATION
JULY 13, 1998
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 consisting of twenty-five separate diversified investment portfolios
(the "Funds"): the Equity Income Fund, the Value Fund, the Renaissance Fund,
the Tax-Efficient Equity Fund, the Enhanced Equity Fund, the Growth Fund, the
Value 25 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
International Growth Fund, the Emerging Markets Fund, the Tax-Efficient
Structured Emerging Markets Fund, the Structured Emerging Markets Fund, the
Precious Metals Fund and the Balanced Fund. The Tax Exempt Fund, formerly a
series of the Trust, was merged with and into the Municipal Bond Fund of PIMCO
Fund: Pacific Investment Management Series in a transaction which took place on
June 26, 1998 and was liquidated in connection with the transaction.
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, as supplemented from
time to time. The Trust offers up to six classes of shares of each of its Funds
through three Prospectuses. Class A, Class B and Class C shares of certain
Funds are offered through the "Class A, B and C Prospectus," dated July 13,
1998, Class D shares of certain Funds are offered through the "Class D
Prospectus" dated July 13, 1998, and Institutional and Administrative Class
shares of certain Funds are offered through the "Institutional Prospectus,"
dated July 13, 1998 (collectively with the Class A, B and C Prospectus and the
Class D Prospectus, the "Prospectuses"). A copy of the applicable Prospectus
may be obtained free of charge at the address and telephone number(s) listed
below.
<TABLE>
<CAPTION>
Class A, B and C
----------------
Institutional Prospectus: and Class D Prospectuses:
------------------------ ------------------------
<S> <C>
PIMCO Funds PIMCO Funds Distributors LLC
840 Newport Center Drive 2187 Atlantic Street
Suite 360 Stamford, Connecticut 06902
Newport Beach, California 92660 Telephone: Class A, B and C - (800) 426-0107
Telephone:(800) 927-4648 Class D - (888) 87-PIMCO
(800) 987-4626
(PIMCO Infolink Audio
Response Network)
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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PAGE
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<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")............................................. 5
Participation on Creditors Committees............................................ 7
Variable and Floating Rate Securities............................................ 7
Mortgage-Related and Asset-Backed Securities..................................... 8
Foreign Securities............................................................... 12
Foreign Currencies............................................................... 14
Bank Obligations................................................................. 15
Commercial Paper................................................................. 15
Derivative Instruments........................................................... 16
When-Issued, Delayed Delivery and Forward Commitment Transactions................ 22
Warrants to Purchase Securities.................................................. 22
Metal-Indexed Notes and Precious Metals.......................................... 23
Repurchase Agreements............................................................ 24
Securities Loans................................................................. 24
INVESTMENT RESTRICTIONS............................................................... 24
Fundamental Investment Restrictions.............................................. 24
Non-Fundamental Investment Restrictions.......................................... 27
MANAGEMENT OF THE TRUST............................................................... 28
Trustees......................................................................... 28
Officers......................................................................... 30
Trustees' Compensation........................................................... 31
Investment Adviser............................................................... 33
Portfolio Management Agreements.................................................. 36
Fund Administrator............................................................... 40
DISTRIBUTION OF TRUST SHARES.......................................................... 43
Distributor and Multi-Class Plan................................................. 43
Contingent Deferred Sales Charge and Initial Sales Charge........................ 44
Distribution and Servicing Plans for Class A, Class B and Class C Shares......... 45
Payments Pursuant to Class A Plans............................................... 46
Payments Pursuant to Class B Plans............................................... 48
Payments Pursuant to Class C Plans............................................... 50
Distribution and Administrative Services Plans for Administrative Class Shares... 51
Payments Pursuant to Administrative Distribution Plan............................ 52
Payments Pursuant to Administrative Services Plan................................ 53
Plan for Class D Shares.......................................................... 53
Purchases, Exchanges and Redemptions............................................. 54
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 56
Investment Decisions............................................................. 56
</TABLE>
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<TABLE>
<S> <C>
Brokerage and Research Services.................................................. 56
Portfolio Turnover............................................................... 59
NET ASSET VALUE....................................................................... 59
TAXATION.............................................................................. 59
Distributions.................................................................... 60
Sales of Shares.................................................................. 61
Backup Withholding............................................................... 61
Options, Futures, Forward Contracts and Swap Agreements.......................... 61
Passive Foreign Investment Companies............................................. 62
Foreign Currency Transactions.................................................... 63
Foreign Taxation................................................................. 63
Original Issue Discount.......................................................... 64
Other Taxation................................................................... 64
OTHER INFORMATION..................................................................... 65
Capitalization................................................................... 65
Performance Information.......................................................... 65
Calculation of Yield............................................................. 65
Calculation of Total Return...................................................... 66
Voting Rights.................................................................... 78
Certain Ownership of Trust Shares................................................ 79
Custodian........................................................................ 96
Independent Accountants.......................................................... 97
Registration Statement........................................................... 97
Financial Statements............................................................. 97
APPENDIX............................................................................. A-1
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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 Trea sury
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 five or 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 exam ple, 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 defla tion. 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 at a faster rate than inflation, real interest rates might rise,
leading to a decrease in value of inflation-indexed bonds.
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<PAGE>
While these securities are expected to be protected from long-term
inflationary trends, short-term in creases 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 possibil ity 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 investment
restrictions. 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 liquid by the
4
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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 and 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 the preferred stock to common stock.
CORPORATE DEBT SECURITIES
All Funds may invest in corporate debt securities. The Equity Income,
Value, Tax-Efficient Equity, Value 25, 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, Tax-
Efficient 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.
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.
5
<PAGE>
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
relevant Portfolio Manager to be of comparable quality to obligations so rated.
The Renaissance, Growth and Balanced Funds may purchase high yield
securities (as defined in the Prospectuses) rated in either the fifth or 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). The Renaissance and Growth Funds will generally
invest no more than 5% of its net assets in high yield securities. 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 as well as
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.
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, Growth and Balanced
Funds. While lower rated securities typically are less sensitive to interest
rate changes than higher
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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 vary 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 Fund may sell a
security and purchase another of comparable quality and maturity (usually, but
not always, of a different issuer) 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, but
generally do not allow the Fund to participate fully in appreciation resulting
from any general decline in interest rates.
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 generally will exhibit greater
price volatility than a fixed rate obligation of similar credit quality. See
"Mortgage-Related and Asset-Backed Securities" below.
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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 rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
The 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 services of the underlying mortgage loans as
well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of
8
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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. A 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. A 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 15% of the value of the Fund's net assets (taken at market value at
the time of investment) will be invested in illiquid securities.
Mortgage-related securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to a 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 Funds take 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 begin to be paid currently.
With some CMOs, the issuer serves as a conduit to allow loan originators
(primarily builders or savings and loan associations) to borrow against their
loan portfolios.
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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 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
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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 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 and may be purchased by the Funds
that may invest in mortgage-related securities. 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.
Consistent with a Fund's investment objectives and policies, the Adviser
and Portfolio Manager also may invest in other types of asset-backed securities.
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FOREIGN SECURITIES
The Emerging Markets, Structured Emerging Markets, Tax-Efficient Structured
Emerging Markets, International Developed, International Growth 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 may invest in American Depository Receipts ("ADRs"). The Emerging
Markets, Structured Emerging Markets, Tax-Efficient Structured Emerging Markets,
International Developed, International Growth, 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. The Core Equity and Mid-Cap Equity Funds may
invest in ADRs, EDRs and GDRs. 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 capital and on the Fund's ability to exchange local
currencies for U.S. dollars; unavailability of currency hedging
12
<PAGE>
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.
SPECIAL RISKS OF INVESTING IN RUSSIAN AND OTHER EASTERN EUROPEAN
SECURITIES. The International, International Growth, Emerging Markets, Tax-
Efficient Structured Emerging Markets and Structured Emerging Markets Funds may
invest a portion of their assets in securities of issuers located in Russia and
in other Eastern European countries. The political, legal and operational risks
of investing in the securities of Russian and other Eastern European issuers,
and of having assets custodied within these countries, may be particularly
acute. Investments in Eastern European countries may involve acute risks of
nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. Also, certain Eastern European countries, which do not have market
economies, are characterized by an absence of developed legal structures
governing private and foreign investments and private property.
In addition, governments in certain Eastern European countries may require
that a governmental or quasi-governmental authority act as custodian of a Fund's
assets invested in such country. To the extent such governmental or quasi-
governmental authorities do not satisfy the requirements of the 1940 Act to act
as foreign custodians of the Fund's cash and securities, the Fund's investment
in such countries may be limited or may be required to be effected through
intermediaries. The risk of loss through governmental confiscation may be
increased in such circumstances.
Investments in securities of Russian issuers may involve a particularly
high degree of risk and special considerations not typically associated with
investing in U.S. and other more developed markets, many of which stem from
Russia's continuing political and economic instability and the slow-paced
development of its market economy. Investments in Russian securities should be
considered highly speculative. Such risks and special considerations include:
(a) delays in settling portfolio transactions and the risk of loss arising out
of Russia's system of share registration and custody (see below); (b)
pervasiveness of corruption, insider trading, and crime in the Russian economic
system; (c) difficulties associated in obtaining accurate market valuations of
many Russian securities, based partly on the limited amount of publicly
available information; (d) the general financial condition of Russian companies,
which may involve particularly large amounts of inter-company debt; and (e) the
risk that the Russian tax system will not be reformed to prevent inconsistent,
retroactive and/or exorbitant taxation or, in the alternative, the risk that a
reformed tax system may result in the inconsistent and unpredictable enforcement
of the new tax laws. Also, there is the risk that the government of Russia or
other executive or legislative bodies may decide not to continue to support the
economic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries at the expense of other sectors or investors, a
return to the centrally planned economy that existed prior to the dissolution of
the Soviet Union, or the nationalization of privatized enterprises.
A risk of particular note with respect to direct investment in Russian
securities is the way in which ownership of shares of companies is normally
recorded. Ownership of shares (except where shares are held through
depositories that meet the requirements of the 1940 Act) is defined according to
entries in the company's share register and normally evidenced by extracts from
the register or, in certain limited circumstances, by formal share certificates.
However, there is no central registration system for shareholders and these
services are carried out by the companies themselves or by registrars located
throughout Russia. These registrars are not necessarily subject to effective
state supervision nor are they licensed with any governmental entity. It is
possible for a Fund to lose its registration through fraud, negligence or even
mere oversight. While a Fund will endeavor to ensure that its interest
continues to be appropriately recorded, which may involve a custodian or other
agent inspecting the share register
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and obtaining extracts of share registers through regular confirmations, these
extracts have no legal enforceability and it is possible that subsequent illegal
amendment or other fraudulent act may deprive the Fund of its ownership rights
or improperly dilute its interests. In addition, while applicable Russian
regulations impose liability on registrars for losses resulting from their
errors, it may be difficult for a Fund to enforce any rights it may have against
the registrar or issuer of the securities in the event of loss of share
registration.
Also, although a Russian public enterprise with more than 500 shareholders
is required by law to contract out the maintenance of its shareholder register
to an independent entity that meets certain criteria, this regulation has not
always been strictly enforced in practice. Because of this lack of
independence, management of a company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent a Fund from
investing in the securities of certain Russian companies deemed suitable by the
Fund's Portfolio Manager. Further, this also could cause a delay in the sale of
Russian securities held by a Fund if a potential purchaser is deemed unsuitable,
which may expose the Fund to potential loss on the investment.
FOREIGN CURRENCIES
The Renaissance, Core Equity, Mid-Cap Equity, Growth, Target, Opportunity,
Innovation, International, International Developed, International Growth,
Emerging Markets, Structured Emerging Markets, Tax-Efficient 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,
Tax-Efficient Structured Emerging Markets, International, International
Developed, International Growth, 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, International Growth, Emerging
Markets, Structured Emerging Markets and Tax-Efficient 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,
Structured Emerging Markets and Tax-Efficient 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.
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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 15% of its net assets (taken at market value at the time of
investment) 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, Tax-
Efficient Structured Emerging Markets, International Developed, International
Growth, Precious Metals 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) are
among the 75 largest foreign banks in the world in terms of total assets; (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 relevant
Portfolio Manager, are of an investment quality comparable to obligations of
United States banks in which the Funds may invest. Subject to each Fund's
limitation 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 above.
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,
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additionally for the Renaissance, Growth, Target, Core Equity, Mid-Cap Equity,
Opportunity, Innovation, Emerging Markets, Structured Emerging Markets, Tax-
Efficient Structured Emerging Markets, International, International Developed
and International Growth, Precious Metals and Balanced 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.
DERIVATIVE INSTRUMENTS
The following describes certain derivative instruments and products in
which the Funds may invest (to the extent described in the Prospectuses and
under "Investment Restrictions" below) and risks associated therewith.
OPTIONS ON SECURITIES AND INDEXES. A Fund may, to the extent specified for
the Fund in the Prospectuses and under "Investment Restrictions" below, 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 the Fund's custodian.
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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 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, International Growth and Precious Metals may 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.
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
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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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Fund may use
interest rate, foreign currency or index futures contracts, as specified 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 instru ment, foreign currency or the cash
value of an index at a specified price and time.
For instance, futures contract on a securities index (an "Index Future") 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 a securities index
("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 unit is the value of the relevant Index
from time to time. Entering into a contract to buy units is commonly referred
to as buying or purchasing a contract or holding a long position in an Index.
Index Futures contracts can be traded through all major commodity brokers. A
Fund's purchase and sale of Index Futures is limited to contracts and exchanges
which have been approved by the CFTC. A Fund will ordinarily be able to close
open positions on the futures exchange on which Index Futures are then traded at
any time up to and including the expiration day. As described below, a Fund
will be required to deposit initial margin with its custodian in a segregated
account in the name of the futures broker upon entering into an Index Future.
Variation margin will be paid to and received from the broker on a daily basis
as the contracts are marked to market. For example, when a Fund has purchased
an Index Future and the price of the relevant Index has risen, that position
will have increased in value and the Fund will receive from the broker a
variation margin payment equal to that increase in value. Conversely, when a
Fund has purchased an Index Future and the price of the relevant Index has
declined, the position would be less valuable and the Fund would be required to
make a variation margin payment to the broker.
The following example illustrates generally the manner in which Index
Futures operate. The Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock Exchange.
The S&P 100 Index assigns relative weightings to the common stocks included in
the Index, and the Index fluctuates with changes in the market values of those
common stocks. In the case of the S&P 100 Index, contracts are to buy or sell
100 units. Thus, if the value of the S&P 100 Index were $180, one contract
would be worth $18,000 (100 units x $180). The Index Future specifies that no
delivery of the actual stocks making up the Index will take place. Instead,
settlement in cash must occur upon the termination of the contract, with the
settlement being the difference between the contract price and the actual level
of the Index at the expiration of the contract. For example, if a Fund enters
into a futures contract to buy 100 units of the S&P 100 Index at a specified
future date at a contract price of $180 and the S&P 100 Index is at $184 on that
future date, the Fund will gain $400 (100 units x gain of $4). If the Fund
enters into a futures contract to sell 100 units of the Index at a specified
future date at a contract price of $180 and the S&P 100 Index is at $182 on that
future date, the Fund will lose $200 (100 units x loss of $2).
A public market exists in futures contracts covering a number of Indexes as
well as financial instruments and foreign currencies, including but not limited
to: 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 in
which the Funds may invest 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
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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 holder acquires a short position and the writer is assigned
the opposite long position.
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 (i.e.,
with the 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 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. Any transaction costs must also be included in these
calculations.
LIMITATIONS ON USE OF FUTURES AND FUTURES OPTIONS. The Funds may enter
into positions in futures contracts and related options for "bona fide hedging"
purposes. In addition, certain Funds may utilize futures contracts for
investment purposes. For instance, the Emerging Markets, International
Developed, International, International Growth, Structured Emerging Markets and
Tax-Efficient Structured Emerging Markets Funds may invest to a significant
degree in Index Futures on stock indexes and related options (including those
which may trade outside of the United States) as an alternative to purchasing
individual stocks in order to adjust their exposure to a particular market.
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 total market value of the futures contract.
Alternatively, the Fund may "cover" its position by
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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 Future, 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 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. In addition, there are significant differences between the
securities and futures markets that could result in an imperfect correlation
between the markets, causing a given hedge not to achieve its objectives. The
degree of imperfection of correlation depends on circumstances such as
variations in speculative market demand for futures and futures options on
securities, including technical influences in futures trading and futures
options, and differences between the financial instruments being hedged and the
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers.
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. A decision as to whether, when and how to hedge involves
the exercise of skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
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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. Some foreign exchanges may be principal markets so that no common
clearing facility exists and a trader may look only to the broker for
performance of the contract. 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. In addition, unless a Fund hedges against fluctuations in the
exchange rate between the U.S. dollar and the currencies in which trading is
done on foreign exchanges, any profits that a Fund might realize in trading
could be eliminated by adverse changes in the exchange rate, or the Fund could
incur losses as a result of those changes.
SWAP AGREEMENTS. The Tax-Efficient Equity, Emerging Markets, Structured
Emerging Markets, Tax-Efficient 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
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., 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 counter party 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
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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 counter parties that meet certain standards of
creditworthiness (generally, such counter parties would have to be eligible
counter parties 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.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT 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
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 a
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.
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
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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.
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 investment grade or are issued by issuers that have outstanding debt
obligations rated investment grade or commercial paper rated in the top rating
category by any NRSRO, or Metal-Indexed Notes issued by issuers that 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
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 fairly 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
23
<PAGE>
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.
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 counter parties.
SECURITIES LOANS
Subject to certain conditions described in the Prospectuses, each of the
Equity Income, Value, Tax-Efficient Equity, Enhanced Equity, Value 25, 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, Tax-Efficient Structured Emerging Markets
and Balanced Funds may make secured loans of its portfolio securities amounting
to no more than 33% of its total assets, and each of the Renaissance, Growth,
Opportunity, Innovation, International, International Growth and Precious Metals
Funds may make such loans amounting to no more than 25% of its 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 Managers 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,
International Growth and Precious Metals 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:
24
<PAGE>
(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; 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 metals, and the
Innovation Fund will concentrate more than 25% of its assets in companies which
use innovative technologies to gain a strategic, competitive advantage in their
industry as well as companies that provide and service those technologies.
The investment objective of each of the above-referenced Funds and the Tax-
Efficient Equity, Value 25 and Tax-Efficient Structured Emerging Markets Funds
is non-fundamental and may be changed with respect to each such Fund by the
Trustees without shareholder approval.
The investment restrictions set forth below are fundamental policies of
each of the Equity Income, Value, Tax-Efficient Equity, Enhanced Equity, Value
25, Capital Appreciation, Mid-Cap Growth, Small-Cap Value, Small-Cap Growth,
Core Equity, Mid-Cap Equity, Micro-Cap Growth, International Developed, Emerging
Markets, Tax-Efficient Structured Emerging Markets, Structured Emerging Markets
and Balanced Funds, 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. The investment objective of each of these Funds (with the exception of
the Tax-Efficient Equity, Value 25 and Tax-Efficient Structured Emerging Markets
Funds) is also fundamental and may not be changed without such shareholder
approval. Under the following 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
25
<PAGE>
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 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).
26
<PAGE>
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund is 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) 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.);
(3) 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 or has the right to acquire
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;
(4) purchase or sell commodities or commodity contracts except that a Fund
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;
(5) with respect to the Renaissance, Growth, Target, Opportunity,
Innovation, International, International Growth and Precious Metals Funds, make
loans, except by purchase of debt obligations or by entering into repurchase
agreements 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);
(6) with respect to the Renaissance, Growth, Target, Opportunity,
Innovation, International, International Growth and Precious Metals Funds, and
in each case with respect to 75% of such Fund's total assets, 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; 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;
(7) 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 15% of the
value of the net assets of the relevant Fund;
(8) write (sell) or purchase options except that each Fund may (a) write
covered call options or covered put options on securities that it is eligible to
purchase 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 (c) each Fund may engage
in 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; provided that the premiums paid by each Fund on all
outstanding options it has purchased do not exceed 5% of its total assets. Each
Fund may enter into closing sale transactions with respect to options it has
purchased;
27
<PAGE>
(9) invest more than 15% 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); or
(10) borrow money (excluding reverse repurchase agreements which are
subject to such Fund's fundamental borrowing restriction), except for temporary
administrative purposes.
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 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. 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>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------
<S> <C>
E. Philip Cannon Proprietor, Cannon & Company, an affiliate of Inverness Management
2401 Claremont Lane LLC, a private equity investment firm. Formerly, Headmaster, St. John's
Houston, TX 77019 School, Houston, Texas, Trustee of PIMCO Advisors Funds ("PAF") and
Age 56 Cash Accumulation Trust ("CAT"), General Partner, J.B. Poindexter &
Co., Houston, Texas (private partnership), and Partner, Iberia 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 Formerly, Trustee of PAF and CAT, Chairman, Executive Vice President
434 Stable Lane and Director, Cunningham & Walsh, Inc., Chicago (advertising agency).
Lake Forest, IL 60045
Age 70
- -----------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------
Gary A. Childress Private investor. Formerly, Chairman and Director, Bellefonte Lime
11 Longview Terrace Company, Inc. Mr. Childress is a partner in GenLime, L.P., a private
Madison, CT 06443 limited partnership, which has filed a petition in bankruptcy within the last
Age 64 five years. Formerly, Trustee of PAF and CAT.
- -----------------------------------------------------------------------------------------------------------
(*) William D. Cvengros Chairman of the Board of the Trust; Chief Executive Officer, President, and
800 Newport Center Drive member of the Management Board, PIMCO Advisors; Director, The
Newport Beach, CA 92660 Emerging Markets Income Fund, Inc., The Emerging Markets Income Fund
Age 49 II, Inc., The Emerging Markets Floating Rate Fund, Inc., Global Partners
Income Fund, Inc., Municipal Partners Fund, Inc., and Municipal Partners
Fund II, Inc. Formerly, Trustee of PAF and CAT, President of the Trust,
Director, Vice Chairman, and Chief Investment Officer, Pacific Life
Insurance Company ("Pacific Life") and Director, PIMCO Funds
Distribution Company (currently, PIMCO Funds Distributors LLC).
- -----------------------------------------------------------------------------------------------------------
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 68
- -----------------------------------------------------------------------------------------------------------
Lyman W. Porter Professor of Management at the University of California, Irvine; Trustee,
2639 Bamboo Street Pacific Select Fund.
Newport Beach, CA 92660
Age 68
- -----------------------------------------------------------------------------------------------------------
Alan Richards President, Alan Richards Consulting, Inc.; Trustee, Pacific Select Fund;
7381 Elegans Place Director, Western National Corporation. Formerly, President, Chief
Carlsbad, CA 92009 Executive Officer and Director, E.F. Hutton Insurance Group, Inc.;
Age 68 Chairman of the Board, Chief Executive Officer and President, E.F. Hutton
Life Insurance Company; Director, E.F. Hutton & Company, Inc.
- -----------------------------------------------------------------------------------------------------------
Joel Segall Formerly, Trustee of PAF and CAT, 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 74 Labor; Professor of Finance, University of Chicago; Board of Managers,
Coffee, Sugar and Cocoa Exchange.
- -----------------------------------------------------------------------------------------------------------
W. Bryant Stooks President, Bryant Investments, Ltd.; Director, American Agritec LLC.
1530 E. Montebello Formerly, Trustee of PAF and CAT, President, Senior Vice President,
Phoenix, AZ 85014 Director and Chief Executive Officer, Archirodon Group Inc.; Partner,
Age 57 Arthur Andersen & Co.
- -----------------------------------------------------------------------------------------------------------
Gerald M. Thorne Director, UPI Inc., Kaytee Inc., and American Orthodontics Corp.
5 Leatherwood Lane Formerly, Trustee of PAF and CAT, President and Director, Firstar
Savannah, GA 31414 National Bank of Milwaukee; Chairman, President and Director, Firstar
Age 59 National Bank of Sheboygan; Director, Bando-McGlocklin.
- -----------------------------------------------------------------------------------------------------------
(*) Stephen J. Treadway President and Chief Executive Officer of the Trust; Executive Vice
2187 Atlantic Street President, PIMCO Advisors; Chairman and President, PIMCO Funds
Stamford, CT 06902 Distributors LLC ("PFDLLC"); Director, Municipal Advantage Fund, Inc.
Age 50 and The Central European Value Fund, Inc. Formerly, Trustee, President
and Chief Executive Officer of CAT; Executive Vice President, Smith
Barney Inc.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Trustee is an "interested person" of the Trust (as defined in Section
2(a)(19) of the 1940 Act).
29
<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 Trustee, President and Executive Vice President, PIMCO Advisors;
2187 Atlantic Street Chief Executive Officer Chairman and President, PFDLLC;
Stamford, CT 06902 Director, Municipal Advantage Fund, Inc.
Age 50 and The Central European Value Fund, Inc.
Formerly, Trustee, President and Chief
Executive Officer of CAT; Executive Vice
President, Smith Barney Inc.
- ------------------------------------------------------------------------------------------------
R. Wesley Burns Executive Vice Trustee and President, PIMCO Funds:
Age 38 President Pacific Investment Management Series;
Executive Vice President, Pacific Investment
Management Company ("Pacific Investment
Management"); Trustee and President,
PIMCO Variable Insurance Trust.
Formerly, Vice President, Pacific Investment
Management, PAF and CAT.
- ------------------------------------------------------------------------------------------------
Newton B. Schott, Jr. Vice President and Executive Vice President, Chief
2187 Atlantic Street Secretary Administrative Officer and Secretary,
Stamford, CT 06902 PFDLLC. Formerly, Vice President and
Age 55 Clerk of PAF and CAT, Senior Vice
President-Legal and Secretary, PIMCO
Advisors; Executive Vice President,
Secretary and General Counsel, Thomson
Advisory Group and PIMCO Advisors.
- ------------------------------------------------------------------------------------------------
Jeffrey M. Sargent Vice President Vice President and Manager of Fund
Age 35 Shareholder Servicing, Pacific Investment
Management; Vice President of PIMCO
Funds: Pacific Investment Management
Series; Vice President, PIMCO Variable
Insurance Trust. Formerly, Project
Specialist, Pacific Investment Management.
- ------------------------------------------------------------------------------------------------
Richard M. Weil Vice President Senior Vice President - Legal, PIMCO
Age 34 Advisors. Formerly, Vice President,
Bankers Trust Company; Associate,
Simpson, Thatcher & Bartlett.
- ------------------------------------------------------------------------------------------------
John P. Hardaway Treasurer Treasurer of PIMCO Funds: Pacific
Age 40 Investment Management Series; Treasurer,
PIMCO Variable Insurance Trust; Vice
President and Manager of Fund Operations,
Pacific Investment Management. Formerly,
Treasurer of PAF and CAT.
- ------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
Joseph D. Hattesohl Assistant Treasurer Vice President and Manager of Fund
Age 34 Taxation, Pacific Investment Management;
Assistant Treasurer, PIMCO Funds: Pacific
Investment Management Series; Assistant
Treasurer of PIMCO Variable Insurance
Trust. Formerly, Director of Financial
Reporting, Carl I. Brown & Co.; Tax
Manager, Price Waterhouse LLP.
- ------------------------------------------------------------------------------------------------
Garlin G. Flynn Assistant Secretary Lead of PIMCO Funds Administration;
Age 51 Secretary, PIMCO Funds: Pacific Investment
Management Series; Secretary, PIMCO
Variable Insurance Trust. Formerly, Senior
Fund Administrator, Pacific Investment
Management; Senior Mutual Fund Analyst,
PIMCO Advisors Institutional Services;
Senior Mutual Fund Analyst, Pacific
Financial Asset Management Corporation.
- ------------------------------------------------------------------------------------------------
</TABLE>
TRUSTEES' COMPENSATION
Trustees other than those affiliated with PIMCO Advisors, a Portfolio
Manager, or Pacific Investment Management, receive an annual retainer of
$45,000, plus $2,000 for each Board of Trustees meeting attended, and $500 for
each Audit and Performance Committee meeting attended, plus reimbursement of
related expenses. Each Audit and Performance Committee member receives an
additional annual retainer of $1,000, the Chairman of the Audit and Performance
Committees receives an additional annual retainer of $2,000, the Chairman of the
Independent Trustees receives an additional annual retainer of $6,000, and each
Vice Chairman of the entire Board receives an additional annual retainer of
$3,000. Trustees do not currently receive any pension or retirement benefits
from the Trust or the Fund Complex (see below). The Trust has adopted a
deferred compensation plan for the Trustees, which went into place during 1997,
which permits the Trustees to defer their receipt of compensation from the
Trust, at their election, in accordance with the terms of the plan. Certain of
the Trustees earned deferred compensation for their services on behalf of PAF
which was carried forward under the Trust's plan.
31
<PAGE>
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 year ended June 30, 1997:
<TABLE>
<CAPTION>
(1) (2) (3)
TOTAL
AGGREGATE COMPENSATION
NAME OF TRUSTEE COMPENSATION FROM FROM TRUST AND
TRUST/1/ FUND COMPLEX/2/
<S> <C> <C>
- -------------------------------------------------------------
E. Philip Cannon/3/ $24,750.00 $54,000.00
- -------------------------------------------------------------
Donald P. Carter/3/ $28,800.00 $60,000.00
- -------------------------------------------------------------
Gary A. Childress/3/ $24,750.00 $54,000.00
- -------------------------------------------------------------
Gary L. Light/3/ $25,650.00 $56,000.00
- -------------------------------------------------------------
Richard L. Nelson $43,150.00 $70,000.00
- -------------------------------------------------------------
Lyman W. Porter $41,750.00 $71,500.00
- -------------------------------------------------------------
Alan Richards $44,500.00 $67,500.00
- -------------------------------------------------------------
Joel Segall/3/ $25,875.00 $56,750.00
- -------------------------------------------------------------
W. Bryant Stooks/3/ $24,750.00 $54,000.00
- -------------------------------------------------------------
Gerald M. Thorne/3/ $24,750.00 $54,000.00
- -------------------------------------------------------------
</TABLE>
- ------------------------------
/1/ The Trust has adopted a deferred compensation plan (the "Plan") which
went into place during fiscal 1997. Aggregate deferred compensation earned in
prior years by certain Trustees under a deferred compensation plan for PAF was
carried forward under the Plan. Of the amounts listed in column (2), the
following Trustees elected to have the following amounts deferred from the Trust
and all investment companies in the Fund Complex, respectively: Cannon -
$24,750, $54,000; Carter - $0, $28,000; Segall - $25,875, $56,750; Thorne -
$24,750, $54,000; Porter - $24,750, $27,500.
/2/ The amounts listed in column (3) include total compensation paid to the
Trustees for their services as Trustees of the Trust (for all Trustees), PAF
(for Messrs. Cannon, Carter, Childress, Light, Segall, Stooks and Thorne), CAT
(for all Trustees), and Pacific Select Fund (for Messrs. Nelson, Porter, and
Richards) for the twelve-month period ended June 30, 1997. By virtue of having
PIMCO Advisors or an affiliate of PIMCO Advisors as investment adviser, the
Trust, PAF, CAT and Pacific Select Fund were considered to be part of the same
"Fund Complex" for these purposes. PAF ceased operations on January 17, 1997
and did not pay compensation for services rendered after that date. Messrs.
Nelson, Porter and Richards became Trustees of CAT in February 1997 and did not
receive compensation from CAT prior thereto. As a result of a change in
management of CAT, no Trustee of the Trust is currently a Trustee of CAT and CAT
is no longer part of the same "Fund Complex" as the Trust. In addition, any
fees payable by CAT which have been deferred will be distributed to the Trustees
in accordance with the provisions of the Plan and the elections of the Trustees.
/3/ Messrs. Cannon, Carter, Childress, Light, Segall, Stooks and Thorne
became Trustees of the Trust in December 1997 and did not receive compensation
from the Trust prior thereto. Mr. Light retired as a Trustee of the Trust
during the fiscal year ended June 30, 1998.
32
<PAGE>
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. ("PGP") and PIMCO Advisors
Holdings L.P. ("PAH") are the general partners of PIMCO Advisors. PGP is a
general partnership between PIMCO Holding LLC ("PH LLC"), a Delaware limited
liability company and an indirect wholly-owned subsidiary of Pacific Life
Insurance Company, and PIMCO Partners LLC, a California limited liability
company controlled by the Managing Directors of Pacific Investment Management,
who are William H. Gross, Dean S. Meiling, James F. Muzzy, William F. Podlich,
III, Brent R. Harris, John L. Hague, William S. Thompson, Jr., William C.
Powers, Benjamin L. Trosky, William R. Benz, II and Lee R. Thomas, III
(collectively, the "Managing Directors"). PGP is the sole general partner of
PAH. PGP and PAH have equal right, power and authority to manage and control
the business and affairs of PIMCO Advisors and to take any action deemed
necessary or desirable by them in connection with the business of PIMCO
Advisors. Any difference arising as to any action connected with the business
of PIMCO Advisors, other than those requiring the unanimous consent of the
general partners, is decided by the general partner(s) holding a majority of the
outstanding PIMCO GP Units.
PGP and PAH have substantially delegated their management and control of
PIMCO Advisors to a Management Board of PIMCO Advisors. The activities of PIMCO
Advisors are controlled by the Management Board. As of April 1, 1998, the
members of the Management Board were Walter E. Auch, Sr., David B. Breed,
William D. Cvengros, Walter B. Gerken, William H. Gross, Brent R. Harris, Donald
R. Kurtz, George A. Long, James F. McIntosh, Kenneth H. Mortenson, William F.
Podlich, III, Glenn S. Schafer, Donald A. Chiboucas, Thomas C. Sutton, William
S. Thompson, Jr., and Benjamin L. Trosky.
Pursuant to the terms of the delegation of authority by PGP and PAH, the
Management Board of PIMCO Advisors is composed of (i) the Chief Executive
Officer of PIMCO Advisors; (ii) six other persons designated by PGP; (iii) three
disinterested persons designated by (A) representatives of the Public General
Partners (defined as any general partner of PIMCO Advisors that has at least one
class of equity security outstanding that is registered under Section 12 of the
Securities Exchange Act of 1934 and which, together with its subsidiaries, holds
PIMCO Units representing more than 95% of its consolidated assets other than
cash and cash equivalents), if any, in proportion to their ownership of PIMCO GP
Units or (B) if there are no Public General Partners, PGP or its successor as
general partner of PIMCO Advisors; (iv) the Chief Executive Officer and one
Managing Director of each of the two Investment Managing Firms having the
greatest total income, determined as of the date of appointment; and (v) one
Managing Director of each of two other Investment Managing Firms designated from
time to time by the Management Board upon the recommendation of the Nominating
Committee. PAH is a Public General Partner for the purposes set forth above.
PH LLC, a wholly-owned subsidiary of Pacific Life Insurance Company, and PIMCO
Partners, LLC, the general partners of PGP, have agreed that the six persons
designated by PGP (referred to in clause (ii) above) will be the Chief Executive
Officer of Pacific Investment Management, two other individuals designated by
PIMCO Partners, LLC and three individuals designated by Pacific Life Insurance
Company.
The Management Board has in turn delegated the authority to manage day-to-
day operations and policies to an Executive Committee. The Executive Committee
is composed of five members. The members of the Executive Committee include (i)
the Chief Executive Officer of PIMCO Advisors; (ii) three members appointed by
the PGP-appointed members of the Management Board; and (iii) one member
appointed by the Management Board, upon the recommendation of the Nominating
Committee, which members must have been appointed to the Management Board by an
Investment Management Firm other than Pacific Investment Management. PH LLC and
PIMCO Partners, LLC, the general partners of PGP, have agreed that the three
members of the Management Board of PIMCO Advisors designated by PGP to the
Executive Committee will be (a) the Chief Executive Officer of Pacific
Investment Management, (b) one member designated by PIMCO Partners, LLC, who
shall be the chairperson of the Executive Committee, and (c) one member
designated by Pacific Life Insurance Company.
33
<PAGE>
PIMCO Advisors, PGP and PAH are located at 800 Newport Center Drive, Suite
100, Newport Beach, CA 92660. PIMCO Advisors and its subsidiary partnerships had
approximately $223.2 billion of assets under management as of May 31, 1998.
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 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 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. 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, 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 the following annual rates (based on the average daily net assets of the
particular Funds):
<TABLE>
<CAPTION>
ADVISORY
FUND FEE RATE
---- --------
<S> <C>
Equity Income, Value, Tax-Efficient Equity
Capital Appreciation, Mid-Cap Growth
Structured Emerging Markets,
Tax-Efficient Structured Emerging Markets,
Enhanced Equity and Balanced Funds...................... .45%
Growth and Value 25 Funds................................. .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 and International Growth Funds........... .85%
Small-Cap Growth Fund.................................... 1.00%
Micro-Cap Growth Fund.................................... 1.25%
</TABLE>
For the fiscal years ended June 30, 1997, June 30, 1996, and October 31,
1995 (the fiscal year ended June 30, 1996 being an eight-month period) the Funds
paid the Adviser (or its predecessor) the following amounts under the Advisory
Contract:
34
<PAGE>
<TABLE>
<CAPTION>
YEAR PERIOD YEAR
ENDED ENDED ENDED
FUND 6/30/97 6/30/96 10/31/95
- ---- ------- ------- --------
<S> <C> <C> <C>
Equity Income Fund $ 555,146 $ 425,899 $ 445,739
Value Fund 463,869 65,873 60,686
Small-Cap Value Fund 249,347 156,721 203,158
Core Equity Fund 234,333 145,931 73,930
Mid-Cap Equity Fund 48,656 35,315 26,276
Capital Appreciation Fund 1,953,374 883,498 881,358
Mid-Cap Growth Fund 1,219,531 617,546 650,017
Micro-Cap Growth Fund 1,390,317 669,726 609,540
Small-Cap Growth Fund 327,245 426,098 594,905
Enhanced Equity Fund 292,187 274,512 319,036
Emerging Markets Fund 568,277 440,978 638,097
International Developed Fund 525,817 294,777 282,055
Balanced Fund 306,756 235,529 417,190
Renaissance Fund* 913,256 N/A N/A
Growth Fund* 3,758,433 N/A N/A
Target Fund* 2,887,743 N/A N/A
Opportunity Fund* 2,324,663 N/A N/A
Innovation Fund* 750,414 N/A N/A
International Fund* 559,353 N/A N/A
Precious Metals Fund* 119,710 N/A N/A
Tax Exempt Fund*/(1)/ 66,977 N/A N/A
----------- ---------- ----------
TOTAL $19,515,404 $4,672,403 $5,201,987
- --------------
</TABLE>
* For the period 1/18/97 through 6/30/97
(1) The Tax Exempt Fund merged with and into the Municipal Bond Fund of PIMCO
Funds: Pacific Investment Management Series in a transaction which took place on
June 26, 1998. The Tax Exempt Fund was liquidated in connection with the
transaction and is no longer a series of the Trust.
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 a Fund of the
Trust on January 17, 1997) paid the Adviser the following amounts for the fiscal
period ended January 17, 1997 and the fiscal years ended September 30, 1996 and
1995 under separate management contracts between the Adviser and PAF:
<TABLE>
<CAPTION>
10/1/96 YEAR YEAR
TO ENDED ENDED
FUND 1/17/97 9/30/96 9/30/95
- ---- ---------- ----------- -----------
<S> <C> <C> <C>
Renaissance Fund $ 653,744 $ 1,627,632 $ 1,371,809
Growth Fund 3,370,567 9,987,541 8,268,603
Target Fund 2,584,257 7,295,767 5,294,008
Opportunity Fund 1,898,337 6,183,575 5,000,057
Innovation Fund 545,586 1,063,584 265,836
International Fund 537,647 1,872,608 2,097,974
Precious Metals Fund 107,290 397,969 434,323
Tax Exempt Fund 99,023 333,349 369,918
---------- ----------- -----------
TOTAL $9,796,451 $28,762,025 $23,102,528
</TABLE>
35
<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 advises the Precious Metals Fund.
The Adviser currently has seven subsidiary partnerships, the following six of
which manage one or more of the 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").
Pacific Investment Management
- -----------------------------
Pursuant to a Portfolio Management Agreement between the Adviser and
Pacific Investment Management, Pacific Investment Management provides investment
advice 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 the annual rate of .25% of the average daily net assets 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. The predecessor investment adviser to Pacific
Investment Management 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 PIMCO Funds: Pacific Investment Management Series, 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. Pacific Investment Management also advises PIMCO Commercial Mortgage
Securities Trust, Inc. which is a closed-end management investment company, and
managed accounts consisting of proceeds from various pension and profit sharing
plans. Pacific Investment Management had approximately $133.6 billion of assets
under management as of May 31, 1998.
Parametric
- ----------
Pursuant to a Portfolio Management Agreement between the Adviser and
Parametric, Parametric is the Portfolio Manager and provides investment advisory
services to the Tax-Efficient Equity, Enhanced Equity, Structured Emerging
Markets and Tax-Efficient Structured Emerging Markets Funds. For the services
provided to each Fund, the Adviser (not the Trust) pays Parametric a monthly fee
for each Fund at the following annual rates (based on the average daily net
assets of the particular Fund): .35% for the Tax-Efficient Equity Fund, .35%
for the Enhanced Equity Fund, .35% for the Structured Emerging Markets Fund, and
.35% for the Tax-Efficient 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
36
<PAGE>
Management Inc. as the managing partner. 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 institutional
accounts, including employee benefit plans, college endowment funds and
foundations. Accounts managed by Parametric had combined assets, as of May 31,
1998, of approximately $3 billion.
Cadence
- -------
Pursuant to a Portfolio Management Agreement between the Adviser and
Cadence, Cadence 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 monthly fee for each Fund at the following annual
rates (based on the average daily net assets of the particular Fund): .35% for
the Capital Appreciation Fund, .35% for the Mid-Cap Growth Fund, .35% for the
portion of the Balanced Fund's assets 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. 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 institutional accounts, including employee
benefit plans, college endowment funds and foundations. Accounts managed by
Cadence had combined assets, as of May 31, 1998, of approximately $6.6 billion.
NFJ
- ---
Pursuant to a Portfolio Management Agreement between the Adviser and
NFJ, NFJ provides investment advisory services to the Equity Income Fund, the
Value Fund, the Value 25 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 monthly fee for
each Fund at the following annual rates (based on the average daily net assets
of the particular Fund): .35% for the Equity Income Fund, 40% for the Value 25
Fund, .35% for the Value Fund, .35% for 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. 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 institutional accounts, including
employee benefit plans, college endowment funds and foundations. Accounts
managed by NFJ had combined assets, as of May 31, 1998, of approximately $2.7
billion.
Columbus Circle
- ---------------
Pursuant to a Portfolio Management Agreement between the Adviser and
Columbus Circle, Columbus Circle provides investment advisory services to the
Renaissance, Growth, Target, Opportunity, Innovation, Core Equity, Mid-Cap
Equity, and International Growth Funds. For the services provided, the Adviser
(not the Trust) pays Columbus Circle a monthly fee for each Fund at the
following annual rates (based on the average daily net assets of the particular
Fund): .34% for the Growth Fund, .36% for the Target Fund, .38% for the
Renaissance
37
<PAGE>
Fund, .38% for the Innovation Fund, .47% for the Core Equity Fund, .48% for the
Opportunity Fund, .53% for the Mid-Cap Equity Fund, and .75% for the
International Growth 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'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,
including corporate, government and union pension and profit-sharing plans,
foundations and educational institutions. Accounts managed by Columbus Circle
had combined assets, as of May 31, 1998, of $9.5 billion.
Blairlogie
- ----------
Pursuant to a Portfolio Management Agreement between the Adviser and
Blairlogie, Blairlogie 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 monthly fee for
each Fund at the following annual rates (based on the average daily net assets
of the particular Fund): .40% for the International Fund, .50% for the
International Developed Fund, and .75% for the Emerging Markets Fund.
Blairlogie is an investment management firm organized as a limited
partnership under the laws of the 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 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 Pacific Asset Management LLC (a subsidiary of
Pacific Life Insurance Company), and the limited partners of which are the
principal executive officers of Blairlogie Capital Management. Blairlogie is
located at 4th Floor, 125 Princes Street, Edinburgh EH2 4AD, Scotland.
Blairlogie provides investment management services to a number of institutional
accounts, including employee benefit plans, college endowment funds and
foundations. Accounts managed by Blairlogie had combined assets, as of May 31,
1998, of approximately $800 million.
Van Eck
- -------
Pursuant to a Portfolio Management Agreement between the Adviser and
Van Eck, Van Eck provides investment advisory services to the Precious Metals
Fund. For the Services provided, the Adviser (not the Trust) pays Van Eck a
monthly fee at the annual rate of .35% based on 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 and its affiliates advise 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 May 31, 1998, of approximately $1.4 billion.
PIMCO Advisors determines the allocation of the Balanced Fund's assets
among the various asset classes and types of securities in which the Fund
invests. PIMCO Advisors reserves the right to allocate a portion of the Fund's
assets for investment in money market instruments and reserves the right to
manage the investment of such assets.
38
<PAGE>
For the fiscal years ended June 30, 1997, June 30, 1996, and October
31, 1995 (the fiscal year ended June 30, 1996 being an eight-month period), the
amount of portfolio management fees paid by the Adviser (or its predecessor) to
the applicable Portfolio Manager (or its predecessor) for each of the Funds was
as follows:
<TABLE>
<CAPTION>
YEAR PERIOD YEAR
ENDED ENDED ENDED
FUND 06/30/97 06/30/96 10/31/95
- ---- -------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $ 492,429 $ 425,899 $ 445,739
Value Fund 388,966 65,873 60,686
Small-Cap Value Fund 224,788 156,721 203,158
Core Equity Fund 215,998 136,615 62,906
Mid-Cap Equity Fund 45,074 23,814 13,832
Capital Appreciation Fund 1,714,191 883,498 881,358
Mid-Cap Growth Fund 1,059,242 617,546 650,017
Micro-Cap Growth Fund 1,325,695 669,726 609,540
Small-Cap Growth Fund 311,280 426,098 594,905
Enhanced Equity Fund 268,021 274,512 319,036
Emerging Markets Fund 501,411 385,438 550,590
International Developed Fund 478,789 237,138 241,135
Balanced Fund 228,898 161,345 332,255
Renaissance Fund* 575,288 N/A N/A
Growth Fund* 2,544,364 N/A N/A
Target Fund* 1,869,073 N/A N/A
Opportunity Fund* 1,709,827 N/A N/A
Innovation Fund* 435,246 N/A N/A
International Fund* 348,938 N/A N/A
Precious Metal Fund* 66,070 N/A N/A
Tax Exempt Fund* 66,756 N/A N/A
----------- ---------- ----------
TOTAL $14,870,344 $4,464,223 $4,965,157
</TABLE>
_________________
*For the period 1/18/97 through 6/30/97.
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 period ended January 17, 1997 and the fiscal years ended
September 30, 1996 and 1995 under separate sub-adviser agreements between the
Adviser and the relevant Portfolio Manager:
39
<PAGE>
<TABLE>
<CAPTION>
10/1/96 YEAR YEAR
TO ENDED ENDED
FUND 1/17/97 09/30/96 09/30/95
- ---- ------- -------- --------
<S> <C> <C> <C>
Renaissance Fund $ 326,864 $ 813,816 $ 595,500
Growth Fund 1,685,284 4,993,770 3,634,403
Target Fund 1,292,168 3,647,884 2,353,106
Opportunity Fund 949,192 3,091,788 2,205,293
Innovation Fund 272,772 531,792 132,918
International Fund 268,824 936,304 889,339
Precious Metals Fund 53,837 198,985 217,162
Tax Exempt Fund 49,512 166,675 159,370
---------- ----------- -----------
TOTAL $4,898,453 $14,381,014 $10,187,091
</TABLE>
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 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 Funds' 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 class or classes of shares on an annual basis):
ADMINISTRATIVE FEE RATE
-----------------------
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS A, CLASS B,
ADMINISTRATIVE AND CLASS C CLASS D
CLASSES* SHARES* SHARES**
-------------- ----------------------------------------- ---------
<S> <C> <C> <C>
Equity Income Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Tax-Efficient Equity Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Value Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Small-Cap Value Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Core Equity Fund .25% N/A N/A
Mid-Cap Equity Fund .25% N/A N/A
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C> <C>
Value 25 Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Capital Appreciation Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Mid-Cap Growth Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Micro-Cap Growth Fund .25% N/A N/A
Small-Cap Growth Fund .25% N/A N/A
Enhanced Equity Fund .25% N/A N/A
Emerging Markets Fund .50% .65% of first $2.5 billion N/A
.60% of amounts in excess of $2.5 billion
International Development .50% .65% of first $2.5 billion N/A
Fund .60% of amounts in excess of $2.5 billion
Balanced Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Renaissance Fund .25% % .40% of first $2.5 billion .65
.35% of amounts in excess of $2.5 billion
Growth Fund N/A .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Target Fund N/A .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Opportunity Fund N/A .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Innovation Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
International Fund .50% .65% of first $2.5 billion N/A
.60% of amounts in excess of $2.5 billion
International Growth Fund .50% N/A N/A
Precious Metal Fund N/A .45% of first $2.5 billion N/A
.40% of amounts in excess of $2.5 billion
Tax-Efficient Structured N/A N/A N/A
Emerging Markets Fund
Structured Emerging .50% N/A N/A
Markets Fund
</TABLE>
* The Administrator receives administrative fees based on a Fund's average daily
net assets attributable in the aggregate to the Funds' Institutional and
Administrative Class shares on the one hand, and to the Funds' Class A, Class B
and Class C shares on the other.
41
<PAGE>
** As described below, the Administration Agreement includes a plan adopted in
conformity with Rule 12b-1 which provides for the payment of up to .25% of the
.65% Class D Administrative Fee rate as reimbursement for expenses in respect of
activities that may be deemed to be primarily intended to result in the sale of
Class D shares.
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 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, Class D or Administrative Class
shares and administrative fees as described above, 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 and administrative
fees will be allocated on a class-specific basis.
The Administration Agreement may be terminated by the Trust at any time by
vote of (1) a majority of the Trustees, (2) a majority of the outstanding voting
securities of the Trust, or (3) with respect to the Renaissance, Growth, Target,
Opportunity, Innovation, International and Precious Metals Funds, by a majority
of the Trustees who are not interested persons of the Trust or PIMCO Advisors,
on 60 days' written notice to PIMCO Advisors.
Under the Administration Agreement, the Administrator or an affiliate may
pay financial service firms a portion of the Class D administration fees in
return for the firms' services (normally not to exceed an annual rate of .35% of
a Fund's average daily net assets attributable to Class D shares purchased
through such firms). The Administration Agreement includes a plan specific to
Class D shares which has been adopted in conformity with the requirements set
forth under Rule 12b-1 of the 1940 Act to allow for payment of up to .25% per
annum of the Class D administrative fees as reimbursement for expenses in
respect of activities that may be deemed to be primarily intended to result in
the sale of Class D shares. The principal types of activities for which such
payments may be made are services in connection with the distribution of Class D
shares and/or the provision of shareholder services. See "Distribution of Trust
Shares - Plan for Class D Shares."
After an initial two-year term, the Sub-Administration Agreement will
continue from year to year upon the approval of the parties thereto. The Sub-
Administration Agreement may be terminated at any time by PIMCO Advisors or
Pacific Investment Management upon 60 days' written notice to the other party
and, with respect to the services rendered to the Trust, at any time by vote of
a majority of the disinterested Trustees of the Trust. The Sub-Administration
Agreement will also terminate upon termination of the Administration Agreement.
42
<PAGE>
For the fiscal years ended June 30, 1997, June 30, 1996, and October 31,
1995 (the fiscal year ended June 30, 1996 being an eight-month period), the
aggregate amount of the administration fees paid by the Funds was as follows
(Class A, Class B and Class C shares were not offered prior to January 17, 1997
and Class D shares were not offered during the periods listed):
<TABLE>
<CAPTION>
YEAR PERIOD YEAR
ENDED ENDED ENDED
06/30/97 06/30/96 10/31/95
FUND
- ------------------------------
<S> <C> <C> <C>
Equity Income Fund $ 311,798 $ 236,611 $ 247,633
Value Fund 318,624 36,596 33,714
Small-Cap Value Fund 114,067 65,176 84,649
Core Equity Fund 102,634 63,942 32,425
Mid-Cap Equity Fund 19,291 14,011 10,427
Capital Appreciation Fund 1,093,013 490,803 489,643
Mid-Cap Growth Fund 729,997 342,880 361,121
Micro-Cap Growth Fund 278,025 133,934 121,908
Small-Cap Growth Fund 81,774 106,715 148,726
Enhanced Equity Fund 161,982 151,842 177,243
Emerging Markets Fund 312,540 259,300 375,351
International Developed Fund 437,490 244,350 235,046
Balanced Fund 170,134 130,017 231,772
Renaissance Fund* 605,566 N/A N/A
Growth Fund* 2,993,370 N/A N/A
Target Fund* 2,076,748 N/A N/A
Opportunity Fund* 1,424,856 N/A N/A
Innovation Fund* 458,154 N/A N/A
International Fund* 567,025 N/A N/A
Precious Metals Fund* 84,947 N/A N/A
Tax Exempt Fund* 89,008 N/A N/A
----------- ---------- ----------
TOTAL $12,431,043 $2,276,177 $2,549,658
- ------------------------
</TABLE>
* For the period from 1/17/97 through 6/30/97
The predecessor series of the Renaissance, Growth, Target, Opportunity,
Innovation, International, Precious Metals and Tax Exempt Funds (each a series
of PAF which reorganized as a Fund of the Trust on January 17, 1997) received
administrative services during fiscal 1997, 1996 and 1995 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 by these
series under such management contracts during fiscal 1997, 1996 and 1995.
DISTRIBUTION OF TRUST SHARES
DISTRIBUTOR AND MULTI-CLASS PLAN
PIMCO Funds Distributors LLC (the "Distributor") serves as the distributor
of each class of the Trust's shares pursuant to a distribution contract (the
"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
43
<PAGE>
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 entire Board of Trustees or by the majority of the outstanding shares of the
Fund or class, and (ii) by a majority of the Trustees who are not interested
persons (as defined in the 1940 Act) of the Trust and who have no direct or
indirect interest financial interest in the Distribution Contract or the
Distribution and/or Servicing Plans described below, by vote cast in person at a
meeting called for the purpose. If the Distribution Contract is terminated (or
not renewed) with respect to one or more Funds or classes, it may continue in
effect with respect to any Fund or class as to which it has not been terminated
(or has been renewed).
The Trust currently offers up to six classes of shares of each of the
Funds: Class A, Class B, Class C, Class D, 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").
Class D shares are generally offered to clients of financial service firms,
such as broker-dealers or registered investment advisors, with which the
Distributor has an agreement for the use of PIMCO Funds: Multi-Manager Series in
particular investment products, programs or accounts for which a fee may be
charged.
Institutional Class shares 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). Administrative Class
shares 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 Administrative Class
shareholders.
Under the Trust's Multi-Class Plan, shares of each class of each Fund
represent an equal pro rata interest in the 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 Class A, B and C 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 Class D, 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.
44
<PAGE>
During the fiscal year ended June 30, 1997, the Distributor received an
aggregate of $40,456, $789,851, and $533,975, in contingent deferred sales
charges on, respectively, Class A shares, Class B shares and Class C shares of
the Funds.
The Funds did not offer Class A, B and C shares in prior fiscal years.
However, during the fiscal year ended September 30, 1996, the Distributor
received the following amounts in contingent deferred sales charges on shares of
series of PAF which reorganized as the following Funds of the Trust: Class A
-------
shares: Growth -$9,168, Target - $14 and Opportunity - $4,190. Class B shares:
- ------ ---------------
Renaissance - $8,722, Growth - $37,445, Target - $31,670, Innovation - $36,477,
International - $6,359, Precious Metals - $1,179 and Tax Exempt -$4,055. Class
-----
C shares: 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.
As described in the Class A, B and C 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 year ended June 30, 1997, the Distributor received an
aggregate of $2,927,636 and retained an aggregate of $369,546, in initial sales
charges paid by Class A shareholders of the Trust.
The Trust did not offer Class A shares in prior fiscal years. However,
during the fiscal year ended September 30, 1996, the Distributor received the
following amounts in initial sales charges paid by shareholders of 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.
During the fiscal year ended September 30, 1995, the Distributor received an
aggregate of $3,708,105 and retained an aggregate of $366,062 in initial sales
charges paid by shareholders of PAF.
DISTRIBUTION AND SERVICING PLANS FOR CLASS A, CLASS B AND CLASS C SHARES
As stated in the text of the Class A, B and C 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 Class A, B and C
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 Class A, B
and C 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. 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
45
<PAGE>
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 the purpose of
voting on such approval.
The Retail Plans went into effect for the Funds in January 1997. 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 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
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.
PAYMENTS PURSUANT TO CLASS A PLANS
For the fiscal year ended June 30, 1997, the Trust paid the Distributor an
aggregate of $1,147,572 pursuant to the Class A Retail Plan. Such payments were
allocated among the operational Funds as follows:
<TABLE>
<CAPTION>
Year Ended
Fund 06/30/97
- ------------------------------ --------------------
<S> <C>
Equity Income Fund $ 938
Value Fund 14,876
Small-Cap Value Fund 2,770
Core Equity Fund N/A
Mid-Cap Equity Fund N/A
Capital Appreciation Fund 5,510
Mid-Cap Growth Fund 12,246
Micro-Cap Growth Fund N/A
Small-Cap Growth Fund N/A
Enhanced Equity Fund N/A
Emerging Markets Fund 108
International Developed Fund 169
Balanced Fund 173
Renaissance Fund 53,527
Growth Fund 290,828
Target Fund 288,012
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
Opportunity Fund 320,127
Innovation Fund 99,910
International Fund 34,195
Precious Metals Fund 14,218
Tax Exempt Fund 9,965
</TABLE>
During the fiscal year ended June 30, 1997, the amounts collected pursuant
to the Class A Retail Plan and the contingent deferred sales charge imposed on
Class A shares were used as follows by the Distributor: sales commissions and
other compensation to sales personnel, $1,166,294; 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), $397,691. The total, if allocated among
the Funds, based on the net assets attributable to their Class A shares at June
30, 1997, would have been as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
------------ -------------- --------
<S> <C> <C> <C>
Equity Income Fund $ 3,107 1,059 $ 4,166
Value Fund 27,041 9,221 36,262
Small-Cap Value Fund 11,241 3,833 15,074
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 11,288 3,849 15,137
Mid-Cap Growth Fund 20,972 7,151 28,123
Micro-Cap Growth Fund N/A N/A N/A
Small-Cap Growth Fund N/A N/A N/A
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund 356 121 477
International Developed Fund 549 187 736
Balanced Fund 632 216 848
Renaissance Fund 58,097 19,810 77,907
Growth Fund 256,697 87,530 344,227
Target Fund 263,570 89,874 353,444
Opportunity Fund 367,870 125,439 493,309
Innovation Fund 94,778 32,318 127,096
International Fund 33,683 11,485 45,168
Precious Metals Fund 6,932 2,364 9,296
Tax Exempt Fund 9,480 3,833 13,313
</TABLE>
The Trust did not offer Class A shares in prior fiscal years. For the
fiscal years ended September 30, 1996 and 1995, PAF paid the Distributor an
aggregate of $1,556,119 and $1,064,958, 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 Plan of the Trust. Such payments were
allocated among the predecessors of the following Funds (each of which was
formerly a series of PAF 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 Fund $ 38,973 $ 33,249
Growth Fund 351,506 289,263
Target Fund 338,598 251,511
Opportunity Fund 308,794 255,940
Innovation Fund 88,089 28,918
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
International Fund 42,411 49,788
Precious Metals Fund 21,416 22,178
Tax Exempt Fund 10,288 6,485
</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.
PAYMENTS PURSUANT TO CLASS B PLANS
For the fiscal year ended June 30, 1997, the Trust paid the Distributor an
aggregate of $1,670,623 pursuant to the Class B Retail Plan. Such payments were
allocated among the operational Funds as follows:
<TABLE>
<CAPTION>
Year Ended
Fund 06/30/97
- ---- ---------
<S> <C>
Equity Income Fund $ 5,019
Value Fund 101,067
Small-Cap Value Fund 17,419
Core Equity Fund N/A
Mid-Cap Equity Fund N/A
Capital Appreciation Fund 5,077
Mid-Cap Growth Fund 104,374
Micro-Cap Growth Fund N/A
Small-Cap Growth Fund N/A
Enhanced Equity Fund N/A
Emerging Markets Fund 633
International Developed Fund 2,256
Balanced Fund 2,223
Renaissance Fund 204,965
Growth Fund 351,684
Target Fund 450,009
Innovation Fund 332,295
International Fund 53,098
Precious Metals Fund 21,713
Tax Exempt Fund 18,818
</TABLE>
During the fiscal year ended June 30, 1997, the amounts collected pursuant
to the Class B Retail Plan and the contingent deferred sales charge imposed on
Class B shares were used as follows by the Distributor: sales commissions and
other compensation to sales personnel, $499,840; 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), $170,439. The total, if allocated among
the Funds, based on the net assets attributable to their Class B shares at June
30, 1997, would have been as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
------------ -------------- -----
<S> <C> <C> <C>
Equity Income Fund $ 4,235 $ 1,444 $ 5,679
Value Fund 42,327 14,433 56,760
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C> <C>
Small-Cap Value Fund 18,336 6,252 24,588
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 5,026 1,714 6,740
Mid-Cap Growth Fund 45,721 15,590 61,311
Micro-Cap Growth Fund N/A N/A N/A
Small-Cap Growth Fund N/A N/A N/A
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund 514 175 689
International Developed Fund 1,836 626 2,462
Balanced Fund 1,872 638 2,510
Renaissance Fund 62,109 21,178 83,287
Growth Fund 92,401 31,507 123,908
Target Fund 113,822 38,812 152,634
Innovation Fund 85,939 29,304 115,243
International Fund 14,406 4,912 19,318
Precious Metals Fund 7,073 2,412 9,485
Tax Exempt Fund 4,225 1,441 5,666
</TABLE>
The Trust did not offer Class B shares in prior fiscal years. 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 Plan of the Trust. Such payments were
allocated among the predecessors of the following Funds (each of which was
formerly a series of PAF 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 Fund $ 62,195 $ 2,071
Growth Fund 211,778 12,583
Target Fund 241,125 11,816
Opportunity Fund N/A N/A
Innovation Fund 166,747 9,364
International Fund 289,719 555
Precious Metals Fund 14,083 270
Tax Exempt Fund 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.
49
<PAGE>
PAYMENTS PURSUANT TO CLASS C PLANS
For the fiscal year ended June 30, 1997, the Trust paid the Distributor an
aggregate of $28,944,078 pursuant to the Class C Retail Plan. Such payments
were allocated among the operational Funds as follows:
<TABLE>
<CAPTION>
Year Ended
<S> <C>
Fund 06/30/97
- ------------------------------ -----------
Equity Income Fund $ 13,919
Value Fund 245,893
Small-Cap Value Fund 39,558
Core Equity Fund N/A
Mid-Cap Equity Fund N/A
Capital Appreciation Fund 28,078
Mid-Cap Growth Fund 197,365
Micro-Cap Growth Fund N/A
Small-Cap Growth Fund N/A
Enhanced Equity Fund N/A
Emerging Markets Fund 5,070
International Developed Fund 4,936
Balanced Fund 1,876
Renaissance Fund 2,024,245
Growth Fund 11,107,219
Target Fund 7,238,372
Opportunity Fund 4,950,118
Innovation Fund 1,149,018
International Fund 1,354,452
Precious Metals Fund 255,508
Tax Exempt Fund 328,451
</TABLE>
During the fiscal year ended June 30, 1997, the amounts collected pursuant
to the Class C Retail Plan and the contingent deferred sales charge imposed on
Class C shares were used as follows by the Distributor: sales commissions and
other compensation to sales personnel, $6,664,535; 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), $2,272,518. The total, if allocated
among the Funds, based on the net assets attributable to their Class C shares at
June 30, 1997, would have been as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
------------ -------------- ---------
<S> <C> <C> <C>
$ 10,972 $ 3,741 $14,713
Equity Income Fund
Value Fund 106,994 36,484 143,478
Small-Cap Value Fund 34,094 11,626 45,720
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 21,817 7,439 29,256
Mid-Cap Growth Fund 89,419 30,491 119,910
Micro-Cap Growth Fund N/A N/A N/A
Small-Cap Growth Fund N/A N/A N/A
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund 3,057 1,043 4,100
International Developed Fund 4,160 1,419 5,579
Balanced Fund 1,470 501 1,971
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C> <C>
Renaissance Fund 519,433 177,120 696,553
Growth Fund 2,534,587 854,261 3,388,848
Target Fund 1,618,653 551,939 2,170,592
Opportunity Fund 1,049,063 357,717 1,406,780
Innovation Fund 271,932 92,725 364,657
International Fund 287,886 98,165 386,051
Precious Metals Fund 41,949 14,304 56,253
Tax Exempt Fund 69,048 23,544 92,592
</TABLE>
The Trust did not offer Class C shares in prior fiscal years. For the
fiscal years ended September 30, 1996 and 1995, PAF paid the Distributor an
aggregate of $41,704,155 and $34,667,013, respectively, pursuant to a
Distribution and Servicing Plan applicable to the Class C shares of PAF (the
"PAF Class C Plan"), which is similar to the Class C Plan of the Trust. Such
payments were allocated among the predecessors of the following Funds (each of
which was formerly a series of 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 Fund $ 1,965,449 $ 1,694,012
Growth Fund 13,593,775 11,397,447
Target Fund 8,684,223 6,402,149
Opportunity Fund 7,455,633 5,976,316
Innovation Fund 899,377 229,411
International Fund 1,858,512 2,422,761
Precious Metals Fund 430,849 490,116
Tax Exempt Fund 499,738 589,843
</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.
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. The Trust also has adopted 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 the Administrative Distribution 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
for costs and expenses incurred in connection with the distribution and
marketing of Administrative Class shares and/or the provision of certain
shareholder services to its customers that invest in Administrative Class shares
of the Funds. Such 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 Trust is permitted
to reimburse, out of the assets attributable to the Administrative Class shares
of each Fund, in an amount up to 0.25% on an annual basis
51
<PAGE>
of the average daily net assets of that class, financial intermediaries that
provide certain administrative services for Administrative Class shareholders.
Such 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
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 increase
materially 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.
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 Administrative 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.
PAYMENTS PURSUANT TO ADMINISTRATIVE DISTRIBUTION PLAN
For the fiscal year ended June 30, 1997, the Trust made no payments
pursuant to the Administrative Distribution Plan. The Administrative
Distribution Plan was not in effect in prior fiscal years.
52
<PAGE>
PAYMENTS PURSUANT TO ADMINISTRATIVE SERVICES PLAN
For the fiscal year ended June 30, 1997, the Trust paid qualified service
providers an aggregate of $132,422 pursuant to the Administrative Services Plan.
Such payments were allocated among the operational Funds as follows:
<TABLE>
<CAPTION>
Year Ended
Fund 06/30/97
- ------------------------------ ---------
<S> <C>
Equity Income Fund $ 16,938
Value Fund 0
Small-Cap Value Fund 12,276
Core Equity Fund 79,366
Mid-Cap Equity Fund 0
Capital Appreciation Fund 3,297
Mid-Cap Growth Fund 4,723
Micro-Cap Growth Fund 1,898
Small-Cap Growth Fund 137
Enhanced Equity Fund 0
Emerging Markets Fund 582
International Developed Fund 13,205
Balanced Fund 0
Renaissance Fund 0
Growth Fund 0
Target Fund 0
Opportunity Fund 0
Innovation Fund 0
International Fund 0
Precious Metals Fund 0
Tax Exempt Fund 0
</TABLE>
The Trust has been informed that all of these amounts constituted "service
fees" under applicable NASD rules. The Administrative Services Plan was not in
effect in prior fiscal years.
PLAN FOR CLASS D SHARES
As described above under "Management of the Trust - Fund Administrator,"
the Funds' Administration Agreement includes a plan (the "Class D Plan") adopted
in conformity with Rule 12b-1 under the 1940 Act which provides for the payment
of up to .25% of the Class D administrative fees as reimbursement for expenses
in respect of activities that may be deemed to be primarily intended to result
in the sale of Class D shares.
Specifically, the Administration Agreement provides that the Administrator
shall provide in respect of Class D shares (either directly or by procuring
through other entities, including various financial services firms such as
broker-dealers and registered investment advisors ("Service Organizations"))
some or all of the following services and facilities in connection with direct
purchases by shareholders or in connection with products, programs or accounts
offered by such Service Organizations ("Special Class D Services"): (i)
facilities for placing orders directly for the purchase of a Fund's Class D
shares and tendering a Fund's Class D shares for redemption; (ii) advertising
with respect to a Fund's Class D shares; (iii) providing information about the
Funds; (iv) providing facilities to answer questions from prospective investors
about the Funds; (v) receiving and answering correspondence, including requests
for prospectuses and statements of additional information; (vi) preparing,
printing and delivering prospectuses and shareholder reports to prospective
shareholders; (vii) assisting investors in applying to purchase Class D shares
and selecting dividend and other account options; and (viii) shareholder
services provided by a Service Organization that may include, but are not
limited to, the following functions:
53
<PAGE>
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; issuing
confirmations for transactions by shareholders; performing similar account
administrative services; providing such shareholder communications and
recordkeeping services as may be required for any program for which the Service
Organization is a sponsor that relies on Rule 3a-4 under the 1940 Act; and
providing such other similar services as may reasonably be requested to the
extent the Service Organization is permitted to do so under applicable statutes,
rules, or regulations.
The Administrator has entered into an agreement with the Distributor under
which the Distributor is compensated for providing or procuring certain of the
Special Class D Services at the rate of 0.25% per annum of all assets
attributable to Class D shares sold through the Distributor.
The Trust and the Administrator understand that some or all of the Special
Class D Services provided pursuant to the Administration Agreement may be deemed
to represent services primarily intended to result in the sale of Class D
shares. The Administration Agreement includes the Class D Plan to account for
this possibility. The Administration Agreement provides that any portion of the
fees paid thereunder in respect of Class D shares representing reimbursement for
the Administrator's and the Distributor's expenditures and internally allocated
expenses in respect of Class D Services of any Fund shall not exceed the rate of
0.25% per annum of the average daily net assets of such Fund attributable to
Class D shares.
In accordance with Rule 12b-1 under the 1940 Act, the Class D Plan may not
be amended to increase materially the costs which Class D shareholders may bear
under the Plan without the approval of a majority of the outstanding Class D
shares, and by vote of a majority of both (i) the Trustees of the Trust and (ii)
those Trustees ("disinterested Class D 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. The Class D Plan may not take effect until
approved by vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Class D Plan Trustees. In addition, the Class D Plan may not
take effect unless it is approved by the vote of a majority of the outstanding
Class D shares and it shall continue in effect only so long as such continuance
is specifically approved at least annually by the Trustees and the disinterested
Class D Plan Trustees.
With respect to the Class D Plan, the Administration Agreement requires the
Administrator to present reports as to out-of-pocket expenditures and internal
expense allocations of the Administrator and the Distributor at least quarterly
and in a manner that permits the disinterested Class D Plan Trustees to
determine that portion of the Class D administrative fees paid thereunder which
represents reimbursements in respect of Special Class D Services.
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 the Class D Plan will qualify as "service
fees" and therefore will not be limited by NASD rules.
PURCHASES, EXCHANGES AND REDEMPTIONS
Purchases, exchanges and redemptions of Class A, Class B and Class C shares
are discussed in the Class A, B and C Prospectus under the headings "How to Buy
Shares," "Exchange Privilege," and "How to Redeem." Purchases, exchanges and
redemptions of Class D shares are discussed in the Class D Prospectus under the
headings "How to Buy Shares," "Exchange Privilege," and "How to Redeem."
Purchases, exchanges and
54
<PAGE>
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."
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 Class A, B, and C Prospectus and in the Class D
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 the same class 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, 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 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 Class
A, B and C 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.
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 year. For instance, with respect to exchanges
involving Class A, Class B, Class C or Class D shares, the Trust currently
limits the number of "round trip" exchanges an investor may make. An investor
makes a "round trip" exchange when the investor purchases shares of a particular
Fund, subsequently exchanges those shares for shares of a different Fund and
then exchanges back into the originally purchased Fund. The Trust has the right
to refuse any exchange for any investor who completes (by making the exchange
back into the shares of the originally purchased Fund) more than six round trip
exchanges in any twelve-month period. Although the Trust has no current
intention of terminating or modifying the exchange privilege other than as set
forth in the preceding sentence, it reserves the right to do so 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 a Fund not
reasonably practicable.
55
<PAGE>
The Trust is committed to paying in cash all requests for redemptions by
any shareholder of record of the Funds, limited in amount with respect to each
shareholder during any 90-day period to the lesser of (i) $250,000, or (ii) 1%
of the net asset value of the Trust at the beginning of such period. Although
the Trust will normally redeem all shares for cash, it may, in unusual
circumstances, redeem amounts in excess of the lesser of (i) or (ii) above by
payment in kind of securities held in the Funds' portfolios.
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to redeem 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 a
specified amount, the minimums of which are currently set at $250 for Class A,
Class B and Class C shares, $2,000 for Class D shares, and $100,000 with respect
to Institutional Class and Administrative Class shares. The Prospectuses may
set forth higher minimum account balances for one or more classes from time to
time depending upon the Trust's current policy. 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 the specified amount
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. The Funds may also charge periodic account fees for
accounts that fall below minimum balances as described in the Prospectuses.
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 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/or each Portfolio Manager places orders for the purchase
and sale of portfolio securities, options and futures contracts 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 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
56
<PAGE>
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, 1997, June 30, 1996, and October 31,
1995 (the fiscal year ended June 30, 1996 being an eight-month period), the
following amounts of brokerage commissions were paid by the Funds:
<TABLE>
<CAPTION>
Year Period Year
Ended Ended Ended
Fund 6/30/97 6/30/96 10/31/95
----------- ---------- ----------
<S> <C> <C> <C>
Equity Income Fund $ 161,012 $ 221,694 $ 170,712
Value Fund 203,403 65,062 39,801
Small-Cap Value Fund 146,551 74,170 74,739
Capital Appreciation Fund 889,931 467,569 411,595
Mid-Cap Growth Fund 634,436 382,764 332,045
Micro-Cap Growth Fund 315,009 124,194 202,678
Small-Cap Growth Fund 113,103 76,333 111,918
Enhanced Equity Fund 196,460 114,363 47,226
Emerging Markets Fund 591,312 622,328 1,061,823
International Developed Fund 498,041 306,741 301,313
Balanced Fund 197,598 95,606 32,346
Core Equity Fund 114,173 57,047 40,203
Mid-Cap Equity Fund 31,940 16,961 20,084
Renaissance Fund* 717,040 N/A N/A
Growth Fund* 2,632,126 N/A N/A
Target Fund* 2,584,198 N/A N/A
Opportunity Fund* 1,187,818 N/A N/A
Innovation Fund* 224,529 N/A N/A
International Fund* 748,412 N/A N/A
Precious Metals Fund* 81,251 N/A N/A
Tax Exempt Fund* 0 N/A N/A
----------- ----------- ----------
TOTAL $12,268,343 $2,624,832 $2,846,483
</TABLE>
__________________
* For the period 1/18/97 through 6/30/97.
For the fiscal period ended January 17, 1997 and the fiscal years ended
September 30, 1996 and 1995, 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):
57
<PAGE>
<TABLE>
<CAPTION>
10/1/96 Year Year
to Ended Ended
Fund 1/17/97 9/30/96 9/30/95
- --------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Renaissance Fund $ 363,501 $ 993,617 $ 605,124
Growth Fund 1,064,573 2,985,777 3,500,524
Target Fund 1,375,601 3,080,238 2,289,076
Opportunity Fund 505,221 1,757,263 1,728,282
Innovation Fund 105,556 228,473 84,173
International Fund 393,808 1,530,476 2,727,326
Precious Metals Fund 53,096 79,838 48,592
Tax Exempt Fund 0 0 0
---------- ----------- -----------
TOTAL $3,861,356 $10,655,682 $10,983,097
</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.
In reliance on the "safe harbor" provided by Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Adviser and
Portfolio Managers may cause the Trust to pay broker-dealers which provide them
with "brokerage and research services" (as defined in the 1934 Act) an amount of
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 Managers 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 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."
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<PAGE>
PORTFOLIO TURNOVER
Except as described in the Prospectuses, 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. Proceeds from short sales and assets used to
cover short positions undertaken are included in the amounts of securities sold
and purchased, respectively, during the year.
NET ASSET VALUE
As indicated in the Class A, B and C 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 on each day the New York
Stock Exchange is open as of the close of regular trading (normally, 4:00 p.m.
Eastern time) on the Exchange. The Trust expects that the holidays upon which
the Exchange will be closed are as follows: New Year's Day, Martin Luther King,
Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
The values of portfolio securities that are traded on stock exchanges
outside the United States are 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), these securities
will be valued at fair value as determined by the Adviser or a Portfolio Manager
and approved in good faith by the Board of Trustees.
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, securi ties or currencies ("Qualifying
Income Test"); (b) with respect to tax years beginning on or prior to August 5,
1997, 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
59
<PAGE>
(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;
and (c) diversify its holdings so that, at the end of each quarter of the
taxable year, (i) at least 50% of the value of the Fund's total assets is
represented by cash, cash items (including receivables), 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. In order to qualify for the special tax treatment
accorded regulated investment companies, a Fund must 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 qualifying as a regulated
investment company, each Fund will not be subject to federal income taxes to the
extent that its net investment income, net short-term capital gains and net
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 not
constitute qualifying income for purposes of the Qualifying Income Test if such
gains are not directly related to investing in securities. To date, such
regulations have not been issued.
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.
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.
60
<PAGE>
The tax status of each Fund and the distributions which it may make are
summarized in the Class A, B and C Prospectus and in the Class D Prospectus
under the captions "Distributions" and "Taxes" and in the Institutional
Prospectus under the caption "Dividends, Distributions and Taxes." 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 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 (subject generally to a 46-day holding period requirement).
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. Under the Taxpayer Relief Act of 1997, long-term capital
gains will generally be taxed at a 28% or 20% rate depending upon the holding
period of the portfolio security. Any distributions that are not from a Fund's
investment company taxable income or net 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. Under the Taxpayer Relief Act of
1997, long-term capital gains will generally be taxed at a 28% or 20% rate
depending upon the holding period of the portfolio security. 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.
61
<PAGE>
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 there is relatively little guidance regarding the straddle
rules, the tax consequences of transactions in options, futures, forward
contracts, and swap agreements 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 trans actions.
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, Tax-Efficient Structured Emerging
Markets, Tax-Efficient Equity, 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. The 30%
limit will apply only until the start of a Fund's first tax year beginning after
August 5, 1997.
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 PFIC 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 a U.S. federal income tax (including
interest) on the portion, if any, of an excess distribution that is so allocated
to 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 its share of the
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<PAGE>
PFIC's income and net capital gain annually, 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 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 eligible 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 as a foreign tax credit
against his or her U.S. federal income tax liability, subject to certain
limitations. In particular, shareholders must hold their shares (without
protection from risk of loss) on the ex-dividend date and for at least 15 more
days during the 30-day period surrounding the ex-dividend date to be eligible to
claim a foreign tax credit with respect to a gain dividend. 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, receiv ables 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.
63
<PAGE>
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, 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 U.S.
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.
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,
64
<PAGE>
and will indicate 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. The 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 Renaissance 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,
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, 1997, the yields of the Balanced
Fund and Renaissance Fund were as follows (Class D shares were not offered
during the period listed):
65
<PAGE>
<TABLE>
<CAPTION>
FUND INSTITUTIONAL CLASS ADMINISTRATIVE CLASS CLASS A CLASS B CLASS C
- ------------------ -------------------- -------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balanced Fund 3.23% N/A 2.68% 2.10% 2.09%
Renaissance Fund N/A N/A 0.78% 0.10% 0.09%
</TABLE>
The yield of each such 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 should be
considered when comparing a 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 a Fund's various classes of
shares. These yields do not take into account any applicable contingent
deferred sales charges.
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.
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 proportionate 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
dividends and distributions are reinvested when paid. Quotations of total
return may also be shown for other periods. The Funds may also, with respect to
certain periods of less than one year, provide total return information for that
period that is unannualized. Under applicable regulations, any such information
is required to be accompanied by standardized total return information.
The table below sets forth the average annual total return of certain
classes of shares of the following Funds for periods ended December 31, 1997.
For periods prior to the "Inception Date" of a particular class of a Fund's
shares, total return presentations for the class are based on the historical
performance of Institutional Class shares of the Fund (the oldest class)
adjusted, as necessary, to reflect any current sales charges (including any
contingent deferred sales charges) associated with the newer class and any
different operating expenses associated with the newer class, such as 12b-1
distribution and servicing fees (which are not paid by the Institutional Class)
and administrative fee charges.
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<PAGE>
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
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 31.38% 17.85% 17.73% 03/08/91 03/08/91
Administrative 31.03% 17.57% 17.46% 11/30/94
Class A 23.68% 16.07% 16.32% 1/17/97
Class B 24.93% 16.30% 16.42% 1/17/97
Class C 28.90% 16.52% 16.42% 1/17/97
Class D 30.87% 17.39% 17.29% 4/8/98
- ---------------------------------------------------------------------------------------
Value Institutional 26.21% 18.69% 17.86% 12/30/91 12/30/91
Administrative 26.07% 18.47% 17.63% 1/17/97
Class A 18.79% 16.89% 16.31% 1/17/97
Class B 19.81% 17.15% 16.55% 1/17/97
Class C 23.74% 17.34% 16.54% 1/17/97
Class D 25.71% 18.23% 17.41% 4/8/98
- ---------------------------------------------------------------------------------------
Small-Cap Institutional 35.02% 18.86% 19.14% 10/1/91 10/1/91
Value Administrative 34.70% 18.59% 18.87% 11/1/95
Class A 27.07% 17.05% 17.61% 1/17/97
Class B 28.47% 17.30% 17.81% 1/17/97
Class C 32.50% 17.52% 17.81% 1/17/97
- ---------------------------------------------------------------------------------------
Capital Institutional 34.23% 21.34% 20.04% 3/8/91 3/8/91
Appreciation Administrative 34.01% 21.12% 19.81% 1/17/97
Class A 26.37% 19.51% 18.60% 1/17/97
Class B 27.78% 19.79% 18.71% 1/17/97
Class C 31.75% 19.98% 18.71% 1/17/97
Class D 33.70% 20.86% 19.58% 4/8/98
- ---------------------------------------------------------------------------------------
Mid-Cap Institutional 34.17% 20.76% 19.92% 8/26/91 8/26/91
Growth Administrative 33.86% 20.49% 19.65% 11/30/94
Class A 26.27% 18.93% 18.40% 1/17/97
Class B 27.69% 19.21% 18.59% 1/17/97
Class C 31.69% 19.41% 18.59% 1/17/97
Class D 33.65% 20.29% 19.47% 4/8/98
- ---------------------------------------------------------------------------------------
Micro-Cap Institutional 36.69% N/A 25.01% 6/25/93 6/25/93
Growth Administrative 36.37% N/A 24.74% 4/1/96
- ---------------------------------------------------------------------------------------
Small-Cap Institutional 26.72% 17.68% 22.89% 1/7/91 1/7/91
Growth Administrative 27.05% 17.61% 22.77% 9/27/95
- ---------------------------------------------------------------------------------------
Enhanced Institutional 30.85% 17.07% 16.11% 2/11/91 2/11/91
Equity Administrative 30.56% 16.84% 15.88% 1/17/97
- ---------------------------------------------------------------------------------------
Emerging Institutional -2.01% N/A 5.82% 6/1/93 6/1/93
Markets Administrative -2.26% N/A 5.54% 11/1/94
Class A -7.73% N/A 4.12% 1/17/97
Class B -7.91% N/A 4.26% 1/17/97
Class C -4.03% N/A 4.64% 1/17/97
- ---------------------------------------------------------------------------------------
International Institutional 1.92% N/A 8.20% 6/8/93 6/8/93
Developed Administrative 1.63% N/A 7.94% 11/30/94
Class A -4.10% N/A 6.44% 1/17/97
Class B -3.92% N/A 6.65% 1/17/97
Class C -0.12% N/A 6.99% 1/17/97
- ---------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Balanced Institutional 21.93% 13.03% 13.64% 6/25/92 6/25/92
Administrative 21.67% 12.78% 13.39% 6/25/92
Class A 14.64% 11.29% 12.02% 1/17/97
Class B 15.53% 11.49% 12.25% 1/17/97
Class C 19.62% 11.76% 12.37% 1/17/97
- ---------------------------------------------------------------------------------------
Core Equity Institutional 25.32% N/A 23.61% 12/28/94 12/28/94
Administrative 24.93% N/A 23.33% 5/31/95
- ---------------------------------------------------------------------------------------
Mid-Cap Equity Institutional 16.22% N/A 21.46% 12/28/94 12/28/94
Administrative 16.01% N/A 21.23% 1/17/97
- ---------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of shares
assume payment of the 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 Class A, B and C Prospectus.
** For all Funds listed above, Class A, Class B, Class C, Class D 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 (the oldest class) adjusted to reflect
the actual sales charges (none in the case of Class D and the Administrative
Class) of the newer class. The adjusted performance also reflects the higher
Fund operating expenses applicable to Class A, Class B, Class C, Class D and
Administrative Class shares. These include (i) 12b-1 distribution and
servicing fees, which are not paid by the Institutional Class and are paid by
Class B and Class C (at a maximum rate of 1.00% per annum) and Class A and
the Administrative Class (at a maximum rate of .25% per annum), and may be
paid by Class D (at a maximum rate of .25% per annum) and (ii) administrative
fee charges associated with Class A, Class B and Class C shares (a maximum
differential of .15% per annum) and Class D shares (a maximum differential of
0.40% per annum).
The table below sets forth the average annual total return of certain
classes 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
periods ended December 31, 1997. Accordingly,"Inception Date of Fund" refers to
the inception date of the PAF predecessor series. Since Class C shares were
offered since the inception of each PAF series, total return presentations for
periods prior to the Inception Date of the other classes (with the exception of
Class D shares of the Innovation Fund) are based on the historical performance
of Class C shares, adjusted to reflect any current sales charges (including any
contingent deferred sales charges) associated with the newer class and any
different operating expenses associated with the newer class, such as 12b-1
distribution and servicing fees and administrative fee charges. As described
below, performance presentations for periods prior to the Inception Date of
Class D shares of the Innovation Fund are based on the historical performance of
Class A shares.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
SINCE INCEPTION INCEPTION INCEPTION
OF FUND DATE OF DATE OF
FUND CLASS*** 1 YEAR 5 YEARS 10 YEARS (ANNUALIZED) FUND CLASS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Renaissance** Class A 28.41% 19.30% N/A 14.04%(#) 4/18/88 2/1/91
Class B 29.85% 19.60% N/A 13.85% 5/22/95
Class C 33.90% 19.77% N/A 13.84% 4/18/88
Class D 35.93%(#) 20.68%(#) N/A 14.69%(#) 4/8/98
Institutional 36.44%(#) 21.13%(#) N/A 15.14%(#) 12/30/97
- -----------------------------------------------------------------------------------------------------------
Growth Class A 16.01% 14.20% 15.96%(#) 16.96%(#) 2/24/84 10/26/90
Class B 16.88% 14.42% 15.77% 16.60% 5/23/95
Class C 20.84% 14.64% 15.77% 16.60% 2/24/84
- -----------------------------------------------------------------------------------------------------------
</TABLE>
68
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Target Class A 9.97% 17.01% N/A 17.14% 12/17/92 12/17/92
Class B 11.10% 17.23% N/A 17.45% 5/22/95
Class C 14.58% 17.44% N/A 17.55% 12/17/92
- -----------------------------------------------------------------------------------------------------------
Opportunity Class A -9.32% 13.85% 19.44%(#) 17.94%(#) 2/24/84 12/17/90
Class C -5.64% 14.29% 19.25% 17.56% 2/24/84
- -----------------------------------------------------------------------------------------------------------
Innovation Class A 3.01% N/A N/A 22.50% 12/22/94 12/22/94
Class B 3.16% N/A N/A 23.22% 5/22/95
Class C 7.10% N/A N/A 23.84% 12/22/94
Class D 9.03% N/A N/A 24.80% 4/8/98
- -----------------------------------------------------------------------------------------------------------
International** Class A -3.01% 6.50% 6.79% 6.51% 8/25/86 2/1/91
Class B -2.78% 6.63% 6.60% 6.26% 5/22/95
Class C 0.93% 6.91% 6.59% 6.25% 8/25/86
- -----------------------------------------------------------------------------------------------------------
Precious Metals** Class A -50.47% -4.10% N/A -5.86%(#) 10/10/88 2/1/91
Class B -50.64% -4.11% N/A -5.99% 6/15/95
Class C -48.56% -3.73% N/A -5.99% 10/10/88
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of shares
assume payment of the 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 Class A, B and C 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 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 been in effect for
all periods.
*** Class A, Class B, Class D, Institutional Class and Administrative Class
total return presentations for the Funds listed for periods prior to the
Inception Date of the particular class of a Fund (with the exception of Class D
shares of the Innovation Fund) reflect the prior performance of Class C
shares of the former PAF series adjusted to reflect the actual sales charges (or
no sales charges in the case of Class D, Institutional Class and Administrative
Class shares) of the newer class. The adjusted performance also reflects any
different operating expenses associated with the newer class. These include (i)
12b-1 distribution and servicing fees, which are paid by Class C and Class B (at
a maximum rate of 1.00% per annum) and Class A and the Administrative Class (at
a maximum rate of .25% per annum), may be paid by Class D (at a maximum rate of
.25% per annum), and are not paid by the Institutional Class and (ii)
administrative fee charges, which are lower than Class C charges for the
Institutional and Administrative Classes (a maximum differential of .15% per
annum) and higher for Class D (a maximum differential of .25% per annum).
(Administrative fee charges are the same for Class A, B and C shares.)
Performance presentations for periods prior to the Inception Date of Class D
shares of the Innovation Fund are based on the historical performance of Class A
shares (which were also offered since the inception of the former PAF series),
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 Class A, B and C 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) 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
than their predecessors had under the fee structure for PAF (prior to January
17, 1997). All other things being equal, such higher expenses have an adverse
effect on total return performance for these Funds after January 17, 1997.
(#) WHERE NOTED, THE METHOD OF ADJUSTMENT USED IN THE TABLE ABOVE FOR PERIODS
PRIOR TO THE INCEPTION DATE OF THE NOTED CLASSES OF THE NOTED FUNDS RESULTED IN
PERFORMANCE FOR THE PERIOD SHOWN WHICH IS HIGHER THAN IF
69
<PAGE>
THE HISTORICAL CLASS C SHARE PERFORMANCE (I.E., THE OLDEST CLASS) WERE NOT
ADJUSTED TO REFLECT THE LOWER OPERATING EXPENSES OF THE NEWER CLASS. The
following table shows the lower performance figures that would be obtained if
the performance for newer classes with lower operating expenses were calculated
by tacking to such classes actual performance the actual performance of Class C
shares (with their higher operating expenses) for periods prior to the initial
offering date of the newer class (i.e., the total return presentations below are
based, for periods prior to the Inception Date of the noted classes, on the
historical performance of Class C shares adjusted to reflect the current sales
charges (if any) associated with the newer class, but not reflecting lower
operating expenses associated with the newer class, such as lower administrative
fee charges and/or 12b-1 distribution and servicing fee charges).
TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 1997
(with no adjustment for operating expenses of the noted
classes for periods prior to their inception dates)
<TABLE>
<CAPTION>
SINCE INCEPTION
OF FUND
FUND CLASS 1 YEAR 5 YEARS 10 YEARS (ANNUALIZED)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Renaissance Class A -- -- N/A 13.79%
Class D 34.90% 19.77% N/A 13.84%
Institutional 34.90% 19.77% N/A 13.84%
- -------------------------------------------------------------------------------
Growth Class A -- -- 15.72% 16.56%
- -------------------------------------------------------------------------------
Opportunity Class A -- -- 19.18% 17.51%
- -------------------------------------------------------------------------------
International Class A -- -- 6.54% 6.20%
- -------------------------------------------------------------------------------
Precious Metals Class A -- -- N/A -6.04%
- -------------------------------------------------------------------------------
</TABLE>
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
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
70
<PAGE>
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 September
30, 1997, approximately 22% of the 400 stocks were stocks listed on the National
Association of Securities Dealers Automated Quotations ("NASDAQ") system, 76%
were stocks listed on the New York Stock Exchange and 7% 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 $1.52 billion), 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.
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.
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
71
<PAGE>
December 31, 1997, the U.S. equity market capitalization represented
approximately 40% of the equity market capitalization of all the world's
markets. This compares with 52% in 1980 and 70% in 1972.
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 1973 through 1997 (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>
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
1996 23.1 5.2 3.3
1997 33.4 5.3 1.7
- -------------------------------------------------------------------
Cumulative Return
1973-1997 2,059.4% 464.1% 279.6%
- -------------------------------------------------------------------
Average Annual Return
1973-1997 13.1% 7.1% 5.5%
- -------------------------------------------------------------------
</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:
P\\t\\ = 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.
72
<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 December 31, 1997 (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-Size 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
1997 22.8 32.3 33.4
- -----------------------------------------------------------
Cumulative Return
2/28/81-12/31/97 731.7% 1,482.1% 1,235.3%
- -----------------------------------------------------------
Average Annual Return
2/28/81-12/31/97 13.4% 17.8% 16.6%
- -----------------------------------------------------------
</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 1973 through 1997 (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
Philadelphia Gold & Silver Index.
73
<PAGE>
RETURN AND CUMULATIVE VALUES OF STOCKS, BONDS, SAVINGS RATES
VS. BALANCED PORTFOLIO (ASSSUMING REBALANCING AT YEAR-ENDS)
-----------------------------------------------------------
ANNUAL RETURNS
--------------
<TABLE>
<CAPTION>
Small Co. S&P 500 LT Corp.
Stocks Stocks Bonds T-Bills Gold Index Balanced*
---------- ------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1973 -30.90% -14.66% 1.14% 6.93% 102.59% 4.18%
1974 -19.95% -26.47% -3.06% 8.00% 23.82% -10.91%
1975 52.82% 37.20% 14.64% 5.80% -29.73% 20.36%
1976 57.38% 23.84% 18.65% 5.08% -41.06% 15.01%
1977 25.38% -7.18% 1.71% 5.12% 29.15% 0.45%
1978 23.46% 6.56% -0.07% 7.18% 5.46% 3.47%
1979 43.46% 18.44% -4.18% 10.38% 149.20% 21.34%
1980 39.88% 32.42% -2.62% 11.24% 59.41% 19.35%
1981 13.88% -4.91% -0.96% 14.71% -33.76% -6.02%
1982 28.01% 21.41% 43.79% 10.54% 46.04% 33.94%
1983 39.67% 22.51% 4.70% 8.80% -3.68% 11.88%
1984 -6.67% 6.27% 16.39% 9.85% -30.07% 7.19%
1985 24.66% 32.16% 30.90% 7.72% -22.23% 26.15%
1986 6.85% 18.47% 19.85% 6.16% 13.44% 18.59%
1987 -9.30% 5.23% -0.27% 5.47% 42.54% 6.49%
1988 22.87% 16.81% 10.70% 6.35% -33.48% 9.03%
1989 10.18% 31.49% 16.23% 8.37% 49.58% 26.43%
1990 -21.56% -3.17% 6.78% 7.83% -25.92% -0.97%
1991 44.63% 30.55% 19.89% 5.59% -9.83% 21.71%
1992 23.35% 7.67% 9.39% 3.51% -26.11% 5.07%
1993 20.98% 9.99% 13.17% 2.89% 130.36% 23.46%
1994 3.11% 1.31% -5.76% 3.90% -11.16% -3.12%
1995 34.46% 37.43% 27.20% 5.60% -0.78% 29.01%
1996 17.62% 23.07% 1.40% 5.21% -5.48% 10.46%
1997 22.78% 33.36% 12.95% 5.26% -36.45% 17.19%
STANDARD
DEVIATION 22.64% 16.77% 12.05% 2.67% 51.31% 11.52%
73-97
CUMULATIVE
73-97 4253% 2052% 862% 451% 176% 1522%
ANNUALIZED
73-97 16.3% 13.1% 9.5% 7.1% 4.1% 11.8%
</TABLE>
- -----------------------------------
<TABLE>
<CAPTION>
*Balanced:
- ---------
<S> <C>
Stocks 45%
Bonds 45%
Gold 10%
Small Co. 0%
T-Bills 0%
</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
1996/1997 costs of college (using tuition and fees only) 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 3% per year. In presenting
74
<PAGE>
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 3% 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.
POTENTIAL COLLEGE COST TABLE
<TABLE>
<CAPTION>
Start Public Private Start Public Private
Year College College Year College College
- --------- --------- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
1997 $13,015 $57,165 2005 $16,487 $72,415
1998 $13,406 $58,880 2006 $16,982 $74,587
1999 $13,808 $60,646 2007 $17,491 $76,825
2000 $14,222 $62,466 2008 $18,016 $79,130
2001 $14,649 $64,340 2009 $18,557 $81,504
2002 $15,088 $66,270 2010 $19,113 $83,949
2003 $15,541 $68,258 2011 $19,687 $86,467
2004 $16,007 $70,306 2012 $20,278 $89,061
</TABLE>
Costs assume a steady increase in the annual cost of college of 3% per year from
a 1996-97 base year amount. Actual rates of increase may be more or less than 3%
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 1973 through 1997 was:
*Stocks: 13.1%
Bonds: 9.5%
T-Bills: 7.1%
Inflation: 5.5%
*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 1973 through 1997, 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 1973
through 1997 is set forth in the following table.
75
<PAGE>
<TABLE>
<CAPTION>
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- ------ ------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1973 -14.66% 1.14% 6.93% 8.80% -4.02%
1974 -26.47% -3.06% 8.00% 12.26% -10.21%
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%
1996 23.10% 1.40% 5.20% 3.30% 10.84%
1997 33.40% 12.90% 7.10% 1.70% 19.94%
</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>
76
<PAGE>
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 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 1997:
<TABLE>
<CAPTION>
% of Income for Individuals
Aged 65 Years and Older in 1997*
-------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
<S> <C> <C>
1997 43% 57%
</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 may develop, from time
to time, 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.
77
<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, to the
Administration Agreement as applicable to a particular class or classes, 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. Therefore, the
holders 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.
78
<PAGE>
CERTAIN OWNERSHIP OF TRUST SHARES
As of June 30, 1998, 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. As of June 30, 1998, the following persons owned
of record or beneficially 5% or more of the noted class of shares of the
following Funds:
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO EQUITY INCOME FUND
INSTITUTIONAL
- -------------
Bank of New York Western Trust Co. 1,764,659.283 20.48%
as Trustee for
Pacific Life Insurance Company R.I.S.P.
700 S. Flower Street, 2nd Floor
Los Angeles, California 90017
AM Castle & Company Employee Equity Seg 853,810.161 9.91%
A/C #22-39912
P.O. Box 92956
Chicago, Illinois 60675-2956
AM Castle & Company Employee P/S/P Equity Fund 701,092.918 8.14%
A/C #22-39919
P.O. Box 92956
Chicago, Illinois 60675-2956
Santa Barbara Foundation 694,157.454 8.06%
15 East Carrillo Street
Santa Barbara, California 93101-2780
Northern Trust Company as Trustee for 656,042.695 7.61%
Brush Wellman Inc.
P.O. Box 92956
Chicago, Illinois 60675-0001
Bank of America NT&SA as Trustee for 545,324.668 6.33%
Mazda Motor of America
P.O. Box 3577, Terminal Annex
Los Angeles, California 90051-1577
ADMINISTRATIVE
- --------------
First Union National Bank ** 703,067.717 96.66%*
401 S. Tyon Street, FRB-3
CMG Fiduciary Operations Funds Group
Mail Code CMG-2-1151
Charlotte, North Carolina 28288-1151
CLASS A
- -------
Carn & Co. ** 234,440.495 29.08%*
USI Insurance Services Corporation
401(k) Plan
P.O. Box 96211
Washington, D.C. 20090-6211
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO EQUITY INCOME FUND
CLASS A
- -------
Khosrow B. Semnani 70,577.211 8.75%
P.O. Box 3508
Salt Lake City, Utah 84110-3508
Merrill Lynch Pierce Fenner & Smith Inc. ** 55,692.036 6.90%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 119,125.872 12.59%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 131,014.241 9.11%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS D
- -------
PIMCO Advisors L.P. 6,020.783 92.55%*
800 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc.** 484.313 7.44%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO VALUE FUND
INSTITUTIONAL
- -------------
Pacific Life Insurance Company 2,228,646.808 41.79%*
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
The Northern Trust Company as Trustee for 901,100.488 16.90%
Great Lakes Chemical Corporation
P.O. Box 92956
Chicago, Illinois 00006-0690
CMTA-GMPP & Allied Workers Pension Trust 652,955.069 12.24%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO VALUE FUND
INSTITUTIONAL
- -------------
BAC Local 19 Pension Trust 402,155.280 7.54%
777 Davis Street
San Francisco, California 94126-2500
Pacific Life Foundation 313,353.984 5.88%
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 268,212.557 5.03%
P.O. Box 60014
Arcadia, California 91006-6014
ADMINISTRATIVE
- --------------
Portfolio Strategies ** 655,500.250 69.94%*
PIMCO Advisors L.P.
2187 Atlantic Street
Stamford, Connecticut 06902
CLASS A
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 169,308.497 12.11%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 506,569.468 22.22%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 579,197.959 10.26%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
FTC & Co.** 289,824.967 5.13%
Datalynx House Acct
P.O. Box 1731736
Denver, Colorado 80217-3736
CLASS D
- -------
PIMCO Advisors L.P. 6,275.624 100.00%*
800 Newport Center Drive
Newport Beach, California 92660
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO SMALL CAP VALUE FUND
INSTITUTIONAL
- -------------
FTC & Co. Datalynx House Account ** 348,812.657 12.98%
P.O. Box 173736
Denver, Colorado 80217-3736
Pacific Life Insurance Company 314,830.119 11.72%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Little Company Of Mary Hospital 283,801.162 10.56%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Lucile Packard Foundation for Children 220,202.390 8.19%
725 Welch Road
Palo Alto, California 94304
Donaldson Lufkin & Jenrette ** 191,190.910 7.11%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
ADMINISTRATIVE
- --------------
First Union National Bank ** 487,540.203 73.47%*
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
Portfolio Strategies ** 89,334.660 13.46%
PIMCO Advisors L.P.
2187 Atlantic Street
Stamford, Connecticut 06902
CLASS A
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 486,886.593 11.43%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,843,483.024 29.09%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 2,119,226.581 28.38%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO SMALL CAP VALUE FUND
CLASS C
- -------
FTC & Co.** 420,336.824 5.62%
Datalynx House Acct
P.O. Box 1731736
Denver, Colorado 80217-3736
PIMCO CAPITAL APPRECIATION FUND
INSTITUTIONAL
- -------------
Donaldson Lufkin & Jenrette** 6,367,102.833 20.64%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Wendel & Co. A/C No. 571246 3,513,743.489 11.39%
c/o The Bank of New York
Coopers & Lybrand Retirement Trust
Mutual Fund Reorg. Department
P. O. Box 1066
Wall Street Station
New York, New York 10286
Charles Schwab & Co., Inc. - Reinvest ** 1,956,496.897 6.34%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
ADMINISTRATIVE
- --------------
New York Life Trust Company ** 1,997,466.793 38.68%*
51 Madison Avenue, Room 117A
New York, New York 10010
Certain Employee (Fidelity) ** 1,031,670.774 19.98%
100 Magetian KWIC
Covington, Kentucky 41015
First Union National Bank ** 1,005,277.705 19.47%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
National Financial Services Corporation for ** 440,298.946 8.53%
the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO CAPITAL APPRECIATION FUND
CLASS A
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 828,610.724 29.61%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Wachovia Bank FBO VIT Pension Plan 186,406.866 6.66%
Attn: Mutual Fund Department, 5th Floor
P. O. Box 27602
Richmond, Virginia 23261-7602
FTC & Co.** 170,236.949 6.08%
Datalynx House Acct
P.O. Box 1731736
Denver, Colorado 80217-3736
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 248,397.031 15.70%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 352,440.344 12.72%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS D
- -------
PIMCO Advisors L.P. 3,935.458 86.86%*
800 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc.** 595.271 13.13%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO MID CAP GROWTH FUND
INSTITUTIONAL
- -------------
Charles Schwab & Co., Inc. - Reinvest ** 1,027,492.553 5.65%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Caremark International, Inc. 989,059.629 5.44%
c/o State Street Bank & Trust
1 Enterprise Drive
North Quincy, Massachusetts 02171-2126
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO MID CAP GROWTH FUND
INSTITUTIONAL
- -------------
Parkview Memorial Hospital 987,009.491 5.43%
c/o Mutual Fund Processing A/C 13249905
733 Marquette Avenue, MS 0036
Minneapolis, Minneapolis 55479-0036
ADMINISTRATIVE
- --------------
Certain Employee (Fidelity) ** 1,311,209.464 42.22%*
100 Magellan KW1C
Covington, Kentucky 41015
National Financial Services Corporation for ** 848,269.831 27.32%*
the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
First Union National Bank ** 280,816.739 9.05%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
CLASS A
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 432,098.943 18.18%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 859,727.446 24.22%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,057,798.516 17.92%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS D
- -------
PIMCO Advisors L.P. 4,171.882 70.43%*
800 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc.** 1,751.038 29.56%*
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO MICRO CAP GROWTH FUND
INSTITUTIONAL
- -------------
Charles Schwab & Co., Inc.** 2,570,507.283 23.59%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Donald Lufkin & Jenrette** 1,814,048.807 16.65%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Bost & Co. A/C DOMF 8526562 1,072,912.358 9.85%
Dominion Resources
Attn: Mutual Fund Operations
P. O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
University of Southern California 1,020,412.993 9.36%
Treasurer's Office
University Park, BKS 402
Los Angeles, California 90089-2541
Mac & Co. A/C OBRF 3331012 FBO 681,890.401 6.26%
Oberlin College
Attn: Mutual Fund Operations
P. O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
St. Paul Foundation 605,854.422 5.56%
P.O. Box 64010
St. Paul, Minnesota 55164-0010
ADMINISTRATIVE
- --------------
Northern Trust as Trustee for 160,077.728 78.85%*
Sunday School Board
P.O. Box 92956
Chicago, Illinois 60675
National Financial Services Corporation for ** 24,613.309 12.12%
the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
New York Life Trust Company ** 14,784.060 7.28%
51 Madison Avenue, Room 117A
New York, New York 10010
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO SMALL CAP GROWTH FUND
INSTITUTIONAL
- -------------
The Jewish Federation of 921,718.855 27.10%*
Metropolitan Chicago
One South Franklin Street, Room 625
Chicago, Illinois 60606-4609
Employees Retirement System of Jersey City 380,180.220 11.18%
325 Palisade Avenue
Jersey City, New Jersey 07307-1714
Auburn Theological Seminary 316,630.017 9.31%
3041 Broadway
New York, New York 10027-5710
Pacific Life Insurance Company 232,280.621 6.83%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Bessemer Trust Company for ** 210,399.696 6.19%
Naidot & Co.
100 Woodbridge Center Drive
Woodbridge, New Jersey 07095
ESOR & Co. ** 453,722.992 5.29%
Associated Bank Green Bay
P.O. Box 19006
Green Bay, Wisconsin 54307-9006
ADMINISTRATIVE
- --------------
Portfolio Strategies ** 70,102.780 76.41%*
PIMCO Advisors L.P.
2187 Atlantic Street
Stamford, Connecticut 06902
PIMCO CORE EQUITY FUND
INSTITUTIONAL
- -------------
Pacific Life Foundation 35,539.331 34.80%*
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 30,416.939 29.79%*
P.O. Box 60014
Arcadia, California 91006-6014
Mac & Co. A/C #080-435 19,879.614 19.47%
Fine Quaker L.P.
P. O. Box 3198
Mutual Fund Operations
Pittsburgh, Pennsylvania 15230-3198
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO CORE EQUITY FUND
ADMINISTRATIVE
- --------------
The Bank of New York as Trustee for 5,943,809.371 92.53%*
Melville Corporation
One Wall Street, 7th Floor MT/MC
New York, New York 10286-0001
PIMCO MID CAP EQUITY FUND
INSTITUTIONAL
- -------------
Pacific Life Insurance Company 361,856.905 57.20%*
700 Newport Center Drive
Newport Beach, California 92660
Pacific Life Foundation 91,048.055 14.39%
700 Newport Center Drive
Newport Beach, California 92660
IFTC as Custodian for 81,186.220 12.83%
John W. Barnum
5175 Tilden Street, N.W.
Washington, D.C. 20016-1961
California Race Track Association 77,925.204 12.32%
P.O. Box 60014
Arcadia, California 91006-6014
ADMINISTRATIVE
- --------------
Portfolio Strategies ** 175,578.020 73.55%*
PIMCO Advisors L.P.
2187 Atlantic Street
Stamford, Connecticut 06902
PIMCO ENHANCED EQUITY FUND
INSTITUTIONAL
- -------------
Pacific Life Insurance Company 1,480,299.061 50.85%*
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
CMTA-GMPP & Allied Workers Pension 439,299.381 15.09%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
BAC Local 19 Pension Trust Fund 270,560.893 9.29%
777 Davis Street
San Francisco, California 94126-2500
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO ENHANCED EQUITY FUND
INSTITUTIONAL
- -------------
Pacific Life Foundation 209,589.567 7.20%
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 179,384.159 6.16%
P.O. Box 60014
Arcadia, California 91006-6014
ADMINISTRATIVE
- --------------
Portfolio Strategies ** 819,376.050 72.66%*
PIMCO Advisors L.P.
2187 Atlantic Street
Stamford, Connecticut 06902
PIMCO EMERGING MARKETS FUND
INSTITUTIONAL
- -------------
Charles Schwab & Co., Inc. - Reinvest ** 779,017.448 32.62%*
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Pacific Life Insurance Company 575,190.664 24.08%
700 Newport Center Drive ,
Newport Beach, California 92660
Pacific Life Insurance Company 459,818.080 19.25%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Donaldson Lufkin & Jenrette** 226,330.600 9.48%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
ADMINISTRATIVE
- --------------
Portfolio Strategies ** 129,665.520 72.53%*
PIMCO Advisors L.P.
2187 Atlantic Street
Stamford, Connecticut 06902
</TABLE>
89
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO EMERGING MARKETS FUND
CLASS A
- -------
PaineWebber FBO 14,459.406 35.69%*
Don a. Gill as Trustee for
Joseph A. Gill New Trust
U/A DTD 11-08-94
9992 Mackey Circle
Overland Park, Kansas 66212-3458
Donald Lufkin & Jenrette** 2,380.324 5.87%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
NFSC FERD 3AEX-769231 2,239.044 5.52%
Marianne H. Tinnin
300 16th Street SW
Albuquerque, New Mexico 87104
CLASS B
- -------
PAF Sales Inc. 2,347.418 6.12%
Profit Sharing Plan
P.O. Box 307
Scarborough, New York 10510-0807
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 19,554.000 16.75%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO INTERNATIONAL DEVELOPED FUND
INSTITUTIONAL
- -------------
Pacific Life Insurance Company 1,439,543.536 16.86%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc. - Reinvest ** 1, 420,928.568 16.64%
Attn: Mutual Fund Operations
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Wachovia Bank NA as Trustee for the 1,133,282.206 13.28%
Atlanta Gas Light Company Retirement Plan
301 N. Main Street - MC NC 31057
Winston-Salem, North Carolina 27150
Pacific Asset Management LLC 930,797.270 10.90%
700 Newport Center Drive
Newport Beach, California 92660-6307
</TABLE>
90
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO INTERNATIONAL DEVELOPED FUND
INSTITUTIONAL
- --------------------------------------------
Citibank, N.A., Trustee for the benefit of 877,871.070 10.28%
Nissan Motor Mfg. Corp. U.S.A
983 Nissan Drive
Smyrna, Tennessee 37167-4400
FTC & Co. Datalynx House Account ** 663,913.566 7.78%
P.O. Box 173736
Denver, Colorado 80217-3736
ADMINISTRATIVE
- --------------
Portfolio Strategies ** 428,696.430 74.76%*
PIMCO Advisors L.P.
2187 Atlantic Street
Stamford, Connecticut 06902
CLASS A
- -------
Prudential Securities Inc. FBO 99,290.780 28.87%*
Millenco L.P.
111 Broadway Floor 20
New York, New York 10006-1901
American National Bank of Chicago TR 87,456.017 25.43%*
UT #36307007
FBO Lincoln Group LP
40 Skokie Boulevard, Suite 105
Northbrook, Illinois 60062-1614
Prudential Securities FBO 82,913.389 24.11%
FBO International Trading Partners
2 Northfield Plaza, Suite 260
Northfield, Illinois 60093-1217
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 24,435.567 11.36%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO BALANCED FUND
INSTITUTIONAL
- -------------
Bank of New York Western Trust Co. 1,238,199.994 36.54%*
as Trustee for
Pacific Life Insurance Company R.I.S.P.
700 S. Flower Street, 2nd Floor
Los Angeles, California 90017
Redlands Community Hospital Retirement Plan 643,018.004 18.98%
350 Terracina Boulevard
Redlands, California 92373-4850
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO BALANCED FUND
INSTITUTIONAL
- -------------
Dominguez Services Corporation 621,930.124 18.35%
21718 South Alameda Street
Long Beach, California 90810-0351
The Northern Trust Company as Trustee for 314,174.311 9.27%
Ameron 401(k)
P.O. Box 92956
Chicago, Illinois 60675
Bank of America as Trustee for 304,129.795 8.98%
The Music Center Operating Co.
P.O. Box 2788
Los Angeles, California 90051-0788
CLASS A
- -------
Merrill Lynch Trust Co. as Trustee FBO ** 388,015.902 48.78%*
Qualified Retirement Plans
265 Davidson Avenue
Somerset, New Jersey 08873-4120
Prudential Securities FBO 154,981.890 19.48%
R.K. for D.C. Clients as Trustee for
MSSA-ILA Local 1985
P. O. Box 15040
New Brunswick, New Jersey 08906-5040
CLASS B
- -------
MLPF&S for the sole benefit of its Customers ** 253,722.395 34.13%*
4800 Deer Lake Drive East, Floor 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
MLPF&S for the sole benefit of its Customers ** 119,483.404 17.05%
4800 Deer Lake Drive East, Floor 3
Jacksonville, Florida 32246-6484
PIMCO TARGET FUND
CLASS A
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,600,830.912 15.78%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,771,503.547 35.66%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO TARGET FUND
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 16,639,761.435 26.81%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO PRECIOUS METALS FUND
CLASS A
- -------
J.C. Bradford & Company FBO 234,620.769 34.26%*
RCIP Limited Partnership I
330 Commerce Street
Nashville, Tennessee 37201-1899
Merrill Lynch Pierce Fenner & Smith Inc.** 47,854.547 6.98%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 358,358.667 12.74%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO RENAISSANCE FUND
CLASS A
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 508,611.723 11.42%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,202,418.275 22.87%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 3,942,010.051 15.95%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO RENAISSANCE FUND
CLASS D
- -------
PIMCO Advisors L.P. 5,265.929 79.72%*
800 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc.** 1,339.444 20.72%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO GROWTH FUND
CLASS A
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 349,035.112 6.09%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 790,680.887 29.83%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 7,917,793.403 12.92%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO OPPORTUNITY FUND
CLASS A
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,336,420.668 20.67%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 4,533,400.517 26.24%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO INNOVATION FUND
CLASS A
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 442,410.623 12.23%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 786,187.948 22.92%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,335,254.316 14.41%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS D
- -------
PIMCO Advisors L.P. 4,651.163 81.31%*
800 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc.** 1,068.619 18.68%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO INTERNATIONAL FUND
CLASS A
- -------
Marin Sector Limited 135,125.613 10.63%
A Partnership
150 Great Neck Road
Great Neck, New York 11021-3309
American National Bank TR 127,482.493 10.03%
FBO Emerald Investments #36062008
40 Skokie Boulevard, Suite 105
Northbrook, Illinois 60062-1614
Merrill Lynch Pierce Fenner & Smith Inc.** 106,632.308 8.39%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
ORPI 105,042.017 8.26%
A Partnership
P. O. Box 5430
Incline Village, Nevada 89450-5430
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
OWNED SHARES OWNED
------------ ------------
<S> <C> <C>
PIMCO INTERNATIONAL FUND
CLASS A
- -------
PaineWebber FBO 88,435.740 6.96%
Bakerrubine LLC
575 Madison Avenue, 10th Floor
New York, New York 10022-2511
CIBC Oppenheimer Corporation 76,493.583 6.02%
FBO 033-32132-13
Church Street Station
New York, New York 10008-8484
CLASS B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 140,679.597 20.41%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,488,687.973 14.31%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO INTERNATIONAL GROWTH FUND
INSTITUTIONAL
- -------------
Pacific Asset Management LLC 500,000.000 99.28%*
700 Newport Center Drive
Newport Beach, California 92660-6307
</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.
CUSTODIAN
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania, Kansas City,
Missouri 64105, serves as custodian for assets of all Funds. Pursuant to
separate sub-custody agreements between IFTC and The Chase Manhattan Bank, N.A.
("Chase") and IFTC and State Street Bank and Trust Company ("State Street"),
Chase and State Street serve as subcustodians of the Trust for the custody of
the foreign securities acquired by those Funds that invest in foreign
securities. Under the agreements, Chase and State Street may hold foreign
securities at their principal offices and their 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 currently made by the Board of Trustees following a
consideration of a number of factors,
96
<PAGE>
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, although the Trustees reserve the right to
delegate their selection responsibilities in light of recent amendments to Rule
17f-5 under the 1940 Act, in which case the factors for consideration would
differ from those referenced above. Currently, the Board of Trustees reviews
annually the continuance of foreign custodial arrangements for the Trust, but
reserves the right to discontinue this practice as permitted by the recent
amendments to Rule 17f-5. 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
PricewaterhouseCoopers LLP (formerly, Price Waterhouse LLP), 1055 Broadway,
Kansas City, Missouri 64105, serves as the independent public accountants for
the Funds. PricewaterhouseCoopers LLP provides audit services, accounting
assistance, and consultation in connection with SEC filings. As noted under
"Financial Highlights" in the Class A, B and C Prospectus, the Renaissance,
Growth, Target, Opportunity, International, Innovation and Precious Metals Funds
were reorganized as series of the Trust on January 17, 1997, and certain
financial information for these Funds appearing in the Registration Statement
for each of the five fiscal periods ended prior to October 1, 1996 was audited
by Coopers & Lybrand L.L.P., the former independent accountants for these Funds.
Coopers & Lybrand L.L.P.'s opinion and consent to the use of such information in
the Registration Statement is incorporated by reference into the Registration
Statement.
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
Audited financial statements for the Funds, as of June 30, 1997, for the
fiscal year then ended, including notes thereto, and the reports of Price
Waterhouse LLP thereon, each dated August 15, 1997, are incorporated by
reference from the Trust's two June 30, 1997 Annual Reports. One Annual Report
(the "Retail Report") corresponds to the Class A, B and C Prospectus and the
other (the "Institutional Report") corresponds to the Institutional Prospectus.
The Trust's 1997 Annual Reports are on file electronically with the SEC (Retail
Report -filed on September 3, 1997, Accession No. 0001017062-97-001680;
Institutional Report - filed on September 3, 1997, Accession No. 0001017062-97-
001678).
Unaudited financial statements for the Funds, as of December 31, 1997, for the
semi-annual period then ended, including notes thereto, are incorporated by
reference from the Trust's December 31, 1997 Semi-Annual Report. The Trust's
Semi-Annual Report is on file electronically with the SEC (filed on March 6,
1998, Accession No. 0001017062-98-000487).
97
<PAGE>
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 or Portfolio Manager's view of their comparability to rated
securities. A Fund's use of average quality criteria is intended to be a guide
for those 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 or a Portfolio Manager to be of comparable
quality). The percentage of a Fund's assets invested in securities in a
particular rating category will vary. Following is a description of Moody's and
S&P's ratings applicable to fixed income securities.
MOODY'S INVESTORS SERVICE, INC.
CORPORATE AND MUNICIPAL BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present that make the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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 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.
A-3
<PAGE>
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
