<PAGE>
As filed with the Securities and Exchange Commission on June 30, 1998
Registration Nos. 33-36528;
811-6161
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. ___ / /
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Post-Effective Amendment No. 33 / X /
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REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 / X /
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Amendment No. 35 / X /
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PIMCO FUNDS: MULTI-MANAGER SERIES
(Exact Name of Registrant as Specified in Charter)
840 Newport Center Drive, Newport Beach, CA 92660
(Address of principal executive offices) (Zip code)
(714) 760-4867
(Registrant's telephone number, including area code)
Name and address
of agent for service: Copies to:
- --------------------- ----------
Stephen J. Treadway Newton B. Schott, Jr., Joseph B. Kittredge, Esq.
c/o PIMCO Funds Esq. Ropes & Gray
Distributors LLC c/o PIMCO Funds One International Place
2187 Atlantic Street Distributors LLC Boston, Massachusetts
Stamford, Connecticut 2187 Atlantic Street 02110
06902 Stamford, Connecticut
06902
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
---
/ / On [date] pursuant to paragraph (b)
---
/ / 60 days after filing pursuant to paragraph (a)(1)
---
/ / On [date] pursuant to paragraph (a)(1)
---
/ X / 75 days after filing pursuant to paragraph (a)(2)
---
/ / On [date] pursuant to paragraph (a)(2) of rule 485
---
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
--- previously filed post-effective amendment.
THIS POST-EFFECTIVE AMENDMENT RELATES SOLELY TO PIMCO FUNDS ASSET ALLOCATION
SERIES - 90/10 PORTFOLIO, PIMCO FUNDS ASSET ALLOCATION SERIES - 60/40 PORTFOLIO,
AND PIMCO FUNDS ASSET ALLOCATION SERIES - 30/70 PORTFOLIO, EACH OF WHICH IS A
PROPOSED NEW SERIES OF SHARES OF THE REGISTRANT. NO INFORMATION RELATING TO ANY
OTHER SERIES OF SHARES OF THE REGISTRANT IS AMENDED OR SUPERCEEDED HEREBY.
<PAGE>
<PAGE>
PIMCO FUNDS: MULTI-MANAGER SERIES
CROSS-REFERENCE SHEET
Required by Rule 404 Under the Securities Act of 1933
Prospectus for Class A, Class B, and Class C Shares of PIMCO Funds Asset
Allocation Series - 90/10 Portfolio, PIMCO Funds Asset Allocation Series - 60/40
Portfolio, and PIMCO Funds Asset Allocation Series - 30/70 Portfolio.
Part A
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Item Heading
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1. Cover Page Cover Page
2. Synopsis PIMCO Funds Asset Allocation Series -
Overview; Schedule of Fees
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Investment Objectives and Policies;
Underlying Funds; Description of the
Trust
5. Management of the Fund Management of the Portfolios;
Back Cover
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Description of the Trust;
Distributions; Taxes; Back Cover
7. Purchase of Securities Being Offered How to Buy Shares; How Net
Asset Value is Determined;
Alternative Purchase Arrangements;
Distributor and Distribution and
Servicing Plans
8. Redemption or Repurchase How to Redeem
9. Pending Legal Proceedings Not Applicable
<PAGE>
PIMCO FUNDS: MULTI-MANAGER SERIES
CROSS-REFERENCE SHEET
Required by Rule 404 Under the Securities Act of 1933
Supplement to Prospectus for Institutional Class and Administrative Class
Shares to add PIMCO Funds Asset Allocation Series - 90/10 Portfolio, PIMCO Funds
Asset Allocation Series - 60/40 Portfolio, and PIMCO Funds Asset Allocation
Series - 30/70 Portfolio.
Part A
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Item Heading
---- -------
1. Cover Page Cover Page
2. Synopsis Prospectus Summary; Expense
Information
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Investment Objectives and Policies;
Characteristics and Risks of
Securities and Investment Techniques
5. Management of the Fund Management of the Portfolios
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Other Information; Portfolio
Transactions; Dividends,
Distributions and Taxes
7. Purchase of Securities Being Offered Management of the Trust; Purchase of
Shares; Net Asset Value
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Not Applicable
-3-
<PAGE>
PIMCO FUNDS: MULTI-MANAGER SERIES
CROSS-REFERENCE SHEET
Required by Rule 404 Under the Securities Act of 1933
Supplement to Statement of Additional Information to add PIMCO Funds Asset
Allocation Series - 90/10 Portfolio, PIMCO Funds Asset Allocation Series - 60/40
Portfolio and PIMCO Funds Asset Allocation Series - 30/70 Portfolio.
Part B
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Item Heading
---- -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12 General Information and History Cover Page
13. Investment Objective and Policies Investment Objectives and Policies;
Investment Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Other Information
Holders of Securities
16. Investment Advisory and Other Management of the Trust; Distribution
Services of Trust Shares
17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices
18. Capital Stock and Other Securities Other Information
19. Purchase, Redemption and Pricing Distribution of Trust Shares; Net
of Securities Being Offered Asset Value
20. Tax Status Taxation
21. Underwriters Distribution of Trust Shares
-4-
<PAGE>
22.Calculation of Performance Data Other Information
23.Financial Statements Not Applicable
-5-
<PAGE>
PIMCO Funds: Multi-Manager Series
Prospectus
September , 1998
PIMCO FUNDS ASSET ALLOCATION SERIES
90/10 PORTFOLIO
60/40 PORTFOLIO
30/70 PORTFOLIO
PIMCO Funds: Multi-Manager Series (the "Trust") is an open-end series management
investment company offering three diversified investment portfolios (each a
"Portfolio") in this Prospectus, each with different investment objectives and
strategies. The Portfolios are professionally-managed series of the Trust
designed to take advantage of the benefits of asset allocation. Each Portfolio
seeks to achieve its particular investment objective by investing within
specified equity and fixed income ranges among a number of other mutual funds in
the PIMCO Funds family ("Underlying Funds" or "Funds"). The address of PIMCO
Funds: Multi-Manager Series is 840 Newport Center Drive, Suite 360, Newport
Beach, CA 92660.
PIMCO Advisors L.P. ("PIMCO Advisors" or the "Advisor") serves as investment
advisor to the Portfolios and determines how the assets of each Portfolio are
allocated among the Underlying Funds. PIMCO Advisors and its affiliates also
provide advisory services to the Underlying Funds. See "Management of the
Portfolios."
Each Portfolio 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). Through a separate prospectus, each Portfolio
may offer up to two additional classes of shares, 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 Portfolios. Please read
this Prospectus carefully and keep it for further reference.
Information about the investment objective of each Portfolio and of investment
policies and restrictions applicable to each Portfolio are set forth in this
Prospectus. There can be no assurance that the investment objective of any
Portfolio will be achieved. Because the market value of each Portfolio's
investments will change, the investment returns and net asset value per share of
each Portfolio will vary.
A Statement of Additional Information, dated September , 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. In addition, a Trust
Prospectus dated July __, 1998 and a Prospectus of PIMCO Funds: Pacific
Investment Management Series dated [April] __, 1998, each as amended or
supplemented from time to time (together, the "Underlying Fund Prospectuses"),
relating to Institutional Class shares of the Underlying Funds, are available
free of charge from the Distributor. The Statement of Additional Information
and Underlying Fund Prospectuses, which contain more detailed information about
the Trust, the Portfolios and/or the Underlying Funds, have each been filed with
the Securities and Exchange Commission and are 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 and materials that are incorporated by reference into this
Prospectus and the Statement of Additional Information, the Underlying Fund
Prospectuses, and other information about the Trust, the Portfolios and the
Underlying 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 PORTFOLIOS 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.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
PIMCO Funds Asset Allocation Series - Overview..... 3
Schedule of Fees.................................... 5
Investment Objectives and Policies.................. 7
Underlying Funds.................................... 12
Performance Information............................. 20
How to Buy Shares................................... 21
Alternative Purchase Arrangements................... 25
Exchange Privilege.................................. 34
How to Redeem....................................... 35
Distributor and Distribution and Servicing Plans.... 39
How Net Asset Value Is Determined................... 41
Distributions....................................... 42
Taxes............................................... 42
Management of the Portfolios........................ 43
Description of the Trust............................ 49
Mailings to Shareholders............................ 50
</TABLE>
2
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PIMCO FUNDS ASSET ALLOCATION SERIES - OVERVIEW
PIMCO Funds: Multi-Manager Series (the "Trust") is an open-end series management
investment company organized as a Massachusetts business trust on August 24,
1990. This Prospectus describes three separate diversified investment
portfolios (the "Portfolios") offered by the Trust, PIMCO Funds Asset Allocation
Series -90/10 Portfolio (the "90/10 Portfolio"), PIMCO Funds Asset Allocation
Series - 60/40 Portfolio (the "60/40 Portfolio") and PIMCO Funds Asset
Allocation Series - 30/70 Portfolio (the "30/70 Portfolio").
The Portfolios are intended for investors who prefer to have their asset
allocation decisions made by professional money managers. Each Portfolio has a
distinct investment objective which it seeks to achieve by investing within
specified equity and fixed income ranges among certain series ("Underlying
Funds" or "Funds") of the Trust and PIMCO Funds: Pacific Investment Management
Series. PIMCO Advisors serves as investment advisor for each Fund of the Trust
and its affiliate, Pacific Investment Management Company ("Pacific Investment
Management"), serves as investment advisor for each Fund of PIMCO Funds: Pacific
Investment Management Series.
Some of the Underlying Funds invest primarily in equity securities
("Underlying Equity Funds"); other Funds invest primarily in fixed income
securities, including money market instruments ("Underlying Fixed Income
Funds"). The Portfolios are named in accordance with their equity/fixed income
allocation targets. For instance, the 90/10 Portfolio will normally invest
approximately 90% of its assets in Underlying Equity Funds and 10% of its assets
in Underlying Fixed Income Funds.
The following summarizes certain key information relating to the Portfolios
and is qualified in its entirety by the more detailed information contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PIMCO FUNDS
ASSET ALLOCATION SERIES INVESTMENT OBJECTIVE ALLOCATION STRATEGY
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
90/10 Portfolio Capital appreciation Under normal conditions, approximately 90% of the
Portfolio's assets will be allocated among
Underlying Equity Funds and 10% among
Underlying Fixed Income Funds.
- ---------------------------------------------------------------------------------------------------------------------
60/40 Portfolio Long-term capital appreciation and Under normal conditions, approximately 60% of
current income the Portfolio's assets will be allocated among
Underlying Equity Funds and 40% among
Underlying Fixed Income Funds.
- ---------------------------------------------------------------------------------------------------------------------
30/70 Portfolio A high level of current income with Under normal conditions, approximately 30% of
greater stability of principal than an the Portfolio's assets will be allocated among
investment in equity securities Underlying Equity Funds and 70% among
alone Underlying Fixed Income Funds.
</TABLE>
The Underlying Funds have different investment objectives and policies and
different degrees of potential investment risk and reward. Based on the
Allocation Strategies listed above, an investor should choose among the
Portfolios based on personal objectives, investment time horizon, tolerance for
risk and personal financial circumstances. For example, because the 90/10 will
normally invest approximately 90% of its assets in Underlying Equity Funds, this
Portfolio might be suitable for an investor with a relatively long time horizon
who seeks capital appreciation potential and has a fairly high tolerance for
risk and volatility. An investor with a shorter time horizon who seeks a
balance of income and capital appreciation and has less tolerance for risk and
3
<PAGE>
volatility might choose the 60/40 Portfolio, which invests in a fairly balanced
portfolio of Underlying Equity and Fixed Income Funds. An investor who seeks a
higher level of current income combined with some potential for capital
appreciation and has a lower tolerance for risk and volatility might choose the
30/70 Portfolio, which will normally invest approximately 70% of its assets in
Underlying Fixed Income Funds. While each Portfolio provides a relatively high
level of diversification in comparison to most mutual funds, a single Portfolio
may not be suitable as a complete investment program. For a more complete
description of the investment objectives and policies of the Portfolios, please
see "Investment Objectives and Policies."
Because each Portfolio will invest all of its assets in the Underlying
Funds, each Portfolio's investment performance is directly related to the
investment performance of the Underlying Funds in which it invests, and the
ability of a Portfolio to realize its investment objective will depend upon the
extent to which the Underlying Funds realize their objectives. The value of the
Underlying Funds' investments, and the net asset values of the shares of both
the Underlying Funds and the Portfolios, will fluctuate in response to changes
in market and economic conditions, as well as the financial condition and
prospects of issuers in which the Underlying Funds invest.
The use of certain investment techniques by an Underlying Fund, including
various derivative instruments such as futures contracts, options and swap
agreements, will subject the Fund to greater risk than Funds that do not employ
such techniques. In addition, investments by certain Underlying Funds in small
market capitalization companies, foreign issuers (including emerging market
issuers), foreign currencies and related instruments, illiquid securities and
other instruments will expose those Funds to a higher degree of risk and price
volatility. Some Underlying Funds may also invest in fixed income securities
rated below investment grade (commonly referred to as "high yield" securities"
or "junk" bonds), which are considered to be speculative by traditional
investment standards. Each Portfolio may be subject to these and other risks
associated with investments in the Underlying Funds depending upon the
Portfolio's asset allocation strategy. For a description of the various risks
associated with the Portfolios and the Underlying Funds, see "Investment
Objectives and Policies" and "Underlying Funds" in this Prospectus, "Investment
Objectives and Policies" in the Statement of Additional Information and
"Characteristics and Risks of Securities and Investment Techniques" in the
Underlying Fund Prospectuses, which are incorporated herein by reference and are
available free of charge by telephoning the Distributor at 800-426-0107.
Potential investors in the Portfolios should realize that they may invest
directly in the Underlying Funds and make their own asset allocation decisions.
By investing in a Portfolio, an investor will incur not only a proportionate
share of the expenses of the Portfolio but also a portion of the expenses of the
Underlying Funds in which the Portfolio invests (including investment advisory
and administrative fees charged at the Underlying Fund level). See "Schedule of
Fees" and "Management of the Portfolios - Underlying Fund Expenses."
4
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SCHEDULE OF FEES
Expenses are one of several factors to consider when investing in Class A,
Class B or Class C shares of the Portfolios. The following tables and Examples
summarize the expenses of each Portfolio that are borne by its Class A, Class B
and Class C shareholders based on estimated expenses for the Portfolio's current
fiscal year.
You should bear in mind that shareholders of each Portfolio bear indirectly
the expenses of the Underlying Funds in which the Portfolio invests. The
Portfolios will invest only in Institutional Class shares of the Underlying
Funds and will not pay any sales charges or 12b-1 fees in connection with their
investments in the Underlying Funds. The Portfolios will, however, indirectly
bear their pro rata share of the fees and expenses (including advisory and
administrative fees) incurred by the Underlying Funds that are borne by all
Institutional Class shareholders of the Funds. Because the Underlying Funds
have varied fee and expense levels and the Portfolios will own different
proportions of the Underlying Funds at different times, the actual fees and
expenses indirectly incurred by the Portfolios will vary.
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
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<S> <C> <C> <C>
MAXIMUM INITIAL SALES CHARGE IMPOSED ON PURCHASES
(as a percentage of offering price at time of purchase)
90/10 Portfolio and 60/40 Portfolio................... 5.50% None None
30/70 Portfolio....................................... 4.50% None None
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS........ None None None
(as a percentage of offering price at time of purchase)
MAXIMUM CONTINGENT DEFERRED SALES CHARGE ("CDSC")........... 1%/(1)/ 5%/(2)/ 1%/(3)/
(as a percentage of original purchase price)
EXCHANGE FEE................................................ None None None
- -----------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares are purchased
without a front-end sales charge at the time of purchase. See "Alternative
Purchase Arrangements."
(2) The maximum CDSC is imposed on shares redeemed in the first year. For
shares held longer than one year, the CDSC declines according to the schedule
set forth under "Alternative Purchase Arrangements -- Deferred Sales Charge
Alternative -- Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed in the first
year.
5
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<TABLE>
<CAPTION>
EXAMPLE: You EXAMPLE:
would pay the You would
following pay the
expenses on a following
$1,000 expenses
ANNUAL PORTFOLIO OPERATING EXPENSES (As a percentage of average net assets): investment on a
assuming (1) 5% $1,000
annual return investment
and (2) assuming
redemption at (1) 5%
the end of each annual
time period: return and
(2) no
redemption:
PIMCO FUNDS TOTAL
ASSET ADMINI- UNDERLYING PORTFOLIO
ALLOCATION ADVISORY STRATIVE 12B-1 FUND OPERATING ONE THREE ONE THREE
SERIES FEES FEES/(1)/ FEES/(2)/ EXPENSES/(3)/ EXPENSES YEAR YEARS YEAR YEARS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A 90/10 PORTFOLIO None .40% .25% .79% 1.44%
SHARES 60/40 PORTFOLIO None .40 .25 .67 1.32
30/70 PORTFOLIO None .40 .25 .55 1.20
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CLASS B 90/10 PORTFOLIO None .40 1.00 .79 2.19
SHARES 60/40 PORTFOLIO None .40 1.00 .67 2.07
30/70 PORTFOLIO None .40 1.00 .55 1.95
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CLASS C 90/10 PORTFOLIO None .40 1.00 .79 2.19
SHARES 60/40 PORTFOLIO None .40 1.00 .67 2.07
30/70 PORTFOLIO None .40 1.00 .55 1.95
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</TABLE>
1. The Administrative Fees for each Portfolio are subject to reduction to the
extent that the average net assets attributable in the aggregate to the
Portfolio's Class A, Class B and Class C shares exceed $2.5 billion. See
"Management of the Portfolios -- Administrative Fees."
2. 12b-1 fees which are equal to .25% represent servicing fees which are paid
annually to the Distributor and repaid to participating brokers, certain banks
and other financial intermediaries. 12b-1 fees which exceed .25% represent
aggregate distribution and servicing fees. See "Distributor and Distribution
and Servicing Plans."
3. Based on estimated expenses for the current fiscal year. Underlying Fund
Expenses for each Portfolio are estimated based upon the initial allocation of
each Portfolio's assets among the Underlying Funds and upon the total annual
operating expenses of each Underlying Fund for its most recent fiscal year (or
estimated expenses for the current fiscal year for Funds which have recently
commenced operations). For a listing of the expenses associated with each
Underlying Fund, please see "Management of the Portfolios - Underlying Fund
Expenses." Total Portfolio Operating Expenses and the Examples set forth above
are based on estimates of the Underlying Fund Expenses each Portfolio will
incur. Actual Underlying Fund Expenses for each Portfolio are expected to vary
with changes in the allocation of the Portfolio's assets, and may be higher or
lower than those shown above.
The purpose of the foregoing tables is to assist investors in understanding the
various costs and expenses of the Trust that are borne directly or indirectly by
Class A, Class B and Class C shareholders of the Portfolios. 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 a Portfolio may, depending on the length of time the
shares are held, pay more than the economic equivalent of the maximum front-end
sales charges permitted by relevant rules of the National Association of
Securities Dealers, Inc.
NOTE: THE FIGURES SHOWN IN THE EXAMPLES ARE ENTIRELY HYPOTHETICAL. THEY ARE NOT
REPRESENTATIONS OF PAST OR FUTURE PERFORMANCE OR EXPENSES; ACTUAL PERFORMANCE
AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN.
6
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INVESTMENT OBJECTIVES AND POLICIES
The investment objective and general investment policies of each Portfolio are
described below. There can be no assurance that the investment objective of any
Portfolio will be achieved. Because the market value of each Portfolio's
investments will change, the net asset value per share of each Portfolio will
also vary.
The Portfolios are intended for investors who prefer to have their asset
allocation decisions made by professional money managers. Each Portfolio seeks
to achieve its investment objective by investing within specified equity and
fixed income ranges among the Underlying Funds, each of which is a series of the
Trust or PIMCO Funds: Pacific Investment Management Series, and is managed by
PIMCO Advisors and/or its affiliates. The Portfolios have different investment
objectives and policies and degrees of potential investment risk and reward
depending upon their allocation strategies. An investor should choose a
Portfolio based on personal objectives, investment time horizon, tolerance for
risk and personal financial circumstances.
90/10 PORTFOLIO seeks capital appreciation. Under normal conditions,
approximately 90% of the Portfolio's assets will be allocated among Underlying
Equity Funds and 10% among Underlying Fixed Income Funds.
60/40 PORTFOLIO seeks long-term capital appreciation and current income.
Under normal conditions, approximately 60% of the Portfolio's assets will be
allocated among Underlying Equity Funds and 40% among Underlying Fixed Income
Funds.
30/70 PORTFOLIO seeks a high level of current income with greater stability
of principal than an investment in equity securities alone. Under normal
conditions, approximately 30% of the Portfolio's assets will be allocated among
Underlying Equity Funds and 70% among Underlying Fixed Income Funds.
Unless otherwise noted, each Portfolio's investment objective and its
restrictions and policies relating to the investment of its assets are non-
fundamental and may be changed without shareholder approval.
PIMCO Advisors serves as the investment advisor to the Portfolios and
determines how each Portfolio's assets are allocated among the Underlying Funds.
Each Portfolio invests in particular Underlying Funds (which may differ from
time to time) based on various criteria observed by PIMCO Advisors. Among other
things, PIMCO Advisors analyses the various investment objectives, policies and
strategies of the Underlying Funds to determine which Funds, in combination with
others, are appropriate in light of the Portfolio's investment objective. PIMCO
Advisors then makes allocation decisions among these Underlying Funds in an
attempt to achieve the Portfolio's objective. The table below illustrates the
initial equity and fixed income allocation targets and typical ranges for each
Portfolio under normal market conditions.
7
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EQUITY AND FIXED INCOME RANGES
(AS A PERCENTAGE OF EACH PORTFOLIO'S AVERAGE NET ASSETS)
--------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO FUNDS TARGET TYPICAL
ASSET ALLOCATION SERIES ALLOCATION ALLOCATION RANGE**
- ------------------------------------------------------------------------------
<S> <C> <C>
90/10 PORTFOLIO
Equity 90% 80% - 100%
Fixed Income (including money market*) 10% 0% - 20%
- ------------------------------------------------------------------------------
60/40 PORTFOLIO
Equity 60% 50% - 70%
Fixed Income (including money market*) 40% 30% - 50%
- ------------------------------------------------------------------------------
30/70 PORTFOLIO
Equity 30% 25% - 35%
Fixed Income (including money market*) 70% 65% - 75%
</TABLE>
____________________
* Each Portfolio may hold a portion of its assets in PIMCO Money Market Fund,
in part, so that it can readily sell the securities and have cash available
to pay Portfolio expenses without incurring capital gains.
** Each Portfolio may for defensive purposes temporarily deviate from its
asset allocation range.
Each Portfolio is authorized to invest in any or all of the Underlying Funds.
However, it is expected that a Portfolio will invest in only some of the
Underlying Funds at any particular time. A Portfolio's investment in a
particular Underlying Fund may and, in some cases, is expected to exceed 25% of
its total assets. THE PARTICULAR UNDERLYING FUNDS IN WHICH EACH PORTFOLIO MAY
INVEST, THE EQUITY AND FIXED INCOME ALLOCATION TARGETS AND RANGES SPECIFIED
ABOVE, AND THE PERCENTAGE OF EACH PORTFOLIO'S ASSETS INVESTED FROM TIME TO TIME
IN ANY UNDERLYING FUND OR COMBINATION OF FUNDS MAY BE CHANGED FROM TIME TO TIME
WITHOUT THE APPROVAL OF THE PORTFOLIO'S SHAREHOLDERS.
Each Portfolio's net asset value will fluctuate in response to changes in
the net asset values of the Underlying Funds in which it invests. Each Portfolio
will invest all of its assets in Underlying Funds and may invest up to 100% of
its assets in PIMCO Money Market Fund for temporary defensive purposes. A
Portfolio may also borrow money for temporary or emergency purposes.
Each Portfolio is also subject to certain investment restrictions that are
described under "Investment Restrictions" in the Statement of Additional
Information.
OVERVIEW OF ASSET ALLOCATION
PIMCO Advisors' Asset Allocation Committee determines how the Portfolios' assets
are allocated and reallocated from time to time among the Underlying Funds. The
individuals who constitute the Asset Allocation Committee and are primarily
responsible for making asset allocation and other investment decisions for the
Portfolios are William D. Cvengros, Timothy R. Clark, Robert S. Venable, David
Young and Edward P. Rennie. Please see "Management of the Portfolios" for
description of PIMCO Advisors and the individuals on the Asset Allocation
Committee.
8
<PAGE>
PIMCO Advisors' approach to asset allocation encompasses both quantitative
and qualitative processes designed to allocate the Portfolios' assets among
multiple Underlying Funds in order to achieve broadly diversified Portfolios.
The Asset Allocation Committee meets regularly to analyze various economic and
market data. The Committee also collects and synthesizes multiple proprietary
models maintained by the Portfolio Managers of the Underlying Funds, each of
which is an affiliate of PIMCO Advisors. See "Management of the Portfolios -
Portfolio Managers for the Underlying Funds." These models are quantitatively
compiled by the Committee to provide a framework for developing PIMCO Advisors'
allocation strategies with respect to the major asset classes and sub-classes
held by the Underlying Funds.
The resulting framework assists the Asset Allocation Committee in the
following ways: (1) it identifies the desired tactical allocation ranges for
the Portfolios around long-term strategic broad asset class and sub-class
targets, (2) it identifies individual Funds among the Underlying Funds that are
expected to provide consistent, quality performance in the various asset classes
and sub-classes identified for the Portfolios, and (3) it is used by the
Committee in its on-going evaluation of the equity and fixed income markets in
an attempt to identify and implement value-added tactical shifts for the
Portfolios. These tactical shifts and resulting reallocations of Portfolio
assets are not expected to be large or frequent in nature, and should result in
modest levels of portfolio turnover for the Portfolios. See "Portfolio
Turnover."
EQUITY PORTION OF THE PORTFOLIOS The equity portion of each Portfolio will
be allocated among a number of Underlying Equity Funds which provide a broad
range of equity-based investment objectives and strategies. By allocating
assets among these Funds, the equity portions of the Portfolios can be
diversified in multiple ways, including the following:
BY REGION
. U.S. Equities
. International Developed Markets Equities
. International Emerging Markets Equities
BY INVESTMENT STYLE
. Blend (Broad Market)
. Value
. Growth
BY SIZE
. Large-Cap
. Mid-Cap
. Small-Cap
For a description of the Underlying Equity Funds and their investment
objectives and strategies, please see "Underlying Funds." The Portfolios
Managers for the Underlying Equity Funds each have different investment
philosophies and processes which are reflected in the Funds they manage.
Through asset allocation, PIMCO Advisors can take advantage of the expertise of
each Portfolio Manager and combine the investment styles set forth above in
providing broadly diversified Portfolios. For a description of each Portfolio
Manager and its particular investment philosophy and process, please see
"Management of the Portfolio - Portfolio Managers for the Underlying Funds."
FIXED INCOME PORTION OF THE PORTFOLIOS The fixed income portion of each
Portfolio will be allocated among a number of Underlying Fixed Income Funds
which provide a broad range of fixed income-based
9
<PAGE>
investment objectives and strategies. By allocating assets among these Funds,
the fixed income portions of the Portfolios can be diversified in multiple ways,
including the following:
BY REGION
. U.S. Fixed Income
. Foreign Fixed Income
BY SECTOR/INVESTMENT SPECIALTY
. Governments
. Mortgages
. Corporate
. Tax Exempt
. Inflation Indexed
BY CREDIT QUALITY
. Investment Grade/Money Market
. Medium Grade
. High Yield
BY DURATION
. Long-Term
. Intermediate-Term
. Short-Term
For a description of the Underlying Fixed Income Funds and their investment
objectives and strategies, please see "Underlying Funds." Pacific Investment
Management is the investment advisor and Portfolio Manager for each Underlying
Fixed Income Fund. Through asset allocation, PIMCO Advisors can also take
advantage of the broad fixed income expertise of Pacific Investment Management
and combine the investment styles set forth above in providing broadly
diversified investment Portfolios. For a description of Pacific Investment
Management and its investment philosophy and process, please see "Management of
the Portfolio - Portfolio Managers for the Underlying Funds."
POTENTIAL CONFLICTS OF INTEREST
As described above, PIMCO Advisors has broad discretion to allocate and
reallocate the Portfolios' assets among the Underlying Funds consistent with the
Portfolios' investment objectives and policies and the asset allocation ranges
specified above. Although PIMCO Advisors does not charge an investment advisory
fee for its asset allocation services, PIMCO Advisors and its affiliates
indirectly receive fees (including investment advisory and administrative fees)
from the Underlying Funds in which the Portfolios invest. In this regard, PIMCO
Advisors has a financial incentive to invest a Portfolio's assets in Underlying
Funds with higher fees than other Funds, even if it believes that alternate
investments would better serve the Portfolio's investment program. PIMCO
Advisors is legally obligated to disregard that incentive in making asset
allocation decisions for the Portfolios. The Trustees and officers of the Trust
may also have conflicting interests in fulfilling their fiduciary duties to both
the Portfolios and the Underlying Funds.
GENERAL RISKS OF INVESTING IN THE PORTFOLIOS
Because the Portfolios invest all of their assets in the Underlying Funds, the
risks associated with investing in the Portfolios are closely related to the
risks associated with the securities held by the Underlying Funds. The ability
of a Portfolio to achieve its investment objective will depend upon the ability
of the Underlying Funds to achieve their objectives. Of course, the extent to
which the investment performance and risks associated with a particular
10
<PAGE>
Portfolio correlate to those of a particular Underlying Fund will depend upon
the extent to which the Portfolio's assets are allocated from time to time for
investment in the Underlying Fund. For a description of the principal risks
associated with investments in the Underlying Funds, please see "Underlying
Funds - Principal Risks of the Underlying Funds" in this Prospectus, "Investment
Objectives and Policies" in the Statement of Additional Information and
"Characteristics and Risks of Securities and Investment Techniques" in the
Underlying Fund Prospectuses, which are incorporated herein by reference and are
available free of charge by telephoning the Distributor at 800-426-0107.
PORTFOLIO TURNOVER
A change in the securities held by a Portfolio is known as "portfolio turnover."
Because PIMCO Advisors does not expect to reallocate the Portfolios' assets
among the Underlying Funds on a frequent basis, the portfolio turnover rates for
the Portfolios are expected to be modest (i.e., less than 25%) in comparison to
most mutual funds. However, the Portfolios' indirectly bear the expenses
associated with portfolio turnover of the Underlying Funds, a number of which
have fairly high portfolio turnover rates (i.e., in excess of 100%). High
portfolio turnover involves correspondingly greater expenses to an Underlying
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestments in other securities.
Shareholders in the Portfolios may also bear expenses directly or indirectly
through sales of securities held by the Portfolios and the Underlying Funds
which result in realization of taxable capital gains. See "Taxes."
SERVICE SYSTEMS --YEAR 2000 PROBLEM
Many of the services provided to the Portfolios 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 Portfolios'
operations and services provided to shareholders. The Advisor, Distributor,
Shareholder Servicing and Transfer Agent, Custodian, and certain other service
providers to the Portfolios 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 Portfolios' operations and services provided to shareholders will not be
adversely effected.
"FUNDAMENTAL" POLICIES
The investment objective of each Portfolio described in this Prospectus may be
changed by the Board of Trustees without shareholder approval. If there is a
change in a Portfolio's investment objective, shareholders should consider
whether the Portfolio remains an appropriate investment in light of their then
current financial positions and needs.
11
<PAGE>
UNDERLYING FUNDS
Each Portfolio invests all of its assets in Underlying Funds. Accordingly, each
Portfolio's investment performance depends upon a favorable allocation among the
Underlying Funds as well as the ability of the Underlying Funds to meet their
objectives. There can be no assurance that the investment objective of any
Underlying Fund will be achieved. Shares of the Underlying Funds are not
offered in this Prospectus.
PORTFOLIO MANAGERS
PIMCO Advisors serves as investment advisor for each of the Underlying Equity
Funds and its affiliates serve as sub-advisors, except that another affiliate,
Pacific Investment Management, is the sole investment advisor to PIMCO
StocksPLUS Fund. Under these arrangements, the sub-advisors and Pacific
Investment Management (referred to collectively as "Portfolio Managers") have
full investment discretion and make all determinations with respect to the
investment of the assets of these Funds. The Portfolio Managers and their
investment specialties are listed below.
<TABLE>
<CAPTION>
PORTFOLIO MANAGER INVESTMENT SPECIALTY
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Pacific Investment Management All sectors of the bond market using its total return philosophy -
seeking both yield and capital appreciation
- ------------------------------------------------------------------------------------------------------------------
Columbus Circle Investors ("Columbus Stocks, using its "Positive Momentum & Positive Surprise"
Circle") 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
- ------------------------------------------------------------------------------------------------------------------
Parametric Portfolio Associates Stocks, using quantitatively-driven fundamental analysis and
("Parametric") economic methods, with specialties in emerging markets and tax-
efficient products
</TABLE>
UNDERLYING EQUITY FUNDS
The following provides a concise description of the investment objective and
primary investments of each Underlying Equity Fund and lists the Fund's
Portfolio Manager. For a complete description of the Funds, please see the
Underlying Fund Prospectuses, which are incorporated herein by reference and are
available free of charge by telephoning the Distributor at 800-426-0107.
12
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO
INVESTMENT OBJECTIVE PRIMARY INVESTMENTS MANAGER
- ------------------------------------------------------------------------------------------------------------------------------------
STOCK FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PIMCO Equity Income Current income as a primary objective; Common stocks with below-average price to NFJ
long-term growth of capital as a earnings ratios and higher dividend yields
secondary objective relative to their industry groups
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Renaissance Long-term growth of capital and income Common stocks with below-average valuations Columbus
that have improving business fundamentals Circle
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Core Equity Long-term growth of capital; income as a Common stocks of companies with market Columbus
secondary objective capitalizations in excess of $3 billion Circle
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Mid-Cap Equity Long-term growth of capital Common stocks of companies with market Columbus
capitalizations between $800 million and Circle
$3 billion
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Value Long-term growth of capital and income Common stocks with below-average price to NFJ
earnings ratios relative to their industry
groups
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Value 25 Long-term growth of capital and income Approximately 25 common stocks of companies NFJ
with medium market capitalizations and
below-average price to earnings ratios
relative to their industry groups
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Capital Appreciation Growth of capital Common stocks of companies with market Cadence
capitalizations of at least $1 billion that
have improving fundamentals and whose stock
is reasonably valued by the market
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Mid-Cap Growth Growth of capital Common stocks of companies with market Cadence
capitalizations in excess of $500 million
that have improving fundamentals and whose
stock is reasonably valued by the market
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Enhanced Equity Total return which equals or exceeds the Commons stocks represented in the S&P Parametric
total return performance of an index 500 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")).
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Tax-Efficient Equity Maximum after-tax growth of capital A broadly diversified portfolio of at Parametric
least 250 common stocks of companies
with larger market capitalizations
- ------------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE STOCK FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Small-Cap Value Long-term growth of capital and income Common stocks of companies with market NFJ
capitalizations between $50 million and $1
billion and below-average price to earnings
ratios relative to their industry groups
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Small-Cap Growth Growth of capital Common stocks of companies with market Cadence
capitalizations between $50 million and $1
billion that have improving fundamentals and
whose stock is reasonably valued by the market
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Micro-Cap Growth Long-term growth of capital Common stocks of companies with market Cadence
capitalizations of less than $100 million
that have improving fundamentals and whose
stock is reasonably valued by the market
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO
INVESTMENT OBJECTIVE PRIMARY INVESTMENTS MANAGER
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL STOCK FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PIMCO International Long-term growth of capital A diversified portfolio of international Blairlogie
Developed equity securities (developed markets)
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO International Capital appreciation; income is Non-U.S. stocks of companies with small, Blairlogie
incidental medium and large market capitalizations
(developed and emerging markets)
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO International Growth Long-term capital appreciation An international portfolio of equity and Columbus
equity-related securities Circle
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Emerging Markets Long-term growth of capital Common stocks of companies located in emerging Blairlogie
market countries
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Structured Emerging Long-term growth of capital Common stocks of companies located in emerging Parametric
Markets market countries
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Tax-Efficient Same as PIMCO Structured Emerging Common stocks of companies located in emerging Parametric
Structured Emerging Markets Fund, except that the Fund seeks market countries
Markets to achieve superior after-tax returns by
employing a variety of tax-efficient
management strategies
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALIZED STOCK FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Innovation Capital appreciation; no consideration Common stocks of companies with small, medium Columbus
given to income and large market capitalizations Circle
(technology-related stocks)
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO StocksPLUS Total return which exceeds the total S&P 500 stock index derivatives backed by a Pacific
return performance of the S&P 500 portfolio of short-term fixed income securities Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
UNDERLYING FIXED INCOME FUNDS
Pacific Investment Management has full investment discretion and makes all
determinations with respect to the investment of the assets of each Underlying
Fixed Income Fund.
The investment objective of each Underlying Fixed Income Fund (except as
provided below) is to seek to realize maximum total return, consistent with
preservation of capital and prudent investment management. The "total return"
sought by most of the Underlying Fixed Income Funds will consist of interest and
dividends from underlying securities and capital appreciation or depreciation
reflected in changes in the value of portfolio securities. The investment
objective of PIMCO Real Return Bond Fund is to seek to realize maximum real
return, consistent with preservation of real capital and prudent investment
management. "Real Return" is total return adjusted for inflation. The investment
objective of each of PIMCO Money Market Fund and PIMCO Short-Term Fund is to
seek to
14
<PAGE>
obtain maximum current income consistent with preservation of capital and daily
liquidity. PIMCO Money Market Fund also attempts to maintain a stable net asset
value of $1.00 per share, although there can be no assurance that it will be
successful in doing so. The investment objective of PIMCO Municipal Bond Fund is
to seek high current income exempt from federal income tax, consistent with
preservation of capital. Capital appreciation is a secondary objective of PIMCO
Municipal Bond Fund.
The following provides a concise description of the principal investments
of and other information relating to each Underlying Fixed Income Fund. For a
complete description of the Funds, please see the Underlying Fund Prospectus for
PIMCO Funds: Pacific Investment Management Series, which is incorporated herein
by reference and is available free of charge by telephoning the Distributor at
800-426-0107.
<TABLE>
<CAPTION>
PRIMARY INVESTMENTS DURATION CREDIT QUALITY(1) FOREIGN(2)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PIMCO Money Market Money market instruments 90 days dollar-weighted Min 95% Aaa or 0%
average Prime 1; 5% Aa
maturity or Prime 2
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Short-Term Money market instruments and short 0-1 yr B to Aaa; max 0-5%
maturity fixed income securities 10% below Baa
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Short and intermediate maturity 1-3 yrs B to Aaa; max 0-20%
fixed income securities 10% below Baa
- ------------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Moderate Short and intermediate maturity 2-5 yrs B to Aaa; max 0-20%
Duration fixed income securities 10% below Baa
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Real Return Inflation-indexed fixed income N/A A to Aaa 0-35%
Bond securities
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Total Return Intermediate maturity fixed income 3-6 yrs B to Aaa; max 0-20%
securities 10% below Baa
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Total Return II Same as PIMCO Total Return Fund, 3-6 yrs Baa to Aaa 0%
except that the Fund is subject to
credit quality and foreign issuer
restrictions
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO High Yield Higher yielding fixed income 2-6 yrs B to Aaa; min 0%
securities 65% below Baa
- -----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM BOND FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Long-Term U.S. Long-term maturity fixed income 8 yrs A to Aaa 0%
Government securities
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL BOND FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Global Bond Intermediate maturity U.S. and 3-6 yrs B to Aaa; max 25-75%
foreign fixed income securities 10% below Baa
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond Intermediate maturity hedged 3-6 yrs B to Aaa; max 85%
foreign 10% below Baa
fixed income securities
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Emerging Emerging market fixed income 0-8 yrs B to Aaa 80%
Markets Bond securities
- -----------------------------------------------------------------------------------------------------------------------------------
TAX EXEMPT FUNDS
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Municipal Bond Investment grade municipal 3-10 yrs Ba to Aaa; max 0%
securities (tax-exempt bonds) 10% below Baa
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
1. As rated by Moody's Investors Service, Inc., or if unrated, determined by
Pacific Investment Management to be of comparable quality.
2. Percentage limitations relate to foreign currency-denominated securities
for all Underlying Fixed Income Funds except PIMCO Foreign Bond, Global
Bond and Emerging Markets Bond Funds. Percentage limitations for these
three Funds relate to securities of foreign issuers, denominated in any
currency. Each Underlying Fixed Income Fund (except PIMCO Total Return II,
Municipal Bond and Long-Term U.S. Government Funds) may invest beyond these
limits in U.S. dollar-denominated securities of foreign issuers. PIMCO
Total Return II, Municipal Bond and Long-Term U.S. Government Funds may not
invest in securities of foreign issuers.
Each Underlying Fixed Income Fund will normally invest at least 65% of its
assets in the following types of securities, which, unless provided above, may
be issued by domestic or foreign entities and denominated in U.S. dollars or
foreign currencies: securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government securities"); corporate debt
securities, including convertible securities and corporate commercial paper;
mortgage-backed and other asset-backed securities; inflation-indexed bonds
issued by both governments and corporations; structured notes, including hybrid
or "indexed" securities, and loan participations; delayed funding loans and
revolving credit facilities; bank certificates of deposit, fixed time deposits
and bankers' acceptances; repurchase agreements and reverse repurchase
agreements; debt securities issued by states or local governments and their
agencies, authorities and other instrumentalities; obligations of foreign
governments or their subdivisions, agencies and instrumentalities; and
obligations of international agencies or supranational entities. Fixed income
securities may have fixed, variable, or floating rates of interest, including
rates of interest that vary inversely at a multiple of a designated or floating
rate, or that vary according to changes in relative values of currencies. Most
of the Underlying Fixed Income Funds may also make substantial use of derivative
instruments or may use a series of purchase and sale contracts or other
investment techniques to obtain market exposure to the securities in which it
primarily invests.
ADDITIONAL UNDERLYING FUNDS
In addition to the Funds listed above, a Portfolio may invest in additional
Underlying Funds that may become available for investment in the future at the
discretion of PIMCO Advisors and without shareholder approval.
PRINCIPAL RISKS OF THE UNDERLYING FUNDS
There can be no assurance that the investment objectives of any of the
Underlying Funds will be achieved. The following summarizes principal risks
associated with investments in the Underlying Funds. The summary is not
intended to be exhaustive. For a more complete description of these risks,
please refer to "Investment Objectives and Policies" in the Statement of
Additional Information and "Characteristics and Risks of Securities and
Investment Techniques" in the Underlying Fund Prospectuses, which are
incorporated herein by reference and are available free of charge by telephoning
the Distributor at 800-426-0107.
16
<PAGE>
MARKET RISK Most securities in which the Underlying Funds invest are
subject to some degree of market risk, which is the risk of unfavorable market-
induced changes in the value of a security. The following summarizes general
market risks associated with investments in fixed income and equity securities.
Fixed Income Securities Changes in the market values of fixed income
-----------------------
securities (i.e., capital appreciation or depreciation) are largely a function
of changes in the current level of interest rates. The value of an Underlying
Fund's investments in fixed income securities will typically change as the level
of interest rates fluctuate. During periods of falling interest rates, the
value of fixed income securities generally rise. Conversely, during periods of
rising interest rates, the value of fixed income securities generally decline.
"Duration" is one measure of the expected life of a fixed income security.
When interest rates are falling, a portfolio with a shorter duration will
generally not generate as high a level of total return as a portfolio with a
longer duration. When interest rates are rising, a portfolio with a shorter
duration will generally outperform a longer duration portfolio. When interest
rates are flat, shorter duration portfolios generally will not generate as high
a level of total return as longer duration portfolios (assuming that long-term
interest rates are higher than short-term rates, which is commonly the case).
Accordingly, longer duration portfolios generally have a greater potential for
total return than shorter duration portfolios, but are also subject to greater
levels of market risk and price volatility. Therefore, Underlying Fixed Income
Funds with longer average portfolio durations (e.g., PIMCO Long-Term U.S.
Government Fund) are generally subject to higher levels of market risk than
Funds with shorter durations (e.g., PIMCO Money Market, Short-Term and Low
Duration Funds). Also, some portfolios (e.g., those with mortgage-backed and
other prepayable securities) have changing durations and may have increasing
durations precisely when that is least advantageous (i.e., when interest rates
are rising).
Certain types of securities in which the Underlying Fixed Income Funds may
invest are particularly sensitive to fluctuations in prevailing interest rates
and have relatively high levels of market risk. These include various mortgage-
related securities (for instance, the interest-only or "IO" class of a stripped
mortgage-backed security) and "zero coupon" securities (fixed income securities,
including certain U.S. Government securities, that do not make periodic interest
payments and are purchased at a discount from their value at maturity). Please
see "Investment Objectives and Policies" in the Statement of Additional
Information for a description of these and other fixed income securities that
are particularly sensitive to market risk.
Equity Securities Changes in the market values of equity securities (i.e.,
-----------------
capital appreciation or depreciation) may depend upon a number of factors,
including: general economic and market conditions, prospects of the security's
issuer, changing interest rates, real or perceived economic and competitive
industry conditions, and currency exchange rates. Generally, over the long
term, the total return obtained by a portfolio that invests primarily in equity
securities has historically been greater than that obtained by a portfolio that
invests primarily in fixed income securities. However, an equity portfolio is
generally subject to greater market risk and price volatility than a fixed
income portfolio and is considered to be a more aggressive investment.
CREDIT RISK OF FIXED INCOME SECURITIES Credit risk associated with
investments in fixed income securities relates to the ability of the issuer to
make scheduled payments of principal and interest on an obligation. The
Underlying Funds that invest in fixed income securities are subject to varying
degrees of risk that the issuers of the securities will have their credit
ratings downgraded or will default, potentially reducing the Underlying Fund's
share price and income level. Nearly all fixed income securities are subject to
some credit risk, whether the issuers of the securities are corporations, states
and local governments or foreign governments. Even certain U.S. Government
securities are subject to credit risk.
Credit risk is particularly acute for Underlying Funds which invest in so-
called "high-yield" securities or "junk" bonds, which are fixed income
securities rated lower than Baa by Moody's Investors Service, Inc.
17
<PAGE>
("Moody's") or BBB by Standard & Poor's Ratings Services ("S&P"), or are
determined to be of comparable quality to securities so rated. While such
securities offer the potential for higher investment returns that higher-rated
securities, they carry a high degree of credit risk and are considered
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. High yield securities may also be more
susceptible to real or perceived adverse economic and competitive industry
conditions and may be less liquid than higher-rated securities. Accordingly,
Underlying Funds which invest a significant portion of their assets in high
yield securities (e.g., PIMCO High Yield and Emerging Markets Bond Funds) are
subject to substantial credit risk, while Funds that invest in higher quality
securities (e.g., PIMCO Money Market, Real Return Bond and Long-Term U.S.
Government Bond Funds) are subject to less credit risk.
INVESTMENTS IN COMPANIES WITH SMALL MARKET CAPITALIZATIONS Certain
Underlying Equity Funds (in particular, PIMCO Micro-Cap Growth, Small-Cap Value
and Small-Cap Growth Funds) invest in common stock of companies with market
capitalizations that are small compared to other publicly traded companies.
Investments in smaller, less seasoned companies may present greater
opportunities for growth and capital appreciation, but also involve greater
risks than customarily are associated with 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. In addition, their
securities may be traded in the over-the-counter market or on a regional
exchange, or may otherwise have limited liquidity.
FOREIGN SECURITIES AND CURRENCIES Many Underlying Funds (in particular,
PIMCO International Developed, International, International Growth, Emerging
Markets, Structured Emerging Markets, Tax-Efficient Structured Emerging Markets,
Global Bond, Foreign Bond and Emerging Markets Bond Funds) invest in securities
of foreign issuers, securities traded principally in securities markets outside
the United States and/or securities denominated in foreign currencies (together,
"foreign securities").
Investing in foreign securities involves special risks not typically
associated with investing in U.S. securities. These risks include: differences
in accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; higher custodial costs; the
possibility that foreign taxes will be charged on dividends and interest payable
on foreign securities; 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); political instability; the possibility of unfavorable foreign
economic factors; and greater price volatility.
Certain Underlying Funds (in particular, PIMCO Emerging Markets, Structured
Emerging Markets, Tax-Efficient Structured Emerging Markets and Emerging Markets
Bond Funds) may invest in the securities of issuers based in countries with
developing or "emerging market" economies. The securities may present market,
credit, currency, liquidity, legal, political and other risks greater than, or
in addition to, risks of investing in developed foreign countries. These risks
include: high 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; 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; the risk that it may be more difficult to obtain and/or enforce
legal judgments in foreign jurisdictions; and significantly smaller market
capitalizations of emerging securities markets.
18
<PAGE>
Underlying Funds that invest in fixed income securities denominated in
foreign currencies or in foreign currencies and related derivative instruments
(in particular, PIMCO Global Bond, Foreign Bond and Emerging Markets Bond Funds)
and Underlying Funds that invest in equity securities traded principally in
foreign currencies, may be adversely affected by changes in foreign currency
exchange rates. Those rates may fluctuate significantly over short periods of
time for a number of reasons, including the forces of supply and demand in the
foreign exchange markets, actual or perceived changes in interest rates, and
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.
DERIVATIVE INSTRUMENTS The Underlying Funds (with the exception of PIMCO
Money Market Fund) may utilize a number of derivative instruments for risk
management purposes or as part of their investment strategies. These include
futures contracts, options contracts, options on futures contracts, forward
contracts and swap agreements. Generally, derivatives are financial contracts
whose value depends upon, or is derived from, the value of an underlying asset,
reference rate or index, and may relate to stocks, bonds, interest rates,
currencies or currency exchange rates, commodities, and related indexes. For a
description of the various derivative instruments utilized by the Underlying
Funds, please see "Investment Objectives and Policies" in the Statement of
Additional Information.
The use of derivatives instruments involves risks different from, or
greater than, the risks associated with investing directly in securities and
other more traditional investments. The following provides a general discussion
of important risk factors relating to the use of derivative instruments by the
Underlying Funds.
Management Risk Derivative products are highly specialized instruments
---------------
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions.
Credit Risk The use of a derivative involves the risk that a loss may be
-----------
sustained as a result of the failure of another party to the contract
(usually referred to as a "counterparty") to make required payments or
otherwise comply with the contract's terms.
Liquidity Risk Liquidity risk exists when a particular derivative
--------------
instrument is difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the case
with many privately negotiated derivatives), it may not be possible to
initiate a transaction or liquidate a position at an advantageous time or
price.
Leverage Risk Because many derivatives have a leverage component, adverse
-------------
changes in the value or level of the underlying asset, reference rate or
index can result in a loss substantially greater than the amount invested
in the derivative itself. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial investment. When an
Underlying Fund uses derivatives for leverage, investments in that Fund
will tend to be more volatile, resulting in larger gains or losses in
response to market changes.
Market and Other Risks Like most other investments, derivative instruments
----------------------
are subject to the general risk that the market value of the instrument
will change in a way detrimental to the investor's interest. Other risks in
using derivatives include the risk of mispricing or improper valuation of
derivatives and the
19
<PAGE>
inability of derivatives to correlate perfectly with underlying assets,
rates and indexes. Many derivatives, in particular privately negotiated
derivatives, are complex and often valued subjectively. Improper valuations
can result in increased cash payment requirements to counterparties or a
loss of value to an Underling Fund. Also, the value of derivatives may not
correlate perfectly, or at all, with the value of the assets, reference
rates or indices they are designed to closely track. Consequently, an
Underlying Fund's use of derivative may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective or risk management strategy.
A NOTE ON PIMCO STOCKSPLUS FUND While the objective of PIMCO StocksPLUS
Fund is to achieve a total return which exceeds the total return performance of
the S&P 500, it does so by investing substantially all of its assets in a
combination of equity-based derivative instruments and a portfolio of fixed
income securities. Consequently, the risks of investing in the Fund include the
risks of derivatives and the risks generally associated with the Underlying
Fixed Income Funds.
CERTAIN OTHER MISCELLANEOUS INVESTMENT PRACTICES In addition to purchasing
the securities listed above under "Primary Investments," some or all of the
Underlying Funds may to varying extents: lend portfolio securities; enter into
repurchase agreements and reverse repurchase agreements; purchase and sell
securities on a when-issued or delayed delivery basis; enter into forward
commitments to purchase securities; purchase and write call and put options on
securities and securities indexes; enter into futures contracts, options on
futures contracts and swap agreements; invest in foreign securities; and buy or
sell foreign currencies and enter into forward foreign currency contracts.
These and the other types of securities and investment techniques used by the
Underlying Funds all have attendant risks. The Portfolios are indirectly
subject to some or all of these risks to varying degrees because they invest all
of their assets in the Underlying Funds. For further information concerning the
investment practices of and risks associated with the Underlying Funds, please
see "Investment Objectives and Policies" in the Statement of Additional
Information and the Underlying Fund Prospectuses, which are incorporated herein
by reference and are available free of charge by telephoning the Distributor at
800-426-0107.
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
Portfolios. Information about a Portfolio's performance is based on that
Portfolio's record to a recent date and is not intended to indicate future
performance. Performance information is computed separately for each Portfolio's
Class A, Class B and Class C shares in accordance with the formulas described
below. Because Class B and Class C shares bear the expense of the distribution
fee attending the deferred sales charge (Class B) and asset based sales charge
(Class C) alternatives and certain other expenses, it is expected that, under
normal circumstances, the level of performance of a Portfolio's Class B and
Class C shares will be lower than that of the Portfolio'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
Portfolios may be included in advertisements or other written material. When a
Portfolio's total return is advertised with respect to its Class A, Class B
and/or Class C shares, it will be calculated for the past year, the past five
years, and the past ten years (or if the Portfolio has been offered for a period
shorter than one, five or ten years, that period will be substituted) since the
establishment of the Portfolio, as more fully described in the Statement of
Additional Information. Total return for each class is measured by comparing
the value of an investment in the Portfolio 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 Portfolio at the
end of the period (assuming immediate reinvestment of any dividends or capital
gains distributions at net asset value and giving effect to the deduction of the
maximum CDSC which would be payable). Total return may be advertised using
alternative methods that reflect all elements of return.
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<PAGE>
Quotations of yield for a Portfolio or class 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 share on the last day of the period. The
Portfolios may also provide current distribution information to its shareholders
in shareholder reports or other shareholder communications, or in certain types
of sales literature provided to prospective investors. Current distribution
information for a particular class of a Portfolio 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. Current distribution rates differ from standardized
yield rates in that they represent what a class of a Portfolio has declared and
paid to shareholders as of the end of a specified period rather than the
Portfolio's actual net investment income for that period.
The Advisor may also report to shareholders or to the public in
advertisements concerning its performance as advisor to clients other than the
Portfolios, 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 performance
information, whether related to the Portfolios, the Advisor or an advisory
affiliate of the advisor, should be considered in light of the Portfolios'
investment objectives and policies, characteristics and quality of the
Portfolios' investments, and the market conditions during the time period
indicated, and should not be considered to be representative of what may be
achieved by the Portfolios in the future.
Investment results of the Portfolios will fluctuate over time, and any
representation of the Portfolios' 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 and Class C shares of each Portfolio are continuously offered
through the Trust's principal underwriter, PIMCO Funds Distributors LLC (the
"Distributor"), and through other firms which have dealer agreements with the
Distributor ("participating brokers") or which have agreed to act as introducing
brokers for the Distributor ("introducing brokers").
There are two ways to purchase Class A, 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 Portfolio currently offers and sells three classes of shares in this
Prospectus (Class A, Class B and Class C). Shares may be purchased at a price
equal to their net asset value per share next determined after receipt of an
order, plus a sales charge which, at the election of the purchaser, may be
imposed either (i) at the time of the purchase in the case of Class A shares
(the "initial sales charge alternative"), (ii) on a contingent deferred basis in
the case of Class B shares (the "deferred sales charge alternative"), or (iii)
by the deduction of an ongoing asset based sales charge in the case of Class C
shares (the "asset based sales charge alternative"). In certain circumstances,
Class A and Class C shares are also subject to a 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.
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<PAGE>
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 offering price is determined that day will receive such
offering price if the orders were received by the dealer or broker from its
customer prior to such determination and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 p.m., Eastern
time) or, in the case of certain retirement plans, received by the Distributor
prior to 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 discretion, may
accept or reject any order for purchase of Portfolio 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 Exchange is restricted or during an
emergency which makes it impracticable for the Portfolios to dispose of their
securities or to determine fairly the value of their net assets, 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 Portfolio or other series of the
Trust or any series of PIMCO Funds: Pacific Investment Management Series is
$2,500, and the minimum additional investment is $100 per Portfolio. For
information about dealer commissions, see "Alternative Purchase Arrangements"
below. Persons selling Portfolio shares may receive different compensation for
selling Class A, Class B or Class C shares. Normally, Portfolio shares purchased
through participating brokers are held in the investor's account with that
broker. No share certificates will be issued unless specifically requested in
writing by an investor or broker-dealer.
DIRECT INVESTMENT
Investors who wish to invest in Class A, Class B or Class C shares 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
purchase, redemption, dividend reinvestment, exchange or transfer of Trust
shares, including the total number of Trust shares owned as of the confirmation
date, except that purchases which result from the reinvestment of daily-accrued
dividends and/or distributions will be confirmed once each calendar quarter. See
"Distributions" below. Information regarding direct investment or any other
features or plans offered by the Trust may be obtained by calling the
Distributor at 800-426-0107 or by calling your broker.
PURCHASE BY MAIL
Investors who wish to invest directly may send a check payable to PIMCO Funds
Distributors LLC, along with a completed application form to:
PIMCO Funds Distributors LLC
P.O. Box 5866
Denver, CO 80217-5866
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<PAGE>
Purchases are accepted subject to collection of checks at full value and
conversion into federal funds. Payment by a check drawn on any member of the
Federal Reserve System can normally be converted into federal funds within two
business days after receipt of the check. Checks drawn on a non-member bank may
take up to 15 days to convert into federal funds. In all cases, the purchase
price is based on the net asset value next determined after the purchase order
and check are accepted, even though the check may not yet have been converted
into federal funds.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases of Class A, Class B or Class C shares can be made as
indicated above by mailing a check with a letter describing the investment or
with the additional investment portion of a confirmation statement. Except for
subsequent purchases through the PIMCO 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 Portfolio. 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-QUALIFIED RETIREMENT PLANS
The Distributor makes available retirement plan services and documents for
Individual Retirement Accounts (IRAs), including Roth IRAs, for which First
National Bank of Boston serves as trustee 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
Pension Plan (SAR/SEP) IRA accounts and prototype documents. In addition,
prototype documents are available for establishing 403(b)(7) Custodial Accounts
with First National Bank of Boston as custodian. This type of plan is available
to employees of certain non-profit organizations.
The Distributor also makes available prototype documents for establishing
Money Purchase and/or Profit Sharing Plans and 401(k) Retirement Savings Plans.
Investors should call the Distributor at 800-426-0107 for further information
about these plans and should consult with their own tax advisers before
establishing any retirement plan. Investors who maintain their accounts with
participating brokers should consult their broker about similar types of
accounts that may be offered through the broker. The minimum initial investment
for all tax qualified plans (except for employer-sponsored plans, SIMPLE IRAs,
SEPs and SAR/SEPs) is $1,000 per Portfolio 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 Portfolio for
all such plans is $50.
PIMCO FUNDS AUTO-INVEST
The PIMCO Funds Auto-Invest plan provides for periodic investments into the
shareholder's account with the Trust by means of automatic transfers of a
designated amount from the shareholder's bank account. The minimum investment
for eligibility in the PIMCO Funds Auto-Invest plan is $1,000 per Portfolio.
Investments may be made monthly or quarterly, and may be in any amount subject
to a minimum of $50 per month for each Portfolio in which shares are purchased
through the plan. Further information regarding the PIMCO Funds Auto-Invest plan
is available from the Distributor or participating brokers. You may enroll by
completing the appropriate section on the account application, or you may obtain
an Auto-Invest application by calling the Distributor or your broker.
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<PAGE>
PIMCO FUNDS AUTO-EXCHANGE
The PIMCO Funds Auto-Exchange plan establishes regular, periodic exchanges from
one Portfolio to another Portfolio or other series of the Trust or PIMCO Funds:
Pacific Investment Management Series which offers Class A, Class B or Class C
shares. The plan provides for regular investments into a shareholder's account
in a specific Portfolio by means of automatic exchanges of a designated amount
from an account for another Portfolio or other series of the same class of
shares and with identical account registration.
Exchanges may be made monthly or quarterly, and may be in any amount
subject to a minimum of $50 for each Portfolio 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 completing an application which may be obtained from the
Distributor or by telephone request at 800-426-0107. For more information on
exchanges, see "Exchange Privilege."
PIMCO FUNDS FUND LINK
PIMCO Funds Fund Link ("Fund Link") connects your Portfolio account with a bank
account. Fund Link may be used for subsequent purchases and for redemptions and
other transactions described under "How to Redeem." Purchase transactions are
effected by electronic funds transfers from the shareholder's account at a U.S.
bank or other financial institution that is an Automated Clearing House ("ACH")
member. Investors may use Fund Link to make subsequent purchases of shares in
amounts from $50 to $10,000. To initiate such purchases, call 800-426-0107. All
such calls will be recorded. Fund Link is normally established within 45 days of
receipt of a Fund Link application by Shareholder Services, Inc. (the "Transfer
Agent"). The minimum investment by Fund Link is $50 per Portfolio. Shares will
be purchased on the regular business day the Distributor receives the funds
through the ACH system, provided the funds are received before the close of
regular trading on the Exchange. If the funds are received after the close of
regular trading, the shares will be purchased on the next regular business day.
Fund Link privileges must be requested on the account application. To
establish Fund Link on an existing account, complete a Fund Link application,
which is available from the Distributor or your broker, with signatures
guaranteed from all shareholders of record for the account. See "Signature
Guarantee" below. Such privileges apply to each shareholder of record for the
account unless and until the Distributor receives written instructions from a
shareholder of record canceling such privileges. Changes of bank account
information must be made by completing a new Fund Link application signed by all
owners of record of the account, with all signatures guaranteed. The
Distributor, the Transfer Agent and the Portfolio 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 Portfolio
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.
SIGNATURE GUARANTEE
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and guaranteed by any of the following
entities: U.S. banks, foreign banks having a U.S. correspondent bank, credit
unions, savings associations, U.S. registered dealers and brokers, municipal
securities dealers and brokers, government securities dealers and brokers,
national securities exchanges, registered securities associations and clearing
agencies (each an "Eligible Guarantor Institution"). The Distributor reserves
the right to reject any signature guarantee pursuant to its written signature
guarantee standards or procedures, which may be revised in the future to permit
it to reject signature guarantees from Eligible Guarantor Institutions that do
not, based on credit guidelines, satisfy such written standards or procedures.
The Trust may change the signature guarantee requirements from time to time upon
notice to shareholders, which may be given by means of a new or supplemented
Prospectus.
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<PAGE>
ACCOUNT REGISTRATION CHANGES
Changes in registration or account privileges may be made in writing to the
Transfer Agent. Signature guarantees may be required. See "Signature Guarantee"
above. All correspondence must include the account number and must be sent to:
PIMCO Funds Distributors LLC
P.O. Box 5866
Denver, CO 80217-5866
SMALL ACCOUNT FEE
Because of the disproportionately high costs of servicing accounts with low
balances, a fee at an annual rate of $16, paid to PIMCO Advisors, the
Portfolios' 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 accounts 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 aggregate value of all of the shareholder's accounts is at least $50,000. No
small account fee will be charged to employee and employee-related accounts of
PIMCO Advisors and/or its affiliates.
MINIMUM ACCOUNT SIZE
Due to the relatively high cost to the Portfolios of maintaining small accounts,
you are asked to maintain an account balance of at least the amount necessary to
open the type of account involved. If your balance is below such minimum for
three months or longer, the Portfolios' administrator shall have the right
(except in the case of employer-sponsored retirement accounts) to close your
account after giving you 60 days in which to increase your balance. Your account
will not be liquidated if the reduction in size is due solely to market decline
in the value of your Portfolio 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 Prospectus (Class A,
Class B and Class C) which bear sales charges in different forms and amounts and
which bear different levels of expenses. Through a separate prospectus, the
Portfolios offer up to two additional classes of shares, Institutional Class and
Administrative Class shares. Institutional Class and Administrative Class
shares are offered to pension and profit sharing plans, employee benefit trusts,
endowments, foundations, corporations and other high net worth individuals.
Institutional Class and Administrative Class shares are sold without 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, Institutional Class
and Administrative Class shares are generally expected to achieve higher
investment returns than Class A, Class B or Class C shares. To obtain more
information about the other classes of shares, please call 800-927-4648.
The alternative purchase arrangements offered in this Prospectus are
designed to enable a retail investor to choose the method of purchasing
Portfolio shares that is most beneficial to the investor based on all factors to
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<PAGE>
be considered, which include: the amount and intended length of the investment;
the particular Portfolio; and whether the investor intends to exchange shares
for shares of other PIMCO Funds. Generally, when making an investment decision,
investors should consider the anticipated life of an intended investment in the
Portfolios, 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
anticipated higher return on Class A shares due to the lower ongoing charges
will offset the initial sales charge paid on such shares, the automatic
conversion of Class B shares to Class A shares and the difference in the 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 applicable to such shares. Similar
reductions are not available on the contingent deferred sales charge alternative
(Class B) or the asset based sales charge alternative (Class C). Class A shares
are subject to a servicing fee but are not subject to a distribution fee and,
accordingly, such shares are expected to pay correspondingly higher dividends on
a per share basis. However, because initial sales charges are deducted at the
time of purchase, not all of the purchase payment for Class A shares is invested
initially. Class B and Class C shares might be preferable to investors who wish
to have all purchase payments invested initially, although remaining subject to
higher distribution and servicing fees and, for certain periods, being subject
to a CDSC. An investor who qualifies for an elimination of the Class A initial
sales charge should also consider whether he or she anticipates redeeming shares
in a time period which will subject such shares to a CDSC as described below.
See "Initial Sales Charge Alternative--Class A Shares--Class A Deferred Sales
Charge" below.
CLASS B Class B shares might be preferred by investors who intend to invest in
the Portfolios for longer periods and who do not intend to purchase shares of
sufficient aggregate value to qualify for sales charge reductions applicable to
Class A shares. Both Class B and Class C shares can be purchased at net asset
value without an initial sales charge. However, unlike Class C shares, Class B
shares convert into Class A shares after the shares have been held for seven
years. After the conversion takes place, the shares will no longer be subject to
a CDSC, and will be subject to the servicing fees charged for Class A shares
which are lower than the distribution and servicing fees charged on either Class
B or Class C shares. See "Deferred Sales Charge Alternative--Class B Shares"
below. Class B shares are not available for purchase by employer sponsored
retirement plans.
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 maintain their investment in the Portfolios 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 Portfolios and other
series of the Trust and PIMCO Funds: Pacific Investment Management Series
accepted is $249,999. The maximum single purchase of Class C shares of the
Portfolios and other series of the Trust and PIMCO Funds: Pacific Investment
Management Series accepted is $999,999. The Portfolios may refuse any order to
purchase shares.
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<PAGE>
For a description of the Distribution and Servicing Plans and distribution
and servicing fees payable thereunder with respect to Class A, Class B and Class
C shares, see "Distributor and Distribution and Servicing Plans" 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) custodial account or an IRA (with the exception of a Roth
IRA), that qualify for exemption from the additional tax on early distributions
under Section 72(t) of the Internal Revenue Code of 1986, as amended (the
"Code"): (a) upon attaining age 59 1/2, (b) on account of death or disability,
(c) as part of a series of substantially equal periodic payments, (d) in the
case of an IRA (with the exception of a Roth IRA), attributable to qualified
higher education 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 termination of
employment or termination of the employer's plan and the transfer to another
employer's plan or to an IRA (with the exception of a Roth IRA); (iv) any
partial or complete redemption following death or disability (as defined in the
Code) of a shareholder (including one who owns the shares as joint tenant with
his or her spouse) from an account in which the deceased or disabled is named,
provided the redemption is requested within one year of the death or initial
determination of disability; (v) any redemption resulting from a return of an
excess contribution to a qualified employer retirement plan or an IRA (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) redemptions by Trustees, officers
and employees of the Trust, and by directors, officers and employees of the
Distributor and the Advisor; (viii) redemptions effected pursuant to a
Portfolio's right to involuntarily redeem a shareholder's account if the
aggregate net asset value of shares held in such shareholder's account is less
than a minimum account size specified in such Portfolio's prospectus; (ix)
involuntary redemptions caused by operation of law; (x) redemption of shares of
any Portfolio that is combined with another Portfolio or other series of the
Trust or another investment company, or a personal holding company by virtue of
a merger, acquisition or other similar reorganization transaction; (xi)
redemptions by a shareholder who is a participant making periodic purchases of
not less than $50 through certain employer sponsored savings plans that are
clients of a broker-dealer with which the Distributor has an agreement with
respect to such purchases; (xii) redemptions effected by trustees or other
fiduciaries who have purchased shares for employer sponsored plans, the trustee,
administrator, fiduciary, broker, trust company or registered investment advisor
for which has an agreement with the Distributor with respect to such purchases;
or (xiii) redemptions in connection with IRA accounts established with Form
5305-SIMPLE under the Code for which the Trust is the designated financial
institution.
The CDSC applicable to Class B shares is currently waived for any partial
or complete redemption in each of the following cases: (a) in connection with a
distribution without penalty under Section 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
(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; 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 Withdrawal Plan."
The Distributor may require documentation prior to waiver of the CDSC for
any class, including distribution letters, certification by plan administrators,
applicable tax forms, death certificates, physicians' certificates, etc.
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<PAGE>
INITIAL SALES CHARGE ALTERNATIVE --
CLASS A SHARES
Class A shares are sold at a public offering price equal to their net asset
value per share plus a sales charge, as set forth below. As indicated below
under "Class A Deferred Sales Charge," certain investors that purchase
$1,000,000 or more of any Portfolio's Class A shares (and thus pay no initial
sales charge) may be subject to a 1% CDSC if they redeem such shares during the
first 18 months after their purchase.
90/10 PORTFOLIO AND 60/40 PORTFOLIO
<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>
30/70 PORTFOLIO
<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 4.71% 4.50% 4.00%
$50,000 - $99,999 4.17% 4.00% 3.50%
$100,000 - $249,999 3.63% 3.50% 3.00%
$250,000 - $499,999 2.56% 2.50% 2.00%
$500,000 - $999,999 2.04% 2.00% 1.75%
$1,000,000+ 0.00%(1) 0.00%(1) 0.50%(2)
</TABLE>
1. As shown, investors that purchase more than $1,000,000 of any Portfolio'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 the 90/10 Portfolio and the 60/40 Portfolio according to the
following schedule: 0.75% of the first $2,000,000, 0.50% of amounts from
$2,000,001 to $5,000,000, and 0.25% of amounts over $5,000,000; and of the 30/70
Portfolio according to the following schedule: 0.50% of the first $2,000,000 and
0.25% of amounts over $2,000,000.
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<PAGE>
Each Portfolio 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
Portfolio during a particular period. During such periods as may from time to
time be designated by the Distributor, the Distributor will pay an additional
amount of up to 0.50% of the purchase price on sales of Class A shares of all or
selected Portfolios purchased to each participating broker which obtains
purchase orders 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
entitled to pay reduced sales charges for Class A shares.
COMBINED PURCHASE PRIVILEGE Investors may qualify for a reduced sales charge by
combining purchases of the Class A shares of one or more Portfolios or other
series of the Trust or PIMCO Funds: Pacific Investment Management Series which
offer Class A shares (together, "eligible PIMCO Funds") into a "single
purchase," if the resulting purchase totals at least $50,000. The term "single
purchase" refers to:
(i) a single purchase by an individual, or concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
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;
(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 90/10 Portfolio worth
$25,000 at the current maximum offering price and wished to purchase Class A
shares of the 60/40 Portfolio 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 90/10 Portfolio, 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
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<PAGE>
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 Portfolio, you and your spouse each purchase
Class A shares of the 90/10 Portfolio 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 Portfolios 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 Portfolios).
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 Portfolio, 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.
REINSTATEMENT PRIVILEGE A Class A shareholder who has caused any or all of his
shares to be redeemed may reinvest all or any portion of the redemption proceeds
in Class A shares of 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 privilege will not cancel the
redemption transaction and, consequently, any gain or loss so realized may be
recognized for federal tax purposes except that no loss may be recognized to the
extent that the proceeds are reinvested in shares of the same Portfolio within
30 days. The reinstatement privilege may be utilized by a shareholder only once,
irrespective of the number of shares redeemed, except that the privilege may be
utilized without limit in connection with transactions whose sole purpose is to
transfer a shareholder's interest in a Portfolio to his Individual Retirement
Account or other qualified retirement plan account. An investor may exercise the
reinstatement privilege by written request sent to the Distributor or to the
investor's broker.
SALES AT NET ASSET VALUE Each Portfolio 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 Advisor 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 expenses associated
with the sale, (b) current or retired trustees of PIMCO Funds: Pacific
Investment Management Series, (c) current registered representatives and other
full-time employees of participating brokers or such persons' spouses or for
trust or custodial accounts for their minor children, (d) trustees or other
fiduciaries purchasing shares for certain employer sponsored plans that have at
least 100 eligible participants or at least $1 million in total plan assets, (e)
trustees or other fiduciaries purchasing
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<PAGE>
shares for certain plans sponsored by employers, professional 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 dealers are paid a single, inclusive
fee for brokerage and investment management services, (g) client accounts of
broker-dealers or registered 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 commission to dealers upon the sale of Class A shares to the
purchasers described in this paragraph except for sales to purchasers described
under (d) or (e) in this paragraph.
NOTIFICATION OF DISTRIBUTOR An investor or participating broker must notify the
Distributor whenever a quantity discount or reduced sales charge is applicable
to a purchase and must provide the Distributor with sufficient information at
the time of purchase to verify that each purchase qualifies for the privilege or
discount. Upon such notification, the investor will receive the lowest
applicable sales charge. The quantity discounts described above may be modified
or terminated at any time.
CLASS A DEFERRED SALES CHARGE For all Portfolios, investors who purchase
$1,000,000 or more of Class A shares (and, thus, purchase such shares without
any initial sales charge) may be subject to a 1% CDSC (the "Class A CDSC") if
such shares are redeemed within 18 months of their purchase. The Class A CDSC
does not apply to investors purchasing $1,000,000 or more of any Portfolio's
Class A shares if such investors are otherwise eligible to purchase Class A
shares without any sales charge because they are described under "Sales at Net
Asset Value" above.
For purchases subject to the Class A CDSC, a 1% CDSC will apply for any
redemption of such Class A shares that occurs within 18 months of their
purchase. No CDSC will be imposed if the shares redeemed have been acquired
through the reinvestment of dividends or capital gains distributions or if the
amount redeemed is derived from increases in the value of the account above the
amount of purchase payments subject to the CDSC. In determining whether a CDSC
is payable, it is assumed that Class A shares acquired through the reinvestment
of dividends and distributions are redeemed first, and thereafter that Class A
shares that have been held by an investor for the longest period of time are
redeemed first.
The Class A CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements--Waiver of
Contingent Deferred Sales Charges." For more information about the Class A CDSC,
call the Distributor at 800-426-0107.
PARTICIPATING BROKERS Investment dealers and other financial intermediaries
provide varying arrangements for their clients to purchase and redeem Portfolio
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 Portfolio shares in
nominee or street name as agent for and on behalf of their customers. In such
instances, the Trust's transfer agent will have no information with respect to
or control over accounts of specific shareholders. Such shareholders may obtain
access to their accounts and information about their accounts only from their
broker. In addition, certain privileges with respect to the purchase and
redemption of shares or the reinvestment of dividends may not be available
through such firms. Some firms may participate in a program allowing them access
to their clients' accounts for servicing including, without limitation,
transfers of registration and dividend payee changes; and may perform functions
such as
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<PAGE>
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 SALES CHARGE ALTERNATIVE --
CLASS B SHARES
Class B shares are sold at their current net asset value without any initial
sales charge. The full amount of an investor's purchase payment will be invested
in shares of the Portfolio(s) selected. A CDSC will be imposed on Class B shares
if an investor redeems an amount which causes the current value of the
investor's account for a Portfolio to fall below the total dollar amount of
purchase payments subject to the CDSC, except that no CDSC is imposed if the
shares redeemed have been acquired through the reinvestment of dividends or
capital gains distributions or if the amount redeemed is derived from increases
in the value of the account above the amount of purchase payments subject to the
CDSC.
Whether a CDSC is imposed and the amount of the CDSC will depend on the
number of years since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the CDSC according to the following
schedule:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PERCENTAGE CONTINGENT
PAYMENT WAS MADE DEFERRED SALES CHARGE
<S> <C>
First 5
Second 4
Third 3
Fourth 3
Fifth 2
Sixth 1
Seventh 0*
</TABLE>
_______________
* After the seventh year, Class B shares convert into Class A
shares as described below.
In determining whether a CDSC is payable, it is assumed that the purchase
payment from which a redemption is made is the earliest 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 Portfolio and that six months later the
value of the investor's account for that Portfolio has grown through
investment performance and reinvestment of distributions to $11,000. The
investor then may redeem up to $1,000 from that Portfolio ($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 Portfolio 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 Portfolio are aggregated, and the
current value of all such shares is aggregated. Any CDSC imposed on a redemption
of Class B shares is paid to the Distributor.
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<PAGE>
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 Portfolio automatically convert into Class A shares after
they have been held for seven years.
For sales of Class B shares made and services rendered to Class B
shareholders, the Distributor intends to make payments to participating brokers,
at the time a shareholder purchases Class B shares, of 4.00% of the purchase
amount for each of the Portfolios. During such periods as may from time to time
be designated by the Distributor, the Distributor will pay selected
participating brokers an additional amount of up to .50% of the purchase price
on sales of Class B shares of all or selected Portfolios purchased to each
participating broker which obtains purchase orders in amounts exceeding
thresholds established from time to time by the Distributor.
The Class B CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements --Waiver of
Contingent Deferred Sales Charges." For more information about the Class B CDSC,
call the Distributor at 800-426-0107.
ASSET BASED SALES CHARGE ALTERNATIVE --
CLASS C SHARES
Class C shares are sold at their current net asset value without any initial
sales charge. A CDSC is imposed on Class C shares if an investor redeems an
amount which causes the current value of the investor's account for a Portfolio
to fall below the total dollar amount of purchase payments subject to the CDSC,
except that no CDSC is imposed if the shares redeemed have been acquired through
the reinvestment of dividends or capital gains distributions or if the amount
redeemed is derived from increases in the value of the account above the amount
of purchase payments subject to the CDSC. All of an investor's purchase payments
are invested in shares of the Portfolio(s) selected.
Whether a CDSC is imposed and the amount of the CDSC will depend on the
number of years since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the CDSC according to the following
schedule:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PERCENTAGE CONTINGENT
PAYMENT WAS MADE DEFERRED SALES CHARGE
<S> <C>
First 1
Thereafter 0
</TABLE>
In determining whether a CDSC is payable, it is assumed that the purchase
payment from which the redemption is made is the earliest purchase payment (from
which a redemption or exchange has not already been effected).
The following example will illustrate the operation of the Class C CDSC:
Assume that an individual opens an account and makes a purchase payment of
$10,000 for Class C shares of a Portfolio and that six months later the
value of the investor's account for that Portfolio has grown through
investment performance and reinvestment of distributions to $11,000. The
investor then may redeem up to $1,000 from that Portfolio ($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
Portfolio was reduced below the amount of the purchase payment). At the
rate of 1%, the Class C CDSC would be $20.
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<PAGE>
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class C shares in the
shareholder's account with the particular Portfolio are aggregated, and the
current value of all such shares is aggregated. Any CDSC imposed on a redemption
of Class C shares is paid to the Distributor. Unlike Class B shares, Class C
shares do not automatically convert to any other class of shares of the
Portfolios.
Except as described below, for sales of Class C shares made and services
rendered to Class C shareholders, the Distributor expects to make payments to
participating brokers, at the time the shareholder purchases Class C shares, of
1.00% (representing .75% distribution fees and .25% servicing fees) of the
purchase amount for all Portfolios. 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 purchases, 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
Portfolios purchased to each participating broker which obtains purchase orders
in amounts exceeding thresholds established from time to time by the
Distributor.
The Class C CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements--Waiver of
Contingent Deferred Sales Charges." For more information about the Class C CDSC,
contact the Distributor at 800-426-0107.
EXCHANGE PRIVILEGE
A shareholder may exchange Class A, Class B and Class C shares of any Portfolio
for the same Class of shares of any other Portfolio or other series of the Trust
in an account with identical registration on the basis of their respective net
asset values. Class A, Class B and Class C shares of each Portfolio may also be
exchanged for shares of the same class of a series of PIMCO Funds: Pacific
Investment Management Series. There are currently no exchange fees or charges.
Except with respect to tax-qualified programs and exchanges effected through the
PIMCO Funds Auto-Exchange plan, exchanges are subject to the $2,500 minimum
initial purchase requirement for each Portfolio. 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 privileges on the account application or elected in
writing not to utilize 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 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 transactions and will record telephone
instructions. Exchange forms are available from the Distributor at 800-426-0107
and may be used if there will be no change in the registered name or address of
the shareholder. Changes in registration information or account privileges may
be made in writing to the Transfer Agent, Shareholder Services, Inc., P.O. Box
5866, Denver, Colorado 80217-5866, or by use of forms which are available from
the Distributor. A signature guarantee is required. See "How to Buy Shares--
Signature Guarantee."
Telephone exchanges may be made between 9:00 a.m., Eastern time and the
close of regular trading (normally 4:00 p.m., Eastern time) on the Exchange on
any day the Exchange is open (generally weekdays other than normal holidays).
The Trust reserves the right to refuse exchange purchases if, in the judgment of
the Advisor, the purchase would adversely affect the Portfolio 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 Portfolio. Currently, the Trust limits the number of "round
trip" exchanges an investor may make. An
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<PAGE>
investor makes a "round trip" exchange when the investor purchases shares of a
particular Portfolio, subsequently exchanges those shares for shares of a
different Portfolio or other PIMCO Fund and then exchanges back into the
originally purchased Portfolio. 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 Portfolio) more than six round trip exchanges in any
twelve-month period. Although theTrust 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. Except as otherwise
permitted by Securities and Exchange Commission regulations, the Trust will give
60 days' advance notice to shareholders of any termination or material
modification of the exchange privilege. For further information about exchange
privileges, contact your participating broker or call the Transfer Agent at
800-426-0107.
With respect to Class B and Class C shares, or Class A shares subject to a
CDSC, if less than all of an investment is exchanged out of a Portfolio, 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
Portfolio 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 information 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 participating
broker, by telephone, by submitting a written redemption request directly to the
Transfer Agent (for non-broker accounts), or through an Automatic Withdrawal
Plan or PIMCO Funds Fund Link.
A CDSC may apply to a redemption of Class A, Class B or Class C shares. See
"Alternative Purchase Arrangements" above. Shares are redeemed at their net
asset value next determined after a proper redemption request has been received,
less any applicable CDSC. There is no charge by the Distributor (other than an
applicable CDSC) with respect to a redemption; however, a participating broker
who processes a redemption for an investor may charge customary commissions for
its services. Dealers and other financial services firms are obligated to
transmit orders promptly. Requests for redemption received by dealers or other
firms prior to the close of regular trading (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 confirmed at the net
asset value effective as of the closing of the Exchange on that day, less any
applicable CDSC.
DIRECT REDEMPTION
A shareholder's original account application permits the shareholder to redeem
by written request and by telephone (unless the shareholder specifically elects
not to utilize telephone redemptions) and to elect one or more of the additional
redemption procedures described below. A shareholder may change the instructions
indicated on his original account application, or may request additional
redemption options, only by transmitting a written direction to the Transfer
Agent. Requests to institute or change any of the additional redemption
procedures will require a signature guarantee.
Redemption proceeds will normally be mailed to the redeeming shareholder
within seven days or, in the case of wire transfer 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
35
<PAGE>
recently been purchased by personal check, redemption proceeds may be withheld
until the check has been collected, which may take up to 15 days. To avoid such
withholding, investors should purchase shares by certified or bank check or by
wire transfer.
WRITTEN REQUESTS
To redeem shares in writing (whether or not represented by certificates), a
shareholder must send the following items to the Transfer Agent, Shareholder
Services, Inc., P.O. Box 5866, Denver, Colorado 80217-5866:
(1) a written request for redemption signed by all registered owners
exactly as the account is registered on the Transfer Agent's records,
including fiduciary titles, if any, and specifying the account number
and the dollar amount or number of shares to be redeemed;
(2) for certain redemptions described below, a guarantee of all signatures
on the written request or on the share certificate or accompanying
stock power, if required, as described under "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, trustees, custodians or guardians, or if
the redemption is requested by anyone other than the shareholder(s) of
record.
Transfers of shares are subject to the same requirements. A signature
guarantee is not required for redemptions of $50,000 or less, requested by and
payable to all shareholders of record for the account, to be sent to the address
of record for that account. To avoid delay in redemption or transfer,
shareholders having any questions about these requirements should contact the
Transfer Agent in writing or call 1-800-426-0107 before submitting a request.
Redemption or transfer requests will not be honored until all required documents
in the proper form have been received by the Transfer Agent. 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 redemption request and on the certificates, if any, or stock
power must be guaranteed as described above, except that the Distributor may
waive the signature guarantee requirement for redemptions up to $2,500 by a
trustee of a qualified retirement plan, the administrator for which has an
agreement with the Distributor.
TELEPHONE REDEMPTIONS
The Trust accepts telephone requests for redemption of uncertificated shares for
amounts up to $50,000 within any 7 calendar day period, except for investors who
have specifically declined telephone redemption privileges on the account
application or elected in writing not to utilize telephone redemptions. The
proceeds of a telephone redemption will be sent to the record shareholder at his
record address. Changes in account information must be made in a written
authorization with a signature guarantee. See "How to Buy Shares--Signature
Guarantee." Telephone redemptions will not be accepted during the 30-day period
following any change in an account's record address. This redemption option does
not apply to shares held in broker "street name" accounts.
By completing an account application, an investor agrees that the Trust,
the Distributor and the Transfer Agent shall not be liable for any loss incurred
by the investor by reason of the Trust accepting unauthorized telephone
redemption requests for his account if the Trust reasonably believes the
instructions to be genuine. Thus,
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<PAGE>
shareholders risk possible losses in the event of a telephone redemption not
authorized by them. The Trust may accept telephone redemption instructions from
any person identifying himself as the owner of an account or the owner's broker
where the owner has not declined in writing to utilize this service. The Trust
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and may be liable for any losses due to unauthorized or
fraudulent instructions if it fails to employ such procedures. The Trust will
require a form of personal identification prior to acting on a caller's
telephone instructions, will provide written confirmations of such transactions
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 withdrawn and (iv) the name of the person requesting the
redemption. Usually the proceeds are sent to the investor on the next Trust
business day after the redemption is effected, provided the redemption request
is received prior to the close of regular trading (normally 4:00 p.m., Eastern
time) on the Exchange that day. If the redemption request is received after the
close of the Exchange, the redemption is effected on the following Trust
business day at that day's net asset value and the proceeds are usually sent to
the investor on the second following Trust business day. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
During times of severe disruptions in the securities markets, the volume of
calls may make it difficult to redeem by telephone, in which case a shareholder
may wish to send a written request for redemption as described under "Written
Requests" above. Telephone communications may be recorded by the Distributor or
the Transfer Agent.
FUND LINK REDEMPTIONS
If a shareholder has established Fund Link, the shareholder may redeem shares by
telephone and have the redemption proceeds sent to a designated account at a
financial institution. Fund Link is normally established within 45 days of
receipt of a Fund Link application by the Transfer Agent. To use Fund Link for
redemptions, call the Transfer Agent at 800-426-0107. Subject to the limitations
set forth above under "Telephone Redemptions," the Distributor, the Trust and
the Transfer Agent may rely on instructions by any registered owner believed to
be genuine and will not be responsible to any shareholder for any loss, damage
or expense arising out of such instructions. Requests received by the Transfer
Agent prior to the close of regular trading (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
notice to shareholders. This redemption option does not apply to shares held in
broker "street name" accounts.
PIMCO FUNDS AUTOMATED TELEPHONE SYSTEM
PIMCO Funds Automated Telephone System ("ATS") is an automated telephone system
that enables shareholders to perform a number of account transactions
automatically using a touch-tone telephone. ATS may be used on already-
established Portfolio accounts after you obtain a Personal Identification Number
(PIN) by calling the special ATS number: 1-800-223-2413.
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Purchasing Shares. You may purchase shares in amounts up to $100,000 by
telephone by calling 1-800-223-2413. You must have established ATS
privileges to link your bank account with the Portfolio 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 established by calling 1-800-
223-2413. Please refer to "Exchange Privilege" for details.
Redemptions. You may redeem shares by telephone automatically by calling
1-800-223-2413 and the Portfolio will send the proceeds directly to your
Portfolio bank account. Please refer to "How to Redeem" for details.
EXPEDITED WIRE TRANSFER REDEMPTIONS
If a shareholder has given authorization for expedited wire redemption, shares
can be redeemed and the proceeds sent by federal wire transfer to a single
previously designated bank account. Requests received by the Trust prior to the
close of the Exchange will result in shares being redeemed that day at the next
determined net asset value (less any CDSC) and normally the proceeds being sent
to the designated bank account the following business day. The bank must be a
member of the Federal Reserve wire system. Delivery of the proceeds of a wire
redemption request may be delayed by the Trust for up to 7 days if the
Distributor deems it appropriate under then current market conditions. Once
authorization is on file, the Trust will honor requests by any person
identifying himself as the owner of an account or the owner's broker by
telephone at 800-426-0107 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 currently charge for wire transfers. The
shareholder is responsible for any charges imposed by the shareholder's bank.
The minimum amount that may be wired is $2,500. The Trust reserves the right to
change this minimum or to terminate the wire redemption privilege. Shares
purchased by check may not be redeemed by wire transfer until such shares have
been owned (i.e., paid for) for at least 15 days. Expedited wire transfer
redemptions may be authorized by completing a form available from the
Distributor. Wire redemptions may not be used to redeem shares in certificated
form. To change the name of the single bank account designated to receive wire
redemption proceeds, it is necessary to send a written request with signatures
guaranteed to PIMCO Funds Distributors LLC, P.O. Box 5866, Denver, CO 80217-
5866. See "How to Buy Shares--Signature Guarantee." This redemption option does
not apply to shares held in broker "street name" accounts.
CERTIFICATED SHARES
To redeem shares for which certificates have been issued, the certificates must
be mailed to or deposited with the Trust, duly endorsed or accompanied by a duly
endorsed stock power or by a written request for redemption. Signatures must be
guaranteed as described under "How to Buy Shares--Signature Guarantee." Further
documentation may be requested from institutions or fiduciary accounts, such as
corporations, custodians (e.g., under the Uniform Gifts to Minors Act),
executors, administrators, trustees or guardians ("institutional account
owners"). The redemption request and stock power must be signed exactly as the
account is registered, including indication of any special capacity of the
registered owner.
AUTOMATIC WITHDRAWAL PLAN
An investor who owns or buys shares of a Portfolio having a net asset value of
$10,000 or more may open an Automatic Withdrawal Plan and have a designated sum
of money (not less than $100 per Portfolio) 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 Automatic
Withdrawal Plan is set up after the account is established providing for payment
to a person
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other than the record shareholder or to an address other than the address of
record, a signature guarantee is required. See "How to Buy Shares--Signature
Guarantee." Class A, Class B and Class C shares of any Portfolio are deposited
in a plan account and all distributions are reinvested in additional shares of
the particular class of the Portfolio 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 payment selected by the shareholder. The
Transfer Agent may accelerate the redemption and check mailing date by one day
to avoid weekend delays. Payment will be made to any person the investor
designates; however, if the shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary, except in the case
of a profit-sharing or pension plan where payment will be made to the designee.
As withdrawal payments may include a return of principal, they cannot be
considered a guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with an Automatic Withdrawal Plan may result
in a gain or loss for tax purposes. Continued withdrawals in excess of income
will reduce and possibly exhaust invested principal, especially in the event of
a market decline. The maintenance of an Automatic Withdrawal Plan concurrently
with purchases of additional shares of the Portfolio would be disadvantageous to
the investor because of the CDSC that may become payable on such withdrawals in
the case of Class A, Class B or Class C shares and because of the initial sales
charge in the case of Class A shares. For this reason, the minimum investment
accepted for a Portfolio while an Automatic Withdrawal Plan is in effect for
that Portfolio is $1,000, and an investor may not maintain a plan for the
accumulation of shares of the Portfolio (other than through reinvestment of
distributions) and an Automatic Withdrawal Plan at the same time. The Trust or
the Distributor may terminate or change the terms of the Automatic Withdrawal
Plan at any time.
Because the Automatic Withdrawal Plan may involve invasion of capital,
investors should consider carefully with their own financial 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.
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 servicing payments to participating brokers
and servicing payments to certain banks and other financial intermediaries in
connection with the sale of Class B and Class C shares and servicing payments to
participating brokers, certain banks and other financial intermediaries 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 Distributor, except in cases where Class A shares are sold
without a front-end sales charge. In the case of Class B shares, participating
brokers 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 Portfolio's Class A, Class B and Class C shares, the Distributor bears
various other promotional and sales related expenses, including the cost of
printing and mailing prospectuses to persons other than current shareholders.
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
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<PAGE>
accounts, the Trust pays the Distributor servicing fees up to the annual rate of
.25% (calculated as a percentage of each Portfolio's average daily net assets
attributable to Class A shares).
CLASS B AND CLASS C DISTRIBUTION AND SERVICING FEES As compensation 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 Portfolio's average daily net assets
attributable to Class B and Class C shares, respectively):
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FEE FEE
<S> <C> <C>
All Portfolios .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 Distribution 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 rendered even if the amount paid exceeds
the Distributor's expenses.
The distribution fee applicable to Class B and Class C shares may be spent
by the Distributor on any activities or expenses primarily intended to result in
the sale of Class B or Class C shares, respectively, including compensation to,
and expenses (including overhead and telephone expenses) of, financial
consultants or other employees of the Distributor or of participating or
introducing brokers who engage in distribution of Class B or Class C shares,
printing of prospectuses and reports for other than existing 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 accounts, including
compensation to, and expenses (including telephone 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
payments, who provide information periodically to shareholders showing their
positions in a Portfolio's shares, who forward communications from the Trust to
shareholders, who render ongoing advice concerning the suitability of particular
investment opportunities offered by the Trust in light of the shareholders'
needs, who respond to inquiries from shareholders relating to such services, or
who train personnel in the provision of such services. Distribution and
servicing fees may also be spent on interest relating to unreimbursed
distribution or servicing expenses from prior years.
Many of the Distributor's sales and servicing efforts involve the Trust as
a whole, so that fees paid by Class A, Class B or Class C shares of any
Portfolio may indirectly support sales and servicing efforts relating to other
shares of the same class of the Portfolios or other series of the Trust. In
reporting its expenses to the Trustees, the Distributor itemizes expenses that
relate to the distribution and/or servicing of a single Portfolio's shares, and
allocates other expenses among the Portfolios and other series of the Trust
based on their relative net assets. Expenses allocated to each Portfolio are
further allocated among its classes of shares annually based on the relative
sales of each class, except for any expenses that relate only to the sale or
servicing of a single class. The Distributor may make payments to brokers (and
with respect to servicing fees only, to certain banks and other financial
intermediaries) of up to the following percentages annually of the average daily
net assets attributable to shares in the accounts of their customers or clients:
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<PAGE>
ALL PORTFOLIOS
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FEE FEE
<S> <C> <C>
Class A .25% N/A
Class B/(1)/ .25% None
Class C/(2)/ .25% .65%
____________
</TABLE>
1. Payable only with respect to shares outstanding for one year or more.
2. 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 bonuses 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 Portfolios. On some
occasions, such bonuses or incentives may be conditioned upon the sale of a
specified minimum dollar amount of the shares of a Portfolio and/or all of the
Portfolios or other series of the Trust together, or a particular class of
shares, during a specific period of time. The Distributor currently expects that
such additional bonuses or incentives will not exceed .50% of the amount of any
sale. In its capacity as administrator for the Portfolios, PIMCO Advisors may
pay participating brokers and other intermediaries for sub-transfer agency and
other services.
If in any year the Distributor's expenses incurred in connection with the
distribution of Class B and Class C shares and, for Class A, Class B and Class C
shares, in connection with the servicing of shareholders and the maintenance of
shareholder accounts, exceed the distribution and/or servicing fees paid by the
Trust, the Distributor would recover such excess only if the Distribution and
Servicing Plan with respect to such class of shares continues to be in effect in
some later year when the distribution and/or servicing fees exceed the
Distributor's expenses. The Trust is not obligated to repay any unreimbursed
expenses that may exist at such time, if any, as the relevant Distribution and
Servicing Plan terminates.
From time to time, expenses of principal underwriters incurred in
connection with the sale of Class B and Class C shares of the Portfolios and, in
connection with the servicing of Class B and Class C shareholders of the
Portfolios and the maintenance of Class B and Class C shareholder accounts, may
exceed the distribution and servicing fees collected by the Distributor.
HOW NET ASSET VALUE IS DETERMINED
The net asset values of Class A, Class B and Class C shares of each Portfolio 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.
The securities and other assets held by the Portfolios for which market
quotations are readily available are stated at market value. This includes
shares of the Underlying Funds held by the Portfolios, the market values of
which are determined once each Business Day in the same manner that the net
asset values of the Portfolios' shares are determined. 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.
Each Portfolio'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 Portfolio'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
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certain circumstances, the per share net asset value of the Class B and Class C
shares of the Portfolios 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 Portfolios that pay income dividends,
those dividends are expected to differ over time by approximately the amount of
the expense accrual differential between a particular Portfolio'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. For the
30/70 Portfolio, net investment income from interest and dividends, if any, are
declared daily to shareholders of record at the close of business on the
previous day, and paid to shareholders monthly. Net investment income from
interest and dividends, if any, will be declared and paid to shareholders of
record at least quarterly by the 60/40 Portfolio and at least annually by the
90/10 Portfolio. 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
shares of the class of shares of the Portfolio to which the dividends and/or
distributions relate or, at the election of the shareholder, of another series
of the Trust or PIMCO Funds: Pacific Investment Management Series as described
below, at net asset value, unless the shareholder elects to receive cash (either
paid to shareholders directly or credited to their account with their
participating broker). 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 automatically be invested in PIMCO Money Market
Fund until such shareholder is located. Dividends paid by each Portfolio 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 Portfolio in shares of the same class
of any other series of the Trust or 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 PIMCO 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.
TAXES
Each Portfolio 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 Portfolio 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 Portfolio
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 Portfolio, 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 dividends, exempt-interest dividends and dividends that represent a
return of capital to shareholders, as ordinary income. In particular,
distributions derived from short-term
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<PAGE>
gains will be treated as ordinary income. Dividends designated by a Portfolio as
capital gain dividends derived from the Portfolio'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 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
Portfolio'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 Portfolio 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 may not be so exempt.
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. Accordingly, each
Portfolio 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 Portfolio actually received. Such
distributions may be made from the cash assets of the Portfolio or by
liquidation of portfolio securities, if necessary. The Portfolio may realize
gains or losses from such liquidations. In the event the Portfolio 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. 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 dividend, 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 Portfolio, see the Statement of
Additional Information.
MANAGEMENT OF THE PORTFOLIOS
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 ADVISOR
PIMCO ADVISORS serves as investment advisor to the Portfolios 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 July 31, 1998 were approximately
[ ]. 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,
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<PAGE>
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 advisor 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 Underlying Funds: Blairlogie, Cadence, Columbus Circle, NFJ,
Pacific Investment Management and Parametric.
PIMCO Advisors' Asset Allocation Committee is responsible for determining
how the Portfolios' assets are allocated and reallocated from time to time among
the Underlying Funds. Individuals who determine general investment advice and
constitute the Asset Allocation Committee for PIMCO Advisors are William D.
Cvengros, Timothy R. Clark, Robert S. Venable, David Young and Edward P. Rennie.
William D. Cvengros is the Chief Executive Officer, President and a Member
of the Management Board of PIMCO Advisors and a Trustee of the Trust. He was
formerly President of the Trust and a Director and the Vice Chairman and Chief
Investment Officer of Pacific Life Insurance Company. He received a B.A. in
Economics from the University of Notre Dame and an M.B.A. from Northwestern
University. Timothy R. Clark is a Vice President of PIMCO Advisors and a Senior
Vice President of the Distributor. He previously served as President of Katonah
Capital Management, Inc. Prior to that, he was with Zweig Advisors Inc. and its
affiliates serving in various capacities including portfolio manager for various
open- and closed-end funds. He received a B.A. in Economics from Harvard
University and an M.B.A. from New York University. Robert S. Venable is a Vice
President of PIMCO Advisors. He previously served as a Vice President and
portfolio manager at Pacific Investment Management. Mr. Venable has a B.S. from
the University of California, Berkeley and an M.B.A. from the Wharton School of
Business. David Young is a Vice President in Account Management at Pacific
Investment Management. Previously, he was a Vice President-Client Relations and
Marketing of a former division of PIMCO Advisors, a Director-Client Relations
with Pacific Financial Asset Management Company, and a Vice President and
portfolio manager with Analytic Investment Management, Inc. He received a B.A.
in Economics and Political Science and an M.B.A. from the University of
California, Irvine. He is a Chartered Financial Analyst. Edward P. Rennie is a
Senior Vice President and Regional Manager of Pacific Investment Management in
Singapore. Previously, he was a Vice President and Director of New Product
Services at Pacific Investment Management or its predecessor. He received a
B.S. in Engineering from Drexel University.
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 Portfolios and for managing, either directly or
through others selected by the Advisor, the investment of the Portfolios. PIMCO
Advisors also furnishes to the Board of Trustees periodic reports on the
investment performance of each Portfolio.
PORTFOLIO MANAGERS FOR THE UNDERLYING FUNDS
Pursuant to portfolio management agreements, PIMCO Advisors employs Portfolio
Managers to manage the portfolios all of the Underlying Equity Funds with the
exception of PIMCO StocksPLUS Fund, for which Pacific Investment Management
serves as investment advisor and Portfolio Manager. Pacific Investment
Management also serves as investment advisor and Portfolio Manager of each
Underlying Fixed Income Fund. The Portfolio Managers have full investment
discretion and make all determinations with respect to the investment of the
assets of the Underlying Funds they manage.
PACIFIC INVESTMENT MANAGEMENT manages each Underlying Fixed Income Fund and
PIMCO Stock PLUS Fund, each of which is a series of PIMCO Funds: Pacific
Investment Management Series. 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
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partner. Pacific Investment Management Company, the predecessor investment
advisor to Pacific Investment Management, commenced operations in 1971. Pacific
Investment Management had approximately $[ ] billion of assets under
management as of July 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.
Pacific Investment Management specializes in all sectors of the fixed
income market using its total return philosophy - seeking both yield and capital
appreciation. Pacific Investment Management's total return philosophy revolves
around the principle of diversification and that no single risk should dominate
returns. By diversifying strategies, or relying on multiple sources of value,
Pacific Investment Management attempts to generate a solid track record with a
high degree of consistency. Pacific Investment Management seeks to add value
through the use of "top down" strategies such as its exposure to interest rates,
or duration, changing volatility, yield curve positioning and sector rotation.
"Bottom up" strategies are also employed involving analysis and selection of
specific securities.
COLUMBUS CIRCLE manages PIMCO Renaissance Fund, PIMCO Core Equity Fund, PIMCO
Mid-Cap Equity Fund, PIMCO International Growth Fund, and PIMCO Innovation 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, 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 July 31, 1998 of approximately $[ ] billion. 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 Exchange Commission.
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.
CADENCE manages PIMCO Capital Appreciation Fund, PIMCO Mid-Cap Growth Fund,
PIMCO Small-Cap Growth Fund and PIMCO Micro-Cap Growth 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 advisor to Cadence,
commenced operations in 1988. Accounts managed by Cadence had combined assets as
of July 31, 1998 of approximately $[ ] billion. Cadence's address is Exchange
Place, 53 State Street, Boston, Massachusetts 02109. Cadence is registered as an
investment advisor with the Securities and Exchange Commission.
Cadence utilizes an equity investment strategy that focuses on both growth
(evaluating securities on the basis of their potential earnings growth) and
value (evaluating securities based on their price) characteristics, and attempts
to identify reasonably priced securities that offer rapid prospective earnings
growth potential. Cadence utilizes a quantitative screening process in
selecting stocks. Distinct computerized models are used to screen and rank each
issue in a selected universe according to growth and price considerations.
Cadence believes that the models identify the stocks in the universe exhibiting
growth characteristics with reasonable valuations. Stocks are then selected for
a portfolio using qualitative research, and are replaced when they score worse-
than-median screen ranks, have negative earnings surprises or show poor relative
performance. The universes are rescreened frequently to obtain a favorable
composition of growth and value characteristics for the Cadence Funds.
NFJ manages PIMCO Equity Income Fund, PIMCO Value Fund, PIMCO Value 25 Fund, and
PIMCO Small-Cap Value Fund (the "NFJ Funds"). NFJ is an investment management
firm organized as a general partnership. NFJ
45
<PAGE>
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 July 31, 1998 of approximately $[ ] 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.
In managing the NFJ Funds, NFJ uses a value-based philosophy and investment
process. NFJ adheres to the traditional value philosophy that stocks priced
lower than the true value of the issuing company will increase in value, but
differs from many value managers by also considering industry diversification
and the benefits it affords a portfolio. NFJ classifies stock universes by
industry and according to market capitalization. Stocks are selected from a
universe using screening processes that focus on low P/E ratios and/or high
yields within each industry, subject to quality and price momentum screens.
Although quarterly rebalancing is a general rule, NFJ will replace stocks when
an alternate stock within the same industry has a significantly better
characteristics than the current NFJ Fund holdings.
BLAIRLOGIE manages PIMCO International Developed Fund, PIMCO International Fund,
and PIMCO 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. Blairlogie Capital Management Ltd., the
predecessor investment advisor to Blairlogie, commenced operations in 1992.
Accounts managed by Blairlogie had combined assets as of July 31, 1998 of
approximately $[ ] million. Blairlogie's address is 4th Floor, 125 Princes
Street, Edinburgh EH2 4AD, Scotland. Blairlogie is registered as an investment
advisor with the Securities and Exchange Commission in the United States and
with the Investment Management Regulatory Organisation in the United Kingdom.
Blairlogie has more than 50 years of experience in the highly specialized
field of international investing. Its investment philosophy combines
traditional Scottish standards of prudent investment management with modern
quantitative analytical tools. In managing the Blairlogie Funds, Blairlogie
employs sophisticated analytical tools to attain specific information on each
country considered for investment and conducts personal visits to numerous
geographical regions, using the information to determine country allocations.
It then selects what it believes to be the best stocks within each country
according to growth, quality and value characteristics. Through continued
monitoring, sell decisions are influenced by changes in country weightings or
changes in a particular security's attractiveness.
PARAMETRIC manages PIMCO Enhanced Equity Fund, Tax-Efficient Equity Fund,
Structured Emerging Markets Fund, and Tax-Efficient Structured Emerging Markets
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
advisor to Parametric, commenced operations in 1987. Accounts managed by
Parametric had combined assets as of July 31, 1998 of approximately $[ ]
billion. Parametric's address is 7310 Columbia Center, 701 Fifth Avenue,
Seattle, Washington 98104-7090. Parametric is registered as an investment
advisor with the SEC and as a commodity trading advisor with the CFTC.
Parametric has developed a structured, long-term investment process that
combines quantitatively-driven fundamental analysis and economic methods.
Parametric attempts to build risk-controlled portfolios of equity securities
that are both reasonably priced and poised to benefit from investor sentiment by
combining its understanding of the financial markets and investment behavior
with extensive quantitative research and modeling. This investment philosophy is
applied for each Parametric Fund, including those with an emerging markets or
tax-efficient focus.
46
<PAGE>
FUND ADMINISTRATOR
PIMCO Advisors also serves as administrator (the "Administrator") for the
Portfolios' 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 Portfolios, which
include clerical help and accounting, bookkeeping, internal audit services and
certain other services required by the Portfolios, and preparation of reports to
the Portfolios' 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
Portfolios, 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 Portfolios (and not the Administrator) are responsible for the
following expenses: (i) salaries and other compensation of any of the Trust's
executive officers and employees who are not officers, directors, stockholders,
or employees of PIMCO Advisors, Pacific Investment Management, or their
subsidiaries or affiliates; (ii) taxes and governmental fees; (iii) brokerage
fees and commissions and other portfolio transaction expenses; (iv) the costs of
borrowing money, including interest expenses; (v) fees and expenses of the
Trustees who are not "interested persons" of the Advisor, any Portfolio Manager,
or the Trust, and any counsel retained exclusively for their benefit; (vi)
extraordinary expenses, including costs of litigation and indemnification
expenses; (vii) expenses which are capitalized in accordance with generally
accepted accounting principles; and (viii) any expenses allocated or allocable
to a specific class of shares, which include distribution and/or service fees
payable with respect to Class A, Class B and Class C shares, and may include
certain other expenses as permitted by the Trust's Multiple Class Plan adopted
pursuant to Rule 18f-3 under the 1940 Act, subject to review and approval by the
Trustees. The Portfolios are also responsible for paying the expenses of the
Underlying Funds (including advisory and administrative fees) in which they
invest. See "Underlying Fund Expenses" below.
ADVISORY FEES
The Portfolios do not pay any fees to PIMCO Advisors under the Trust's
investment advisory agreement in return for the advisory and asset allocation
services provided by PIMCO Advisors. The Portfolios do, however, indirectly pay
a proportionate share of the advisory fees paid to PIMCO Advisors and Pacific
Investment Management by the Underlying Funds in which the Portfolios invest.
See "Underlying Fund Expenses" below.
ADMINISTRATIVE FEES
The Portfolios feature fixed administrative fees. For providing or procuring
administrative services to the Portfolios as described above, the Administrator
receives monthly fees from each Portfolio at the annual rate of 0.40% based on
the average daily net assets attributable in the aggregate to the Portfolio's
Class A, Class B and Class C shares up to $2.5 billion and .35% based on such
net assets in excess of $2.5 billion. The Portfolios also indirectly pay a
proportionate share of the administrative fees charged by PIMCO Advisors and
Pacific Investment Management to the Underlying Funds in which the Portfolios
invest. See "Underlying Fund Expenses" below. The administration and sub-
administration agreements for the Portfolios may be terminated by the Trustees,
or by 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.
47
<PAGE>
UNDERLYING FUND EXPENSES
The expenses associated with investing in a "fund of funds," such as the
Portfolios, are generally higher than those for mutual funds that do not invest
primarily in other funds. This is because shareholders in a fund of funds
indirectly pay a portion of the fees and expenses charged at the underlying fund
level.
The Trust has structured the Portfolios to reduce expenses incurred at the
Underlying Fund level as follows: (a) the Portfolios do not pay any fees for
asset allocation or advisory services under the Trust's investment advisory
agreement; and (b) the Underlying Funds invest in Institutional Class shares of
the Underlying Funds, which are not subject to any sales charges or 12b-1 fees.
The following sets forth advisory fee and total operating expense
information for Institutional Class shares of the Underlying Funds for the most
recent fiscal year (or as noted, estimated for the current fiscal year for Funds
that recently commenced operations). Shareholders of each Portfolio indirectly
bear a pro-rata share of these expenses depending upon how the Portfolio's
assets are allocated from time to time among the Underlying Funds. See "Schedule
of Fees."
ANNUAL UNDERLYING FUND EXPENSES (based on the average
daily net assets attributable to a Fund's Institutional Class shares):
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
Advisory Total Fund
Underlying Fund Fees Operating Expenses
- ------------------------------------------------- --------- -------------------
<S> <C> <C>
PIMCO Equity Income.............................. 0.45% 0.70%
PIMCO Renaissance................................ 0.60 0.85
PIMCO Core Equity................................ 0.57 0.82
PIMCO Mid-Cap Equity............................. 0.63 0.88
PIMCO Value...................................... 0.45 0.70
PIMCO Value 25................................... 0.50 0.75*
PIMCO Capital Appreciation....................... 0.45 0.70
PIMCO Mid-Cap Growth............................. 0.45 0.70
PIMCO Enhanced Equity............................ 0.45 0.70
PIMCO Tax-Efficient Equity....................... 0.45 0.70*
PIMCO Small-Cap Value............................ 0.60 0.85
PIMCO Small-Cap Growth........................... 1.00 1.25
PIMCO Micro-Cap Growth........................... 1.25 1.50
PIMCO International Developed.................... 0.60 1.10
PIMCO International.............................. 0.55 1.05
PIMCO International Growth....................... 0.85 1.35
PIMCO Emerging Markets........................... 0.85 1.35
PIMCO Structured Emerging Markets................ 0.45 0.95*
PIMCO Tax-Efficient Structured Emerging Markets.. 0.45 0.95*
PIMCO Innovation................................. 0.65 0.90
PIMCO StocksPLUS................................. 0.40 0.65
PIMCO Money Market............................... 0.15 0.35
PIMCO Short-Term................................. 0.25 0.45
PIMCO Low Duration............................... 0.25 0.43
PIMCO Moderate Duration.......................... 0.25 0.45
PIMCO Real Return Bond........................... 0.25 0.50
PIMCO Total Return............................... 0.25 0.43
PIMCO Total Return II............................ 0.25 0.50
PIMCO High Yield................................. 0.25 0.50
PIMCO Long-Term U.S. Government Bond............. 0.25 0.50
PIMCO Global Bond................................ 0.25 0.55
PIMCO Foreign Bond............................... 0.25 0.50
PIMCO Emerging Markets Bond...................... 0.45 0.85
PIMCO Municipal Bond............................. 0.25 0.50*
- ------------------
</TABLE>
* Estimated for the Fund's current fiscal year.
48
<PAGE>
DESCRIPTION OF THE TRUST
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on August 24, 1990,
and currently consists of twenty-nine portfolios that are operational, three 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 Portfolio's
property for all loss and expense of any shareholder of that Portfolio 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
Portfolio of which he or she is or was a shareholder is unable to meet its
obligations, and thus should be considered remote.
MULTIPLE CLASSES OF SHARES
In addition to Class A, Class B and Class C shares, the Portfolios also offer
Institutional Class and Administrative Class shares through a separate
prospectus. See "Alternative Purchase Arrangements." These other classes of
shares of the Portfolios may have different sales charges and expense levels,
which will affect performance accordingly. This Prospectus relates only to Class
A, Class B and Class C shares of the Portfolios.
Class A, Class B and Class C shares of each Portfolio represent interests
in the assets of that Portfolio, and each class has identical dividend,
liquidation and other rights and the same terms and conditions, except that
expenses related to the distribution and shareholder servicing of Class A, Class
B and Class C shares are borne solely by such class and each class may, at the
Trustees' discretion, also pay a different share of other expenses, not
including advisory or custodial fees or other expenses related to the management
of the Trust's assets, if these expenses are actually incurred in a different
amount by that class, or if the class receives services of a different kind or
to a different degree than the other classes. All other expenses are allocated
to each class on the basis of the net asset value of that class in relation to
the net asset value of the particular Portfolio.
VOTING
Each class of shares of each Portfolio has identical voting rights, except that
each class of shares has exclusive voting rights on any matter submitted to
shareholders that relates solely to that class, and has separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class. Each class of shares has exclusive
voting rights with respect to matters pertaining to any Distribution and
Servicing Plan or agreement applicable only to that class. These shares are
entitled to vote at meetings of shareholders. Matters submitted to shareholder
vote must be approved by each Portfolio 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 Portfolios, then only
shareholders of the Portfolio or Portfolios affected shall be entitled to vote
on the matter. All classes of shares of a Portfolio will vote together, 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
declared by the Trustees and, in liquidation of the Trust, are entitled to
receive the net assets of their Portfolio, but not of the other Portfolios or
other series of the Trust. 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
49
<PAGE>
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 used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of a Portfolio (or the Trust) means the vote
of the lesser of: (1) 67% of the shares of the Portfolio (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 Portfolio (or the Trust).
MAILINGS TO SHAREHOLDERS
To reduce the volume of mail shareholders receive, it is anticipated that only
one copy of most Trust reports, such as the Trust's annual reports, will be
mailed to a shareholder's household (same surname, same address). A shareholder
may call 800-426-0107 if additional shareholder reports are desired.
50
<PAGE>
PIMCO FUNDS: MULTI-MANAGER SERIES
Supplement Dated September , 1998
to the
Prospectus for Institutional Class and Administrative
Class Shares Dated April 1, 1998
Disclosure relating to:
Three new series of the Trust:
-----------------------------
PIMCO Funds Asset Allocation Series - 90/10 Portfolio;
PIMCO Funds Asset Allocation Series - 60/40 Portfolio; and
PIMCO Funds Asset Allocation Series - 30/70 Portfolio.
- --------------------------------------------------------------------------------
Note: This document supplements the PIMCO Funds: Multi-Manager Series (the
- ----
"Trust") Prospectus for Institutional Class and Administrative Class Shares,
dated April 1, 1998 (the "Institutional Prospectus"), which is included in Part
A of this Registration Statement.
- --------------------------------------------------------------------------------
1. Date of the Prospectus.
The date of the Prospectus is hereby amended to September ___, 1998.
2. New Series.
The Trust intends to offer Institutional Class and Administrative Class
shares of three new series, PIMCO Funds Asset Allocation Series - 90/10
Portfolio (the "90/10 Portfolio"), PIMCO Funds Asset Allocation Series - 60/40
Portfolio (the "60/40 Portfolio"), and PIMCO Funds Asset Allocation Series -
30/70 Portfolio (the "30/70 Portfolio"). The 90/10 Portfolio, the 60/40
Portfolio and the 30/70 Portfolio are sometimes referred to herein collectively
as the "Portfolios."
The Portfolios are professionally-managed series of the Trust designed to
take advantage of the benefits of asset allocation. Each Portfolio seeks to
achieve its particular investment objective by investing within specified equity
and fixed-income ranges among a number of other mutual funds in the PIMCO Funds
family ("Underlying Funds" or "Funds").
3. Statement of Additional Information and other Information.
A Statement of Additional Information, dated September , 1998, as amended
or supplemented from time to time, is available free of charge by writing 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).
<PAGE>
In addition, a Prospectus of PIMCO Fund: Pacific Investment Management
Series, dated [April] __, 1998, as amended or supplemented from time to time
(the "PIMS Prospectuses"), relating to Institutional Class shares of certain of
the Underlying Funds, is available free of charge as specified above. The
Statement of Additional Information and PIMS Prospectus, which contain more
detailed information about the Trust, the Portfolios and the Underlying Funds,
have each been filed with the Securities and Exchange Commission and are
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 and materials that are
incorporated by reference into this Prospectus and the Statement of Additional
Information, the PIMS Prospectus, and other information about the Trust, the
Portfolios and the Underlying Funds.
4. PIMCO Funds Asset Allocation Series - Overview
An overview of the Portfolios is provided under "PIMCO Funds Asset
Allocation Series - Overview" in the Prospectus for Class A, Class B and Class C
shares of the Portfolios (the "Retail Portfolio Prospectus") which is included
in Part A of this Registration Statement and is filed as part of this Amendment.
The overview is incorporated herein by reference.
5. Schedule of Fees (applicable to all Portfolios).
Expenses are one of several factors to consider when investing in
Institutional Class and Administrative Class shares of the Portfolios. The
following tables and Examples summarize the expenses of each Portfolio that are
borne by its Institutional Class and Administrative Class shareholders based on
estimated expenses for the Portfolio's current fiscal year.
You should bear in mind that shareholders of each Portfolio bear indirectly
the expenses of the Underlying Funds in which the Portfolio invests. The
Portfolios will invest only in Institutional Class shares of the Underlying
Funds and will not pay any sales charges or 12b-1 fees in connection with their
investments in the Underlying Funds. The Portfolios will, however, indirectly
bear their pro rata share of the fees and expenses (including advisory and
administrative fees) incurred by the Underlying Funds that are borne by all
Institutional Class shareholders of the Funds. Because the Underlying Funds
have varied fee and expense levels and the Portfolios will own different
proportions of the Underlying Funds at different times, the actual fees and
expenses indirectly incurred by the Portfolios will vary.
Shareholder Transaction Expenses (Institutional Class and Administrative Class):
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
-2-
<PAGE>
<TABLE>
<CAPTION> Example: You would
pay the following
expenses on a $1,000
investment assuming (1)
5% annual return and (2)
Annual Portfolio Operating Expenses redemption or no
(As a percentage of average net assets): redemption at the end of
each time period:
Total
PIMCO Funds Admini- Service/ Underlying Portfolio
Asset Allocation Advisory strative 12b-1 Fund Operating One Three
Series Fees Fees Fees Expenses/(1)/ Expenses Year Years
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Institutional
Class Shares 90/10 Portfolio None .25% None .79% 1.04%
----------------------------------------------------------------------------------------------------------
60/40 Portfolio None .25 None .67 .92
----------------------------------------------------------------------------------------------------------
30/70 Portfolio None .25 None .55 .80
----------------------------------------------------------------------------------------------------------
Administrative
Class Shares 90/10 Portfolio None .25 .25 .79 1.29
----------------------------------------------------------------------------------------------------------
60/40 Portfolio None .25 .25 .67 1.17
----------------------------------------------------------------------------------------------------------
30/70 Portfolio None .25 .25 .55 1.05
----------------------------------------------------------------------------------------------------------
</TABLE>
1. Based on estimated expenses for the current fiscal year. Underlying Fund
Expenses for each Portfolio are estimated based upon the initial allocation
of each Portfolio's assets among the Underlying Funds and upon the total
annual operating expenses of each Underlying Fund for its most recent fiscal
year (or estimated expenses for the current fiscal year for Funds which have
recently commenced operations). For a listing of the expenses associated with
each Underlying Fund, please see "Management of the Portfolios - Underlying
Fund Expenses." The Total Portfolio Operating Expenses and Examples set forth
above are based on estimates of the Underlying Fund Expenses each Portfolio
will incur. Actual Underlying Fund Expenses for each Portfolio are expected
to vary with changes in the allocation of the Portfolio's assets, and may be
higher or lower than those shown above.
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 Portfolios. The information is based upon each
Portfolio's estimated fees and expenses for the current fiscal year. These
Examples should not be considered a representation of past or future expenses
or performance. Actual expenses may be higher or lower than those shown.
6. Investment Objectives and Policies.
Disclosure regarding the investment objectives and general investment
policies of the Portfolios is included under "Investment Objectives and
Policies" in the Retail Portfolio Prospectus and is incorporated herein by
reference.
7. Underlying Funds.
Disclosure regarding the Underlying Funds and their attendant risks is
included under "Underlying Funds" in the Retail Portfolio Prospectus and is
incorporated herein by reference.
-3-
<PAGE>
8. Management of the Portfolios.
Disclosure relating to PIMCO Advisors L.P., the investment adviser and
administrator for each of the Portfolios, and relating to the portfolio managers
for each of the Underlying Funds, is included under the sub-headings "Investment
Adviser", "Portfolio Managers for the Underlying Funds" and "Fund Administrator"
under "Management of the Trust" in the Retail Portfolio Prospectus and is
incorporated herein by reference.
Advisory Fees The Portfolios do not pay any fees to PIMCO Advisors under
the Trust's investment advisory agreement in return for the advisory and asset
allocation services provided by PIMCO Advisors. The Portfolios do, however,
indirectly pay a proportionate share of the advisory fees charged by PIMCO
Advisors and Pacific Investment Management Company to the Underlying Funds in
which the Portfolios invest.
Administrative Fees The Portfolios feature fixed administrative fees. For
providing or procuring administrative services to the Portfolios as described
above, the Administrator receives monthly fees from each Portfolio at the annual
rate of 0.25% based on the average daily net assets attributable in the
aggregate to the Portfolio's Institutional Class and Administrative Class
shares. The Portfolios also indirectly pay a proportionate share of the
administrative fees charged by PIMCO Advisors and Pacific Investment Management
Company to the Underlying Funds in which the Portfolios invest. The
administration and sub-administration agreements for the Portfolios may be
terminated by the Trustees, or by 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.
Underlying Fund Expenses Disclosure relating to the expenses of the
Underlying Funds is provided under "Management of the Portfolios - Underlying
Fund Expenses" in the Retail Portfolio Prospectus and is incorporated herein by
reference.
9. Distributions.
Shares begin earning dividends on the day after the date that funds are
received by the Trust for the purchase of Institutional Class and Administrative
Class shares. Net investment income from interest and dividends, if any, will
be declared and paid to shareholders of record at least quarterly by the 60/40
Portfolio and at least annually by the 90/10 Portfolio. 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.
-4-
<PAGE>
LOGO
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 Small-Cap Value Fund
PARAMETRIC PORTFOLIO ASSOCIATES
PIMCO Enhanced Equity Fund
PIMCO Structured Emerging Markets Fund
PIMCO Tax-Managed Structured Emerging Markets Fund
MULTIPLE MANAGERS
PIMCO Balanced Fund
PROSPECTUS
- --------------------------------------------------------------------------------
April 1, 1998
<PAGE>
PIMCO Funds: Multi-Manager Series
Prospectus
April 1, 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 nineteen 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 April 1, 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.
April 1, 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................................................. 28
Characteristics and Risks of Securities and Investment Techniques....... 31
Management of the Trust................................................. 44
Purchase of Shares...................................................... 51
Redemption of Shares.................................................... 55
Portfolio Transactions.................................................. 57
Net Asset Value......................................................... 58
Dividends, Distributions and Taxes...................................... 59
Other Information....................................................... 60
</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 nineteen 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 $100 million that have improving fundamentals and
whose stock is reasonably valued by the market.
- --------------------------------------------------------------------------------
Seeks growth of capital; invests primarily in common
Mid-Cap Growth stocks of companies with market capitalizations in
excess of $500 million that have improving fundamentals
and whose stock is reasonably valued by the market.
- --------------------------------------------------------------------------------
Seeks long-term growth of capital; invests primarily in
Micro-Cap Growth 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.
- --------------------------------------------------------------------------------
Seeks growth of capital; invests primarily in common
Small-Cap Growth 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 income-producing stocks and convertibles.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Seeks long-term growth of capital; invests primarily in
Mid-Cap Equity 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)
April 1, 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.
- -------------------------------------------------------------------------------
Seeks long-term growth of capital and income; invests
Small-Cap Value 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 the Standard & Poor's
500 Composite Stock Price Index; invests in common
stocks represented in that Index.
- -------------------------------------------------------------------------------
Structured Seeks long-term growth of capital; invests primarily in
Emerging Markets common stocks of companies located in emerging market
countries.
- -------------------------------------------------------------------------------
Tax-Managed
Structured Has the same investment objective and policies as the
Emerging Markets Structured Emerging Markets Fund, except that the Fund
seeks to achieve superior after-tax returns for
shareholders by employing a variety of tax-efficient
management strategies.
- -------------------------------------------------------------------------------
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."
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
4 PIMCO Funds: Multi-Manager Series
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 December 31, 1997, PIMCO Advisors and its
subsidiary partnerships had approximately $200 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
April 1, 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-
Managed 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-Managed
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. Shares of either class may also be offered to clients of
the Adviser and its affiliates. The Micro-Cap Growth and Small-Cap Growth Funds
are currently closed to new investors, although existing shareholders may
continue to invest in these Funds, subject to the Adviser's and Cadence's right
to suspend all new investments at their discretion, depending upon market
conditions and other factors. In addition, Institutional Class and
Administrative Class shares of the International, Innovation, Structured
Emerging Markets, and Tax-Managed Structured Emerging Markets Funds are not
offered as of the date of this Prospectus; however, investment opportunities in
these Funds may be available in the future. It is anticipated that the
Structured Emerging Markets and Tax-Managed Structured Emerging Markets Funds
will begin offering Institutional Class and Administrative Class shares to the
public on or about July 13, 1998. See "Purchase of Shares--Expected
Commencement of the Structured Emerging Markets and Tax-Managed Structured
Emerging Markets Funds." 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-Managed 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)
April 1, 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-Managed 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-
Managed 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
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-Managed Structured Emerging Markets
Fund...................................... 0.45 0.50 0.95
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
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-Managed Structured Emerging
Markets Fund..................... 0.45 0.50 0.25 1.20
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
Small-Cap Value Fund........................ 9 27 47 105
Enhanced Equity Fund........................ 7 22 39 87
Structured Emerging Markets Fund*........... 29 50 -- --
Tax-Managed Structured Emerging Markets
Fund*...................................... 29 50 -- --
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
Small-Cap Value Fund........................ 11 35 61 134
Enhanced Equity Fund........................ 10 30 53 117
Structured Emerging Markets Fund*........... 32 58 -- --
Tax-Managed Structured Emerging Markets
Fund*...................................... 32 58 -- --
Balanced Fund............................... 10 30 53 117
</TABLE>
* The Examples for the Structured Emerging Markets and Tax-Managed
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-Managed 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.
April 1, 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. The
information provided below 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. The Annual Report is
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,
Structured Emerging Markets, and Tax-Managed Structured Emerging Markets 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> <C>
EMERGING MARKETS FUND
Institutional Class
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
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
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
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
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
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
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
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
(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 $(0.06) $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 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 $(0.61) $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) 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 $(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 (2.22) 21.16 38.26 3,115 0.96* 0.66* 87
$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 (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
<CAPTION>
DISTRIBUTIONS
IN EXCESS OF AVERAGE
NET REALIZED COMMISSION
CAPITAL GAINS RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
$0.00 $0.00
0.00 0.01
0.00 0.03
0.00
0.00
0.00 0.00
0.00 0.01
0.00 N/A
$0.00 $0.03
0.00 0.02
0.00 0.03
0.00
0.00
0.00 0.03
0.00 0.02
0.00 N/A
$0.00 $0.06
0.00 0.04
0.00 0.05
0.00
0.00
0.00
0.00
0.00 0.06
$0.00 $0.06
0.00 0.04
0.00 0.04
0.00
0.00
0.00
0.00
0.00 0.06
0.00 0.04
0.00 N/A
</TABLE>
April 1, 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
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
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
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
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
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
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
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
EQUITY INCOME FUND
Institutional Class
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
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
(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 $ (2.03) $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 (2.03) 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 $(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 (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 $ (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 (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 $ (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 $ (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 (2.48) 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
<CAPTION>
DISTRIBUTIONS
IN EXCESS OF AVERAGE
NET REALIZED COMMISSION
CAPITAL GAINS RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
$0.00 $0.05
0.00 0.02
0.00 0.03
0.00
0.00
0.00 0.05
0.00 0.02
$0.00 $0.05
0.00 0.02
0.00 0.02
0.00
0.00
0.00
0.00
0.00 0.05
0.00 0.02
0.00 N/A
$0.00 $0.06
0.00 0.04
0.00 0.03
0.00 0.06
0.00 0.04
0.00 N/A
$0.00 $0.06
0.00 0.03
0.00 0.04
$0.00 $0.06
0.00 0.06
0.00 0.06
0.00
0.00
0.00
0.00
0.00 0.06
0.00 0.06
0.00 N/A
</TABLE>
April 1, 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
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)
SMALL-CAP VALUE FUND
Institutional Class
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
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
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
BALANCED FUND (iii)
Institutional Class
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
(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 $(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 $(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 (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 $(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 $(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
<CAPTION>
DISTRIBUTIONS
IN EXCESS OF AVERAGE
NET REALIZED COMMISSION
CAPITAL GAINS RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
$0.00 $0.06
0.00 0.06
0.00 0.06
0.00
0.00
0.00
$0.00 $0.06
0.00 0.04
0.00 0.04
0.00
0.00
0.00
0.00
0.00 0.06
0.00 0.04
$0.00 $0.06
0.00 0.05
0.00 0.05
0.00
0.00
0.00
0.00
$0.00 $0.06
0.00 0.05
0.00 0.04
0.00
0.00
0.00
</TABLE>
April 1, 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 Hong Kong Mexico South Korea
Brazil Hungary Pakistan Sri Lanka
Chile India Peru Taiwan
China Indonesia Philippines Thailand
Colombia Israel Poland Turkey
Czech Republic Jordan Portugal Venezuela
Greece Malaysia South Africa 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 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.
April 1, 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 $100 million 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.
April 1, 1998 Prospectus 19
<PAGE>
RENAISSANCE FUND seeks long-term growth of capital and income. The Fund
invests primarily in a variety of income-producing equity securities. Income-
producing equity securities include common stocks that pay dividends,
preferred stocks and securities (including debt securities) that are
convertible into common stocks ("convertible securities").
The Fund may invest a portion of its assets in preferred stocks and
convertible securities rated at least B by Moody's or S&P (or similarly rated
by another Nationally Recognized Statistical Rating Organization ("NRSRO"), or
unrated but determined by the Portfolio Manager to be of comparable quality),
and may invest up to 10% of its total assets in convertible securities rated
below B by Moody's or S&P (or similarly rated by another NRSRO, or unrated but
determined by the Portfolio Manager to be of comparable quality). Securities
rated Ba or below by Moody's or BB or below by S&P (or of similar quality) are
not considered to be of "investment grade" quality. These lesser rated debt
securities may involve special risks. See "Characteristics and Risks of
Securities and Investment Techniques--High Yield Securities ("Junk Bonds")."
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
35% or more of its net assets in securities that are not considered to be of
"investment grade" quality. The Fund will not invest in convertible securities
that are in default at the time of acquisition.
The non-convertible debt securities in which the Fund may invest include
corporate or government debt securities of any maturity, including zero coupon
securities. These non-convertible debt securities may be rated B or higher by
Moody's or S&P (or similarly rated by another NRSRO, or unrated and determined
by the Portfolio Manager to be of comparable quality). 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
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 Standard & Poor's 500 Composite Stock Price Index ("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%
April 1, 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 group. 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.
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 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
stock of foreign issuers if included in the index. The Fund is designed to
meet simultaneously all of the following criteria: (i) higher returns than the
S&P 500 in both up and down markets, (ii) no greater volatility than the S&P
500, and (iii) consistent performance on a period-to-period basis. A computer
optimization model analyzes the return pattern of thousands of portfolios that
could be constructed from the securities in the S&P 500. The Portfolio
Manager's optimization process reweights or eliminates stocks that have not
historically improved the performance or lowered the volatility of the Fund.
The Fund is rebalanced quarterly. The Trust reserves 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
April 1, 1998 Prospectus 23
<PAGE>
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 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 South Africa
Brazil Hungary Pakistan South Korea
Chile India Peru Sri Lanka
China Indonesia Philippines Taiwan
Colombia Israel Poland Thailand
Czech Republic Jordan Portugal Turkey
Estonia Malaysia Slovakia Venezuela
Greece Mexico Slovenia 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
24 PIMCO Funds: Multi-Manager Series
<PAGE>
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-MANAGED 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. 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.
As specified above, the Fund seeks to achieve 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. Taxes on realized gains
are minimized in part by maintaining relatively low portfolio turnover, and by
employing a variety of tax-efficient management strategies. 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 distributed,
will be taxed as ordinary income, at graduated rates of up to 39.6%. When the
Fund decides to sell a particular appreciated 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 permitted by law, use
hedging techniques such as short sales against-the-box of securities held, 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 Fund
can reduce its exposure to price declines in the securities without realizing
substantial capital gains. The usefulness of such practices have, however,
been substantially reduced by the Taxpayer Relief Act of 1997.
The Fund follows 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 Fund can
reduce its position in such securities without realizing capital gains. During
periods of net withdrawals by investors in the Fund, using distributions of
securities also enables the Fund to avoid the forced sale of securities to
raise cash for meeting redemptions.
April 1, 1998 Prospectus 25
<PAGE>
It is expected that by employing the various tax-efficient management
strategies described above, the Fund can minimize the extent to which
shareholders incur taxes as a result of realized capital gains. The Fund may
nevertheless realize gains and shareholders will incur tax liability 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-Managed Structured Emerging
Markets Fund is Parametric.
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 debt 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
26 PIMCO Funds: Multi-Manager Series
<PAGE>
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 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, Small-Cap Value, Enhanced Equity, Structured Emerging
Markets, and Tax Managed Structured 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 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.
April 1, 1998 Prospectus 27
<PAGE>
The International, Renaissance, Innovation, and International Growth Funds
will each invest primarily (normally at least 65% of its assets) in equity
securities (income-producing equity securities in the case of the Renaissance
Fund), including common stocks, preferred stocks and securities (including
debt securities and warrants) convertible into or exercisable for common
stocks. Each of these Funds may 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.
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-Managed 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
28 PIMCO Funds: Multi-Manager Series
<PAGE>
and the Tax-Managed Structured Emerging Markets Fund 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:
(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, Small-Cap Value, Enhanced Equity, Structured Emerging
Markets, Tax-Managed 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-Managed
Structured Emerging Markets Fund) 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.
April 1, 1998 Prospectus 29
<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
30 PIMCO Funds: Multi-Manager Series
<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
April 1, 1998 Prospectus 31
<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
(iv) the aggregate market value of securities loaned will not at any time
exceed the Fund's limitation on lending its portfolio securities.
32 PIMCO Funds: Multi-Manager Series
<PAGE>
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-Managed 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
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
April 1, 1998 Prospectus 33
<PAGE>
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-Managed 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.
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
34 PIMCO Funds: Multi-Manager Series
<PAGE>
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-Managed 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-Managed 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-
Managed 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-Managed 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 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 up to 10% of its total assets 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
April 1, 1998 Prospectus 35
<PAGE>
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 Fund's most recent fiscal year. 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% -- -- -- --
</TABLE>
<TABLE>
<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.
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.
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-Managed Structured
Emerging Markets, 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-
Managed Structured Emerging Markets, 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
36 PIMCO Funds: Multi-Manager Series
<PAGE>
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-
Managed 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 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
April 1, 1998 Prospectus 37
<PAGE>
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-Managed
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, and Tax-Managed Structured Emerging Markets Funds may enter
into equity index swap agreements for purposes of gaining exposure to the
stocks making up an index of securities in a foreign market without actually
purchasing those stocks. The Balanced Fund may enter into swap agreements to
hedge against changes in interest rates, foreign currency exchange rates or
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, 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
38 PIMCO Funds: Multi-Manager Series
<PAGE>
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-Managed 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 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-Managed Structured Emerging
Markets, and Balanced Funds may purchase 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-Managed 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
April 1, 1998 Prospectus 39
<PAGE>
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, 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.
40 PIMCO Funds: Multi-Manager Series
<PAGE>
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.
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.
April 1, 1998 Prospectus 41
<PAGE>
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.
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-
42 PIMCO Funds: Multi-Manager Series
<PAGE>
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 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
April 1, 1998 Prospectus 43
<PAGE>
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, and Tax-Managed Structured Emerging Markets
Funds described in this Prospectus may be changed by the Board of Trustees
without shareholder approval. The investment objective of each other Fund is
fundamental and may not be changed without shareholder approval by vote of a
majority of the outstanding shares of that Fund. If there is a change in a
Fund's investment objective, including a change approved by shareholder vote,
shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial position and needs.
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."
44 PIMCO Funds: Multi-Manager Series
<PAGE>
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 December 31, 1997 were
approximately $200 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 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 December 31, 1997 of
approximately $647 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.
April 1, 1998 Prospectus 45
<PAGE>
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
December 31, 1997 of approximately $5.2 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, 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 December 31, 1997 of approximately $9.3 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
46 PIMCO Funds: Multi-Manager Series
<PAGE>
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 and Irwin F. Smith are 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. Mr. Smith, a Managing Director of Columbus
Circle, has over 30 years of investment management experience. He received his
bachelor's degree and MBA from the University of Wisconsin, 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 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 December 31, 1997 of approximately $2.5 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.
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 $118
billion of assets
April 1, 1998 Prospectus 47
<PAGE>
under management as of December 31, 1997. 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, and the Tax-Managed Structured Emerging Markets 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 December 31, 1997 of approximately $2.6 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.
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 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.
48 PIMCO Funds: Multi-Manager Series
<PAGE>
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-Managed Structured Emerging
Markets, and Balanced Funds....................................... .45%
International Fund................................................. .55%
Core Equity Fund................................................... .57%
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>
April 1, 1998 Prospectus 49
<PAGE>
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-Managed 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, 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, and .35% for the
Tax-Managed Structured Emerging Markets 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
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
50 PIMCO Funds: Multi-Manager Series
<PAGE>
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
Except for the Core Equity and Mid-Cap Equity Funds, 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. Shares may also be offered to clients of Blairlogie, Cadence,
Columbus Circle, NFJ, Pacific Investment Management, Parametric, and their
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.
April 1, 1998 Prospectus 51
<PAGE>
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 business (ordinarily 4:00 p.m., Eastern
time) 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 business 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
by the close of business 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 New York Stock Exchange (the "Exchange") is open for
trading (a "Business Day"), 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.
FUND REIMBURSEMENT FEES
Investors in Institutional Class and Administrative Class shares of the
Structured Emerging Markets and Tax-Managed Structured Emerging Markets Funds
are subject to a fee (a "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.
52 PIMCO Funds: Multi-Manager Series
<PAGE>
The purpose of the 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 the 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.
In connection with the Transaction described under "Expected Commencement of
the Structured Emerging Markets and Tax-Managed Structured Emerging Markets
Funds" below, unit holders of the Parametric Portfolio Associates Emerging
Markets Trust, a separate account managed by Parametric, will not be subject
to Fund Reimbursement Fees with respect to any shares of these Funds they
acquire through the date of the Transaction (the "Exchange Date"), expected on
or about June 30, 1998, and will not be subject to a Fund Reimbursement Fee
upon the subsequent redemption (including any redemption in connection with an
exchange) of any shares acquired by such unit holders through the Exchange
Date.
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
April 1, 1998 Prospectus 53
<PAGE>
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
The Micro-Cap Growth and Small-Cap Growth Funds are currently closed to new
investors, although existing shareholders may continue to invest in these
Funds subject to the Adviser's and Cadence's right to suspend all new
investments in their discretion depending upon market conditions and other
factors. In addition, Institutional Class and Administrative Class shares of
the International, Renaissance, Innovation, Structured Emerging Markets, and
Tax-Managed Structured Emerging Markets Funds are not offered as of the date
of this Prospectus; however, investment opportunities in these Funds may be
available in the future. It is anticipated that the Structured Emerging
Markets and Tax-Managed Structured Emerging Markets Funds will begin offering
Institutional Class and Administrative Class shares on or about July 13, 1998.
See "Expected Commencement of the Structured Emerging Markets and Tax-Managed
Structured Emerging Markets Funds" below. These restrictions may be changed or
eliminated at any time at the discretion of the Trust's Board of Trustees.
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.
EXPECTED COMMENCEMENT OF THE STRUCTURED EMERGING MARKETS AND TAX-MANAGED
STRUCTURED EMERGING MARKETS FUNDS
On or about June 30, 1998, it is expected that the Structured Emerging
Markets and Tax-Managed Structured Emerging Markets Funds will each commence
investment operations immediately following a transaction (the "Transaction")
in which the Funds will issue 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 will be divided into two categories: participants
who pay taxes ("Taxable Participants") and participants that are non-taxable
entities ("Non-Taxable Participants"). Assets in the EM Trust equal in value
to the value of the Taxable Participants' participation in the EM Trust will
be transferred to the Tax-Managed 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 will be transferred to the Structured Emerging Markets Fund in exchange
for Institutional Class Shares of that Fund. The EM Trust will then be
liquidated and Institutional Class shares of the Tax-Managed Structured
Emerging Markets Fund will be distributed to the Taxable Participants in
proportion to each Participant's interest in the EM Trust, and Institutional
Class shares of the Structured Emerging Markets Fund will be distributed to
the Non-Taxable Participants in proportion to each Participant's interest in
54 PIMCO Funds: Multi-Manager Series
<PAGE>
the EM Trust. The foregoing distributions will be made in accordance with a
recent amendment to the EM Trust's Declaration of Trust to cover the proposed
Transaction. After the completion of the Transaction, the portfolio securities
which were owned by the EM Trust will be portfolio securities of the Funds
(allocated to the Funds on a pro-rata basis), to be held or sold as Parametric
deems appropriate.
Pending the successful completion of the Transaction, it is anticipated that
the Structured Emerging Markets and Tax-Managed Structured Emerging Markets
Funds will begin offering Institutional Class and Administrative Class shares
to the public on or about July 13, 1998.
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 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."
April 1, 1998 Prospectus 55
<PAGE>
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 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-Managed 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.
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 distribution in kind of
securities held by a Fund in lieu of cash. It is highly unlikely that shares
would ever be redeemed in kind; however, the redeeming shareholder should
expect to incur transaction costs upon the disposition of the securities
received in the distribution.
56 PIMCO Funds: Multi-Manager Series
<PAGE>
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-Managed 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-Managed 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 each Fund will
attempt to give shareholders prior notice whenever it is reasonably able to do
so, it may impose these restrictions 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-Managed Structured Emerging Markets Fund (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 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
April 1, 1998 Prospectus 57
<PAGE>
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 past two fiscal years for the
remaining operational Funds 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%.
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-Managed 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 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
58 PIMCO Funds: Multi-Manager Series
<PAGE>
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 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.
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 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
April 1, 1998 Prospectus 59
<PAGE>
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-three portfolios that are operational,
nineteen 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.
60 PIMCO Funds: Multi-Manager Series
<PAGE>
MULTIPLE CLASSES OF SHARES
In addition to Institutional Class shares and Administrative Class shares,
certain Funds also offer up to three additional classes of shares, Class A,
Class B, and Class C, through a separate prospectus. During the second quarter
of 1998, it is anticipated that certain Funds will offer a new class of
shares, Class D shares, through a separate prospectus. 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 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 February 28, 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; Pacific Life Insurance
Company (Newport Beach, California) with respect to PIMCO Mid-Cap Equity Fund
and PIMCO Enhanced Equity Fund; and Pacific Asset Management LLC (Newport
Beach, California) with respect to PIMCO International Growth 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).
April 1, 1998 Prospectus 61
<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. Consistent with SEC rules and informal guidance, for periods
prior to the initial offering date of a particular class, total return
presentations for the class may be based on the historical performance of an
older class of the Fund (the older class to be used in each case is set forth
in the Statement of Additional Information) restated to reflect current sales
charges or redemption fees (if any) of the newer class, but not reflecting any
higher operating expenses (such as service or distribution fees and
administrative fee charges) associated with the newer class. All other things
being equal, such higher expenses would have adversely affected (i.e.,
reduced) total return for a newer class (i.e., if the newer class had been
issued since the inception of the Fund) by the amount of such higher expenses,
compounded over the relevant period. Total return for each class is measured
by comparing the value of an 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 in
relation to other money managers. Such comparative information may be compiled
or provided by independent
62 PIMCO Funds: Multi-Manager Series
<PAGE>
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 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 (the "Columbus Circle International Accounts")
that have investment objectives and policies that are substantially similar to
those of the International Growth Fund. These accounts are managed by the same
Columbus Circle personnel responsible for the management of the International
Growth Fund.
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. 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 December 31, 1997, the
Columbus Circle International Accounts had approximately $132.4 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)%
Year ended 12/31/97............................. 41.83% 41.49%
Inception (7/1/96) through 12/31/97
(Annualized)................................... 35.09% 34.76%
</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 DOES NOT REPRESENT THE PERFORMANCE OF THE
INTERNATIONAL GROWTH FUND. THE INTERNATIONAL GROWTH FUND IS NEWLY ORGANIZED.
THE INFORMATION RELATES TO ACCOUNTS ADVISED BY COLUMBUS CIRCLE AND SHOULD NOT
BE CONSIDERED A PREDICTION OF THE FUTURE PERFORMANCE OF THE INTERNATIONAL
GROWTH 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.
April 1, 1998 Prospectus 63
<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
Price Waterhouse LLP
1055 Broadway
Kansas City, MO 64105
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
PROSPECTUS
- --------------------------------------------------------------------------------
April 1, 1998
<PAGE>
PIMCO FUNDS: MULTI-MANAGER SERIES
Supplement Dated September , 1998
to the
Statement of Additional Information Dated April 1, 1998
Disclosure relating to:
Three new series of the Trust:
PIMCO Funds Asset Allocation Series - 90/10 Portfolio;
PIMCO Funds Asset Allocation Series - 60/40 Portfolio; and
PIMCO Funds Asset Allocation Series - 30/70 Portfolio.
- --------------------------------------------------------------------------------
Note: This document supplements the PIMCO Funds: Multi-Manager Series (the
- ----
"Trust") Statement of Additional Information dated April 1, 1998 (the "Statement
of Additional Information") which is included in Part B of this Registration
Statement.
- --------------------------------------------------------------------------------
1. Date of the Statement of Additional Information.
The date of the Statement of Additional Information is hereby amended to
September __, 1998.
2. Three New Series of the Trust.
The Trust intends to offer Class A, Class B, Class C, Institutional Class
and Administrative Class shares of three new series, PIMCO Funds Asset
Allocation Series - 90/10 Portfolio (the "90/10 Portfolio"), PIMCO Funds Asset
Allocation Series - 60/40 Portfolio (the "60/40 Portfolio"), and PIMCO Funds
Asset Allocation Series - 30/70 Portfolio (the "30/70 Portfolio"). The 90/10
Portfolio, the 60/40 Portfolio and the 30/70 Portfolio are sometimes referred to
herein collectively as the "Portfolios."
3. Investment Objectives and Policies.
As described in the Prospectuses for the Portfolios, each Portfolio invests
all of its assets in other series of the Trust and series of PIMCO Funds, a
separate open-end series management investment company for which Pacific
Investment Management Company serves as investment adviser. Pacific Investment
Management Company is an affiliate of PIMCO Advisors L.P., the Trust's
investment adviser. The series in which the Portfolios invest are referred to
herein collectively as "Underlying Funds."
Certain Underlying Funds may invest in some or all of the securities and
other instruments and use the investment techniques described under "Investment
Objectives and Policies" in the Trust's Statement of Additional Information.
Accordingly, by investing in these Underlying Funds, each Portfolio may be
subject to some or all of the risks associated with the securities, instruments
and techniques described thereunder.
<PAGE>
As noted, certain of the Underlying Funds are series of PIMCO Funds and are
described in the current registration statement for PIMCO Funds (File Nos. 033-
12113 and 811-5028). The disclosure provided under "Investment Objectives and
Policies" in the current PIMCO Funds Statement of Additional Information, dated
April 1, 1998 (the "PIMCO SAI"), which relates to these Underlying Funds, is
incorporated herein by reference. The PIMCO Funds SAI was filed electronically
with the Securities and Exchange Commission on April 6, 1998 (Accession Number:
0000943663-98-000087).
4. Investment Restrictions.
Fundamental Policies
--------------------
The investment restrictions set forth below are fundamental policies of
each Portfolio and may not be changed with respect to any such Portfolio without
shareholder approval by vote of a majority of the outstanding voting securities
of that Portfolio. Under these restrictions, a Portfolio may not:
(1) invest in a security if, as a result of such investment, more than 25%
of its total assets (taken at market value at the time of such investment) would
be invested in the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements with
respect thereto) or securities issued by any investment company;
(2) purchase securities of any issuer unless such purchase is consistent
with the maintenance of the Portfolio's status as a diversified company under
the Investment Company Act of 1940, as amended;
(3) 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;
(4) 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 Portfolio
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;
(5) borrow money, or pledge, mortgage or hypothecate its assets, except
that a Portfolio 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 to the extent described in the
then current
-2-
<PAGE>
Prospectus for the Portfolio 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 Portfolio's
assets);
(6) issue senior securities, except insofar as such Portfolio may be
deemed to have issued a senior security by reason of borrowing money in
accordance with the Portfolio'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;
(7) lend any funds or other assets, except that such Portfolio 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 and the Trustees of the Trust; or
(8) 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 any other fundamental investment restriction or policy,
each Portfolio may invest some or all of its assets in a single registered open-
end investment company or a series thereof. Unless specified above, any
fundamental investment restriction or policy of any such registered open-end
investment company or series thereof shall not be considered a fundamental
investment restriction or policy of a Portfolio investing therein.
The investment objective of each of the Portfolios is non-fundamental and
may be changed with respect to each such Portfolio by without shareholder
approval.
5. Management of the Trust.
The disclosure under the subheadings "Trustees," "Officers," "Trustees'
Compensation," "Investment Adviser," and "Fund Administrator" under "Management
of the Trust" in the Statement of Additional Information applies to the
Portfolios. Gary L. Light has resigned as a Trustee of the Trust.
PIMCO Advisors L.P. receives no Advisory Fees (including any asset
allocation fees) under the Trust's Investment Advisory Agreement for its
services on behalf of the Portfolios.
-3-
<PAGE>
Under the Administration Agreement, PIMCO Advisors L.P. has agreed to
provide or procure administrative services, and to bear related expenses, in
return for Administrative Fees paid by the Trust at the following annual rates
for each Portfolio (each expressed as a percentage of the Portfolio's average
daily net assets attributable in the aggregate to the indicated classes of
shares on an annual basis):
<TABLE>
<CAPTION>
Administrative Fee Rate
---------------------------------------------------
Institutional Class
and Administrative Class A, Class B and
Class Shares Class C Shares
-------------------- -----------------------------
<S> <C> <C>
Each Portfolio .25% .40% of first $2.5 billion
.35% of amounts in excess of
$2.5 billion
</TABLE>
6. Distribution of Trust Shares, Portfolio Transactions and Brokerage, Net
Asset Value, Taxation and Other Information.
The Sections "Distribution of Trust Shares," "Portfolio Transactions and
Brokerage," "Net Asset Value," "Taxation" and "Other Information" in the
Statement of Additional Information apply to the Portfolios.
-4-
<PAGE>
PIMCO Funds:
Multi-Manager Series
STATEMENT OF ADDITIONAL INFORMATION
April 1, 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-four separate diversified investment portfolios
(the "Funds"): the Equity Income Fund, the Value Fund, the Renaissance Fund,
the Enhanced Equity Fund, the Growth Fund, the Capital Appreciation Fund, the
Mid-Cap Growth Fund, the Core Equity Fund, the Mid-Cap Equity Fund, the Target
Fund, the Small-Cap Value Fund, the Small-Cap Growth Fund, the Opportunity Fund,
the Micro-Cap Growth Fund, the Innovation Fund, the International Fund, the
International Developed Fund, the International Growth Fund, the Emerging
Markets Fund, the Tax-Managed Structured Emerging Markets Fund, the Structured
Emerging Markets Fund, the Precious Metals Fund, the Balanced Fund and the Tax
Exempt Fund.
The Trust's investment adviser is PIMCO Advisors L.P. ("PIMCO Advisors" or
the "Adviser"), 800 Newport Center Drive, Suite 100, Newport Beach, California
92660.
This Statement of Additional Information is not a Prospectus, and should be
used in conjunction with the Prospectuses for the Trust, 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 April 1,
1998, Class D shares of certain Funds are offered through the "Class D
Prospectus" to be dated April 8, 1998, and Institutional and Administrative
Class shares of certain Funds are offered through the "Institutional
Prospectus," dated April 1, 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.
Class A, B and C
----------------
Institutional Prospectus: and Class D Prospectuses:
------------------------ ------------------------
PIMCO Funds PIMCO Funds Distributors
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)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES........................................................................... 3
U.S. Government Securities.............................................................................. 3
Inflation-Indexed Bonds................................................................................. 3
Borrowing............................................................................................... 4
Preferred Stock......................................................................................... 5
Corporate Debt Securities............................................................................... 5
High Yield Securities ("Junk Bonds").................................................................... 5
Participation on Creditors Committees................................................................... 7
Variable and Floating Rate Securities................................................................... 7
Mortgage-Related and Asset-Backed Securities............................................................ 8
Foreign Securities...................................................................................... 12
Bank Obligations........................................................................................ 13
Commercial Paper........................................................................................ 14
Derivative Instruments.................................................................................. 15
When-Issued, Delayed Delivery and Forward Commitment Transactions....................................... 21
Warrants to Purchase Securities......................................................................... 21
Tax Exempt Bonds........................................................................................ 22
Metal-Indexed Notes and Precious Metals................................................................. 23
Repurchase Agreements................................................................................... 24
Securities Loans........................................................................................ 24
INVESTMENT RESTRICTIONS...................................................................................... 25
Fundamental Investment Restrictions..................................................................... 25
Non-Fundamental Investment Restrictions................................................................. 27
MANAGEMENT OF THE TRUST...................................................................................... 29
Trustees ............................................................................................... 29
Officers ............................................................................................... 30
Trustees' Compensation.................................................................................. 32
Investment Adviser...................................................................................... 33
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
Distribution and Administrative Services Plans for Administrative Class Shares.......................... 52
Plan for Class D Shares................................................................................. 54
Purchases, Exchanges and Redemptions.................................................................... 55
PORTFOLIO TRANSACTIONS AND BROKERAGE......................................................................... 56
Investment Decisions.................................................................................... 56
Brokerage and Research Services......................................................................... 56
Portfolio Turnover...................................................................................... 59
NET ASSET VALUE.............................................................................................. 59
TAXATION..................................................................................................... 59
Distributions........................................................................................... 61
Sales of Shares......................................................................................... 62
Backup Withholding...................................................................................... 62
Options, Futures, Forward Contracts and Swap Agreements................................................. 62
Passive Foreign Investment Companies.................................................................... 63
Foreign Currency Transactions........................................................................... 64
Foreign Taxation........................................................................................ 64
Original Issue Discount................................................................................. 64
Other Taxation.......................................................................................... 65
OTHER INFORMATION............................................................................................ 66
Capitalization.......................................................................................... 66
Performance Information................................................................................. 66
Calculation of Yield.................................................................................... 66
Calculation of Total Return............................................................................. 67
Voting Rights .......................................................................................... 78
Certain Ownership of Trust Shares....................................................................... 79
Custodian............................................................................................... 97
Independent Accountants................................................................................. 97
Registration Statement.................................................................................. 98
Financial Statements.................................................................................... 98
APPENDIX .................................................................................................... A-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of each Fund are
described in the Prospectuses. Additional information concerning the
characteristics of certain of the Funds' investments is set forth below.
U.S. Government Securities
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts
issued in connection with so-called trademark zero coupon securities, such as
CATs and TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury
securities (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 example, if an investor purchased an inflation-
indexed bond with a par value of $1,000 and a 3% real rate of return coupon
(payable 1.5% semi-annually), and inflation over the first six months were 1%,
the mid-year par value of the bond would be $1,010 and the first semi-annual
interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the
second half of the year reached 3%, the end-of-year par value of the bond would
be $1,030 and the second semi-annual interest payment would be $15.45 ($1,030
times 1.5%).
If the periodic adjustment rate measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the
current market value of the bonds is not guaranteed, and will fluctuate. The
Balanced Fund may also invest in other inflation-related bonds which may or may
not provide a similar guarantee. If such a guarantee of principal is not
provided, the adjusted principal value of the bond repaid at maturity may be
less than the original principal. The value of inflation-indexed bonds is
expected to change in response to changes in real interest rates. Real interest
rates in turn are tied to the relationship between nominal interest rates and
the rate of inflation. Therefore, if inflation were to rise at a faster rate
than nominal interest rates, real interest rates might decline, leading to an
increase in value of inflation-indexed bonds. In contrast, if nominal interest
rates increased
3
<PAGE>
at a faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term
inflationary trends, short-term 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 possibility a Fund may be forced to liquidate positions when it
would not be advantageous to do so. There also can be no assurance that the U.S.
Treasury will issue any particular amount of inflation-indexed bonds. Certain
foreign governments, such as the United Kingdom, Canada and Australia, have a
longer history of issuing inflation-indexed bonds, and there may be a more
liquid market in certain of these countries for these securities.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the
Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated
monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of
changes in the cost of living, made up of components such as housing, food,
transportation and energy. Inflation-indexed bonds issued by a foreign
government are generally adjusted to reflect a comparable inflation index,
calculated by that government. There can be no assurance that the CPI-U or any
foreign inflation index will accurately measure the real rate of inflation in
the prices of goods and services. Moreover, there can be no assurance that the
rate of inflation in a foreign country will be correlated to the rate of
inflation in the United States.
Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.
Borrowing
Subject to the limitations described under "Investment Restrictions" below,
a Fund may be permitted to borrow for temporary purposes and/or for investment
purposes. Such a practice will result in leveraging of a Fund's assets and may
cause a Fund to liquidate portfolio positions when it would not be advantageous
to do so. This borrowing may be unsecured. Provisions of the Investment Company
Act of 1940 ("1940 Act") require a Fund to maintain continuous asset coverage
(that is, total assets including borrowings, less liabilities exclusive of
borrowings) of 300% of the amount borrowed, with an exception for borrowings not
in excess of 5% of the Fund's total assets made for temporary administrative
purposes. As noted under "Investment Restrictions," certain Funds are subject
to limitations on borrowings which are more strict than those imposed by the
1940 Act. Any borrowings for temporary administrative purposes in excess of 5%
of the Fund's total assets must maintain continuous asset coverage. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, a Fund may be required to sell some of its portfolio holdings within
three days to reduce the debt and restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. Borrowing will tend to exaggerate the effect on net asset value of
any increase or decrease in the market value of a Fund's portfolio. Money
borrowed will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased. A Fund also may be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
In addition to borrowing for temporary purposes, a Fund may enter into
reverse repurchase agreements if permitted to do so under its 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
<PAGE>
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, 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-Managed 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, Balanced and Tax Exempt Funds may purchase high
yield securities (as defined in the Prospectuses) rated in either the fifth or
(except for the Tax Exempt Fund) sixth highest rating categories by any NRSRO or
comparable unrated securities, and the Renaissance Fund may invest up to 10% of
its total assets in high yield securities rated below the sixth highest rating
category by an NRSRO or comparable unrated securities (but will not purchase any
security in default on the date of acquisition). The Growth Fund 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,
6
<PAGE>
Growth, Tax Exempt and Balanced Funds. While lower rated securities typically
are less sensitive to interest rate changes than higher rated securities, the
market prices of high yield/high risk securities structured as "zero coupon" or
"pay-in-kind" securities may be affected to a greater extent by interest rate
changes. See Appendix A to this Statement of Additional Information for further
information regarding high yield/high risk securities. For instance, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield securities,
especially in a thinly traded market. When secondary markets for high yield
securities are less liquid than the market for higher grade securities, it may
be more difficult to value the securities because such valuation may require
more research, and elements of judgment may play a greater role in the valuation
because there is less reliable, objective data available.
Debt securities are purchased and sold principally in response to current
assessments of future changes in business conditions and the levels of interest
rates on debt/fixed income securities of varying maturities, the availability of
new investment opportunities at higher relative yields, and current evaluations
of an issuer's continuing ability to meet its obligations in the future. The
average maturity or duration of the debt/fixed income securities in a Fund's
portfolio may 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.
7
<PAGE>
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
<PAGE>
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-Managed 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 except for the Tax Exempt Fund may invest in American Depository
Receipts ("ADRs"). The Emerging Markets, Structured Emerging Markets, Tax-
Managed 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
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techniques in certain emerging market countries; the fact that companies in
emerging market countries may be smaller, less seasoned and newly organized
companies; the difference in, or lack of, auditing and financial reporting
standards, which may result in unavailability of material information about
issuers; the risk that it may be more difficult to obtain and/or enforce a
judgment in a court outside the United States; and greater price volatility,
substantially less liquidity and significantly smaller market capitalization of
securities markets.
The Renaissance, Core Equity, Mid-Cap Equity, Growth, Target, Opportunity,
Innovation, International, International Developed, International Growth,
Emerging Markets, Structured Emerging Markets, Tax-Managed 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-Managed 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-Managed 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-Managed Structured Emerging Markets Funds
will be subject to the additional risk that the relative value of currencies
will be different than anticipated by the particular Fund's Portfolio Manager.
A Fund may use one currency (or a basket of currencies) to hedge against adverse
changes in the value of another currency (or a basket of currencies) when
exchange rates between the two currencies are positively correlated. A Fund
will segregate assets determined to be liquid by the Portfolio Manager in
accordance with procedures established by the Board of Trustees in a segregated
account to cover forward currency contracts entered into for non-hedging
purposes. The Funds may also use foreign currency futures contracts and related
options on currencies for the same reasons for which forward foreign currency
exchange contracts are used.
Bank Obligations
Bank obligations in which the Funds may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. A Fund will not invest in
fixed time deposits which (1) are not subject to prepayment or
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(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-
Managed 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, additionally for the Renaissance, Growth, Target, Core
Equity, Mid-Cap Equity, Opportunity, Innovation, Emerging Markets, Structured
Emerging Markets, Tax-Managed 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.
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Derivative Instruments
The following describes certain derivative instruments and products in
which the Funds may invest (to the extent described in the 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.
If an option written by a Fund expires unexercised, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by a Fund expires unexercised, the Fund realizes a
capital loss equal to the premium paid. Prior to the earlier of exercise or
expiration, an exchange-traded option may be closed out by an offsetting
purchase or sale of an option of the same series (type, exchange, underlying
security or index, exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when the
Fund desires.
A Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund
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will realize a capital gain or, if it is less, the Fund will realize a capital
loss. The principal factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of the option,
the volatility of the underlying security or index, and the time remaining until
the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset
of the Fund. The premium received for an option written by a Fund is recorded
as a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
OTC Options. The Renaissance, Growth, Target, Opportunity, Innovation,
International, International Growth, Precious Metals and Tax Exempt Funds will
enter into over-the-counter ("OTC") options transactions only with primary
dealers in U.S. Government securities and only pursuant to agreements that will
assure that the relevant Fund will at all times have the right to repurchase the
option written by it from the dealer at a specified formula price. The Funds
will treat the amount by which such formula price exceeds the intrinsic value of
the option (i.e., the amount, if any, by which the market price of the
underlying security exceeds the exercise price of the option) as an illiquid
investment.
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call.
If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were imposed,
the Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
Foreign Currency Options. Each of the Funds that may buy or sell foreign
currencies may buy or sell put and call options on foreign currencies either on
exchanges or in the over-the-counter market. A put option on a foreign currency
gives the purchaser of the option the right to sell a foreign currency at the
exercise price until the option expires. A call option on a foreign currency
gives the purchaser of the option the right to purchase the currency at the
exercise price until the option expires. Currency options traded on U.S. or
other exchanges may be subject to position limits which may limit the ability of
a Fund to reduce foreign currency risk using such options.
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 instrument, foreign currency or the cash
value of an index at a specified price and time.
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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 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.
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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-Managed 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 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
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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.
Futures contracts on U.S. Government securities historically have reacted
to an increase or decrease in interest rates in a manner similar to that in
which the underlying U.S. Government securities reacted. To the extent,
however, that the Tax Exempt Fund enters into such futures contracts, the value
of such futures will not vary in direct proportion to the value of the Fund's
holdings of Tax Exempt Bonds. Thus, the anticipated spread between the price of
the futures contract and the hedged security may be distorted due to differences
in the nature of the markets. The spread also may be distorted by differences
in initial and variation margin requirements, the liquidity of such markets and
the participation of speculators in such markets.
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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 Emerging Markets, Structured Emerging Markets, Tax-
Managed Structured Emerging Markets, and International Developed Funds may enter
into equity index swap agreements for purposes of attempting to gain exposure to
the stocks making up an index of securities in a foreign market without actually
purchasing those stocks. The Balanced Fund may enter into swap agreements to
hedge against changes in interest rates, foreign currency exchange rates or
securities prices. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than one year. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are calculated with respect to a
"notional amount," i.e., 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.
Tax Exempt Bonds
As noted in the Class A, B and C Prospectus, it is a policy of the Tax
Exempt Fund to have 80% of its net assets invested in debt obligations the
interest on which, in the opinion of bond counsel to the issuer at the time of
issuance, is exempt from federal income tax ("Tax Exempt Bonds") which are rated
Baa or higher by Moody's or BBB or higher by S&P, or in one of the four highest
rating categories of any other NRSRO, or which are unrated and determined by the
Portfolio Manager to be of quality comparable to obligations so rated. Under
such policy, the Fund may invest up to 20% of its net assets in Tax Exempt Bonds
rated in the fifth highest rating category by any NRSRO, or unrated obligations
determined by the Portfolio Manager to be of quality comparable to obligations
so rated. A description of these ratings is set forth in Appendix A hereto.
From time to time, however, the Fund may have less than 80% of its net assets
invested in Tax Exempt Bonds for temporary defensive purposes. The ability of
the Fund to invest in securities other than Tax Exempt Bonds is limited by a
requirement of the Internal Revenue Code that at least 50% of the Fund's total
assets be invested in Tax Exempt Bonds at the end of each calendar quarter. See
"Taxes."
Tax Exempt Bonds share the attributes of debt/fixed income securities in
general, but are generally issued by states, municipalities and other political
subdivisions, agencies, authorities and instrumentalities of states and multi-
state agencies or authorities. The Tax Exempt Bonds which the Tax Exempt Fund
may purchase include general obligation bonds and limited obligation bonds (or
revenue bonds), including industrial development bonds issued pursuant to former
federal tax law. General obligation bonds are obligations involving the credit
of an issuer possessing taxing power and are payable from such issuer's general
revenues and not from any particular source. Limited obligation bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Tax-exempt private activity bonds and industrial
development bonds generally are also revenue bonds and thus are not payable from
the issuer's general revenues. The credit and quality of private activity bonds
and industrial development bonds are usually related to the credit of the
corporate user of the facilities. Payment of interest on and repayment of
principal of such bonds is the responsibility of the corporate user (and/or any
guarantor).
Under the Internal Revenue Code, certain limited obligation bonds are
considered "private activity bonds" and interest paid on such bonds is treated
as an item of tax preference for purposes of calculating federal alternative
minimum tax liability.
Tax Exempt Bonds are subject to credit and market risk. Generally, prices
of higher quality issues tend to fluctuate less with changes in market interest
rates than prices of lower quality issues and prices of longer maturity issues
tend to fluctuate more than prices of shorter maturity issues.
The Tax Exempt Fund may purchase and sell portfolio investments to take
advantage of changes or anticipated changes in yield relationships, markets or
economic conditions. The Fund may also sell Tax Exempt Bonds due to changes in
the Portfolio Manager's evaluation of the issuer or cash needs resulting from
redemption requests for Fund shares. The secondary market for Tax Exempt Bonds
typically has been less liquid than that for taxable debt/fixed income
securities, and this may affect the Fund's ability to sell particular Tax Exempt
Bonds at then-current market prices, especially in periods when other investors
are attempting to sell the same securities.
Prices and yields on Tax Exempt Bonds are dependent on a variety of
factors, including general money-market conditions, the financial condition of
the issuer, general conditions of the Tax Exempt Bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
A number of these factors, including the ratings of particular issues, are
subject to change from time to time. Information about the financial
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condition of an issuer of Tax Exempt Bonds may not be as extensive as that which
is made available by corporations whose securities are publicly traded.
Obligations of issuers of Tax Exempt Bonds are subject to the provisions of
bankruptcy, insolvency and other laws, such as the Federal Bankruptcy Reform Act
of 1978, affecting the rights and remedies of creditors. Congress or state
legislatures may seek to extend the time for payment of principal or interest,
or both, or to impose other constraints upon enforcement of such obligations.
There is also the possibility that as a result of litigation or other
conditions, the power or ability of issuers to meet their obligations for the
payment of interest and principal on their Tax Exempt Bonds may be materially
affected or their obligations may be found to be invalid or unenforceable. Such
litigation or conditions may from time to time have the effect of introducing
uncertainties in the market for Tax Exempt Bonds or certain segments thereof, or
of materially affecting the credit risk with respect to particular bonds.
Adverse economic, business, legal or political developments might affect all or
a substantial portion of the Fund's Tax Exempt Bonds in the same manner.
Metal-Indexed Notes and Precious Metals
The Precious Metals Fund may invest in notes, the principal amount or
redemption price of which is indexed to, and thus varies directly with, changes
in the market price of gold bullion or other precious metals ("Metal-Indexed
Notes"). It is expected that the value of Metal-Indexed Notes will be as
volatile as the price of the underlying metal.
The Precious Metals Fund will only purchase Metal-Indexed Notes which are
rated 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.
23
<PAGE>
Any Metal-Indexed Notes which the Precious Metals Fund might purchase
generally will have maturities of one year or less. Such notes, however, will
be subject to being called for redemption by the issuer on relatively short
notice. In addition, it is expected that the Metal-Indexed Notes will be
subject to being put by the Precious Metals Fund to the issuer or to a stand-by
broker meeting the credit standards set forth above, with payments being
received by the Precious Metals Fund on no more than seven days' notice. A
stand-by broker might be a securities broker-dealer, in which case the Precious
Metals Fund's investment will be limited by applicable regulations of the
Securities and Exchange Commission (the "SEC"). The put feature of the Metal-
Indexed Notes will ensure liquidity even in the absence of a secondary trading
market. The securities will be repurchased upon exercise of the holder's put at
the specified exercise price, less repurchase fees, if any, which are not
expected to exceed 1% of the redemption or repurchase proceeds. Depending upon
the terms of particular Metal-Indexed Notes, there might be a period as long as
five days between the date upon which the Precious Metals Fund notifies the
issuer of the exercise of the put and determination of the sale price.
It is expected that any Metal-Indexed Notes which the Precious Metals Fund
might purchase will bear interest or pay preferred dividends at relatively
nominal rates under 2% per annum. The Precious Metals Fund's holdings of such
senior securities therefore would not generate appreciable current income, and
the return from such senior securities would be primarily from any profit on the
sale or maturity thereof at a time when the price of the relevant precious metal
is higher than it was when the senior securities were purchased.
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, Enhanced Equity, Capital Appreciation, Mid-Cap Growth,
Small-Cap Value, Small-Cap Growth, Core Equity, Mid-Cap Equity, Target, Micro-
Cap Growth, International Developed, Emerging Markets, Structured Emerging
Markets, Tax-Managed Structured Emerging Markets and Balanced Funds may make
secured loans of its portfolio securities amounting to no more than 33 1/3% of
its total assets, and each of the Renaissance, Growth, Opportunity, Innovation,
International, International Growth, Tax Exempt 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.
24
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The investment restrictions set forth below are fundamental policies of the
Renaissance, Growth, Target, Opportunity, Innovation, International,
International Growth, Precious Metals and Tax Exempt Funds and may not be
changed with respect to any such Fund without shareholder approval by vote of a
majority of the outstanding voting securities of that Fund. Under these
restrictions, none of the above-mentioned Funds may:
----
(1) borrow money in excess of 10% of the value (taken at the lower of cost
or current value) of such Fund's total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as a
temporary measure to facilitate the meeting of redemption requests (not for
leverage) which might otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased;
(2) pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 10% of such Fund's total assets (taken at cost) and then only to
secure borrowings permitted by Restriction (1) above. (The deposit of
securities or cash or cash equivalents in escrow in connection with the writing
of covered call or put options, respectively, is not deemed to be pledges or
other encumbrances.) (For the purpose of this restriction, collateral
arrangements with respect to the writing of options, futures contracts, options
on futures contracts, and collateral arrangements with respect to initial and
variation margin are not deemed to be a pledge of assets and neither such
arrangements nor the purchase or sale of futures or related options are deemed
to be the issuance of a senior security.);
(3) underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws;
(4) purchase or sell real estate, although it may purchase securities of
issuers which deal in real estate, including securities of real estate
investment trusts, and may purchase securities which are secured by interests in
real estate, except that the Precious Metals Fund may purchase or sell
agricultural land;
(5) acquire more than 10% of the voting securities of any issuer, both
with respect to any such Fund and to the Funds to which this policy relates, in
the aggregate; or
(6) concentrate more than 25% of the value of its total assets in any one
industry, or, in the case of the Tax Exempt Fund, in industrial development
revenue bonds based, directly or indirectly, on the credit of private entities
in any one industry; except that the Precious Metals Fund will concentrate more
than 25% of its total assets in securities of companies principally engaged in
the extraction, processing, distribution or marketing of precious 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.
Investments of the Tax Exempt Fund in utilities, gas, electric, water and
telephone companies will be considered as being in separate industries.
The investment objective of each of the above-referenced Funds and the Tax-
Managed Structured Emerging Markets Fund is non-fundamental and may be changed
with respect to each such Fund by the Trustees without shareholder approval.
The investment objective of each of the Equity Income, Value, Enhanced
Equity, Capital Appreciation, Mid-Cap Growth, Small-Cap Value, Small-Cap Growth,
Core Equity, Mid-Cap Equity, Micro-Cap Growth, International Developed, Emerging
Markets, Structured Emerging Markets, and Balanced Funds, as set forth in the
Prospectuses under "Investment Objectives and Policies," together with the
investment restrictions set forth below, are fundamental policies of each such
Fund and may not be changed with respect to any such Fund without shareholder
25
<PAGE>
approval by vote of a majority of the outstanding shares of that Fund. The
following are also fundamental policies of the Tax-Managed Structured Emerging
Markets Fund. Under these restrictions, none of the above-mentioned Funds may:
----
(1) invest in a security if, as a result of such investment, more than 25%
of its total assets (taken at market value at the time of such investment) would
be invested in the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements with
respect thereto);
(2) with respect to 75% of its assets, invest in a security if, as a
result of such investment, more than 5% of its total assets (taken at market
value at the time of such investment) would be invested in the securities of any
one issuer, except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities;
(3) with respect to 75% of its assets, invest in a security if, as a
result of such investment, it would hold more than 10% (taken at the time of
such investment) of the outstanding voting securities of any one issuer, except
that this restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities;
(4) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
in the real estate industry or which invest in real estate or interests therein;
(5) purchase or sell commodities or commodities contracts (which, for the
purpose of this restriction, shall not include foreign currency or forward
foreign currency contracts or swap agreements), except that any such Fund may
engage in interest rate futures contracts, stock index futures contracts,
futures contracts based on other financial instruments or one or more groups of
instruments, and on options on such futures contracts;
(6) purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but it
may make margin deposits in connection with transactions in options, futures,
and options on futures, and except that effecting short sales will be deemed not
to constitute a margin purchase for purposes of this restriction;
(7) borrow money, or pledge, mortgage or hypothecate its assets, except
that a Fund may (i) borrow from banks or enter into reverse repurchase
agreements, or employ similar investment techniques, and pledge its assets in
connection therewith, but only if immediately after each borrowing and
continuing thereafter, there is asset coverage of 300% and (ii) enter into
reverse repurchase agreements and transactions in options, futures, options on
futures, and forward foreign currency contracts as described in the Prospectuses
and in this Statement of Additional Information (the deposit of assets in escrow
in connection with the writing of covered put and call options and the purchase
of securities on a when-issued or delayed delivery basis and collateral
arrangements with respect to initial 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
26
<PAGE>
amount not to exceed one-third of the value of its total assets, provided such
loans are made in accordance with applicable guidelines established by the SEC
and the Trustees of the Trust; or
(10) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under the federal securities laws.
Notwithstanding the provisions of fundamental investment restrictions (7)
and (8) above, a Fund may borrow money for temporary administrative purposes.
To the extent that borrowings for temporary administrative purposes exceed 5% of
the total assets of a Fund, such excess shall be subject to the 300% asset
coverage requirement of fundamental investment restriction (7).
Non-Fundamental Investment Restrictions
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) with respect to the Tax Exempt Fund, invest less than 80% of such
Fund's net assets in Tax Exempt Bonds rated Baa or higher by Moody's or BBB or
higher by S&P or which are unrated and determined by such Fund's Portfolio
Manager to be of comparable quality;
(3) purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities. (For this
purpose, the deposit or payment by a Fund of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.);
(4) make short sales of securities or maintain a short position for the
account of a Fund unless at all times when a short position is open such Fund
owns an equal amount of such securities or owns 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;
(5) 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;
(6) with respect to the Renaissance, Growth, Target, Opportunity,
Innovation, International, International Growth, Precious Metals and Tax Exempt
Funds, make loans, except by purchase of debt obligations or by entering into
repurchase agreements (in the case of the Tax Exempt Fund, with respect to not
more than 20% of its total assets) or through the lending of the Fund's
portfolio securities with respect to not more than 25% of its total assets (33
1/3% in the case of the Target Fund);
(7) with respect to the Renaissance, Growth, Target, Opportunity,
Innovation, International, International Growth, Precious Metals and Tax Exempt
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
27
<PAGE>
(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. For the purpose of this
restriction, each state and each separate political subdivision, agency,
authority or instrumentality of such state, each multi-state agency or
authority, and each guarantor, if any, are treated as separate issuers of Tax
Exempt Bonds;
(8) 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;
(9) write (sell) or purchase options except that (i) each Fund (other than
the Tax Exempt Fund) may (a) write covered call options or covered put options
on securities that it is eligible to purchase and 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; (ii) the Tax Exempt
Fund may purchase put options with respect to all or any part of its portfolio
securities and call options with respect to securities that it is eligible to
purchase; provided that the premiums paid by each 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;
(10) 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);
(11) 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.
28
<PAGE>
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).
- --------------------------------------------------------------------------------
Name, Address and Age Principal Occupation(s) During the Past Five Years
- --------------------------------------------------------------------------------
E. Philip Cannon Headmaster, St. John's School, Houston, Texas.
2401 Claremont Lane Formerly, Trustee of PIMCO Advisors Funds ("PAF")
Houston, TX 77019 and Cash Accumulation Trust ("CAT"), General
Age 56 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,
434 Stable Lane Executive Vice President and Director, Cunningham
Lake Forest, IL 60045 & Walsh, Inc., Chicago (advertising agency).
Age 70
- --------------------------------------------------------------------------------
Gary A. Childress Private investor. Formerly, Chairman and Director,
11 Longview Terrace Bellefonte Lime Company, Inc. Mr. Childress is a
Madison, CT 06443 partner in GenLime, L.P., a private limited
Age 64 partnership, which has filed a petition in
bankruptcy within the last five years. Formerly,
Trustee of PAF and CAT.
- --------------------------------------------------------------------------------
(*) William D. Cvengros Chairman of the Board of the Trust; Chief
800 Newport Center Drive Executive Officer, President, and member of the
Newport Beach, CA 92660 Management Board, PIMCO Advisors; Director, The
Age 49 Emerging Markets Income Fund, Inc., The Emerging
Markets Income Fund 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).
- --------------------------------------------------------------------------------
Gary L. Light President, E.V.A. Investors, Inc. (private
523 Cornwall Ct. investments); Director, The Somerset Group, Inc.;
Carmel, IN 46032 Consultant to and, prior to March, 1987, Executive
Age 60 Vice President, Mayflower Corporation (trucking
and transportation); Vice Chairman and Chief
Financial Officer, Sofamor Danek (medical
devices). Formerly, Trustee of PAF and CAT.
- --------------------------------------------------------------------------------
Richard L. Nelson President, Nelson Financial Consultants; Director,
8 Cherry Hills Lane Wynn's International, Inc.; Trustee, Pacific
Newport Beach, CA 92660 Select Fund. Formerly, Partner, Ernst & Young.
Age 68
- --------------------------------------------------------------------------------
Lyman W. Porter Professor of Management at the University of
2639 Bamboo Street California, Irvine; Trustee, Pacific Select Fund.
Newport Beach, CA 92660
Age 68
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
Alan Richards President, Alan Richards Consulting, Inc.;
7381 Elegans Place Trustee, Pacific Select Fund; Director, Western
Carlsbad, CA 92009 National Corporation. Formerly, President, Chief
Age 68 Executive Officer and Director, E.F. Hutton
Insurance Group, Inc.; 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
11 Linden Shores University Professor, Bernard M. Baruch College,
Branford, CT 06405 The City University of New York; Deputy Under
Age 74 Secretary for International Affairs, United States
Department of Labor; Professor of Finance,
University of Chicago; Board of Managers, Coffee,
Sugar and Cocoa Exchange.
- --------------------------------------------------------------------------------
W. Bryant Stooks President, Bryant Investments, Ltd.; Director,
1530 E. Montebello American Agritec LLC. Formerly, Trustee of PAF and
Phoenix, AZ 85014 CAT, President, Senior Vice President, Director
Age 57 and Chief Executive Officer, Archirodon Group
Inc.; Partner, Arthur Andersen & Co.
- --------------------------------------------------------------------------------
Gerald M. Thorne Director, UPI Inc., Kaytee Inc., and American
5 Leatherwood Lane Orthodontics Corp. Formerly, Trustee of PAF and
Savannah, GA 31414 CAT, President and Director, Firstar National Bank
Age 59 of Milwaukee; Chairman, President and Director,
Firstar National Bank of Sheboygan; Director,
Bando-McGlocklin.
- --------------------------------------------------------------------------------
(*) Stephen J. Treadway President and Chief Executive Officer of the
2187 Atlantic Street Trust; Executive Vice President, PIMCO Advisors;
Stamford, CT 06902 Chairman and President, PIMCO Funds Distributors
Age 50 LLC ("PFDLLC"); Director, Municipal Advantage
Fund, Inc. and The Central European Value Fund,
Inc. Formerly, Trustee, President and Chief
Executive Officer of CAT; Executive Vice
President, Smith Barney Inc.
- --------------------------------------------------------------------------------
* Trustee is an "interested person" of the Trust (as defined in Section
2(a)(19) of the 1940 Act).
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:
- --------------------------------------------------------------------------------
Name, Address and Age Position(s) with the Principal Occupation(s)
Trust During the Past Five Years
- --------------------------------------------------------------------------------
Stephen J. Treadway Trustee, President and Executive Vice President,
2187 Atlantic Street Chief Executive Officer PIMCO Advisors; Chairman
Stamford, CT 06902 and President, PFDLLC;
Age 50 Director, Municipal
Advantage Fund, Inc. and
The Central European
Value Fund, Inc.
Formerly, Trustee,
President and Chief
Executive Officer of CAT;
Executive Vice President,
Smith Barney Inc.
- --------------------------------------------------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
R. Wesley Burns Executive Vice Trustee and President,
Age 38 President PIMCO Funds: 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
2187 Atlantic Street Secretary and Secretary, PFDLLC.
Stamford, CT 06902 Formerly, Vice President
Age 55 and 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
Age 35 Manager of Fund
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 -
Age 34 Legal, PIMCO Advisors.
Formerly, Vice President,
Bankers Trust Company;
Associate, Simpson,
Thatcher & Bartlett.
- --------------------------------------------------------------------------------
John P. Hardaway Treasurer Treasurer of PIMCO Funds:
Age 40 Pacific Investment
Management Series;
Treasurer, PIMCO Variable
Insurance Trust; Vice
President and Manager of
Fund Operations, Pacific
Investment Management.
Formerly, Treasurer of
PAF and CAT.
- --------------------------------------------------------------------------------
Joseph D. Hattesohl Assistant Treasurer Vice President and
Age 34 Manager of Fund 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
Age 51 Administration;
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, PFAMCo.
- --------------------------------------------------------------------------------
31
<PAGE>
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.
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:
-------------------------------------------------------------
(1) (2) (3)
Total
Aggregate Compensation
Name of Trustee Compensation from from Trust and
Trust/1/ Fund Complex/2/
-------------------------------------------------------------
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
-------------------------------------------------------------
/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.
32
<PAGE>
-------------------------------------------------------------
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
-------------------------------------------------------------
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, David H. Edington, 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.
33
<PAGE>
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.
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 $200 billion of assets under management as of December 31, 1997.
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, Tax Exempt, International and Precious Metals Funds by
vote of a majority of the Trustees who are not interested persons of PIMCO
Advisors, on 60 days' written notice to PIMCO Advisors.
The Adviser currently receives a monthly investment advisory fee from each
Fund at the following annual rates (based on the average daily net assets of the
particular Funds):
Fund Advisory
- ---- Fee Rate
--------
Tax Exempt Fund....................................... .30%
Equity Income, Value, Capital Appreciation,
Mid-Cap Growth, Structured Emerging Markets,
Tax-Managed Structured Emerging Markets,
Enhanced Equity and Balanced Funds.................. .45%
Growth Fund........................................... .50%
International and Target Funds........................ .55%
Core Equity Fund...................................... .57%
34
<PAGE>
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%
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:
Year Period Year
Ended Ended Ended
Fund 6/30/97 6/30/96 10/31/95
- ---- ------- ------- --------
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* 66,977 N/A N/A
----------- ---------- ----------
TOTAL $19,515,404 $4,672,403 $5,201,987
- --------------
* For the period 1/18/97 through 6/30/97
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:
10/1/96 Year Year
to Ended Ended
Fund 1/17/97 9/30/96 9/30/95
- ---- ------- ------- -------
Renaissance Fund $653,744 $1,627,632 $1,371,809
35
<PAGE>
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
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 $118 billion of assets under management
as of December 31, 1997.
Parametric
- ----------
Pursuant to a Portfolio Management Agreement between the Adviser and
Parametric, Parametric is the Portfolio Manager and provides investment advisory
services to the Enhanced Equity, Structured Emerging Markets and Tax-Managed
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
36
<PAGE>
average daily net assets of the particular Fund): .35% for the Enhanced Equity
Fund, .35% for the Structured Emerging Markets Fund, and .35% for the Tax-
Managed Structured Emerging Markets Fund.
Parametric is an investment management firm organized as a general
partnership. Parametric is the successor investment adviser to Parametric
Portfolio Associates, Inc., a wholly-owned corporate subsidiary of PFAMCo.
Parametric has two partners: PIMCO Advisors as the supervisory partner, and
Parametric Management Inc. as the managing partner. 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 December
31, 1997, of approximately $2.6 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 December 31, 1997, of approximately $5.2 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 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, .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 December 31, 1997, of approximately
$2.5 billion.
37
<PAGE>
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, Tax Exempt, 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): .30% for the Tax Exempt Fund, .34% for the Growth Fund, .36% for the
Target Fund, .38% for the Renaissance Fund, .38% for the Innovation Fund, .47%
for the Core Equity Fund, .48% for the Opportunity Fund, .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 December 31, 1997, of $9.3 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 December
31, 1997, of approximately $647 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 December 31, 1997, of approximately $1.4 billion.
38
<PAGE>
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.
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:
Year Period Year
Ended Ended Ended
Fund 06/30/97 06/30/96 10/31/95
- ---- -------- -------- --------
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
- -----------------
*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>
10/1/96 Year Year
to Ended Ended
Fund 1/17/97 09/30/96 09/30/95
- ---- ------- -------- --------
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
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
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
Capital Appreciation Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Institutional Class A, Class B,
Administrative and Class C Class D
Classes* Shares* Shares**
-------- ------- --------
<S> <C> <C> <C>
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 Exempt Fund N/A .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Tax-Managed 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.
** 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.
41
<PAGE>
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, Tax Exempt, 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):
Year Period Year
Ended Ended Ended
Fund 06/30/97 06/30/96 10/31/95
- ---- -------- -------- --------
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
- ------------------------
* 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:
Year Ended
Fund 06/30/97
- ---- --------
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
46
<PAGE>
Opportunity Fund 320,127
Innovation Fund 99,910
International Fund 34,195
Precious Metals Fund 14,218
Tax Exempt Fund 9,965
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:
Sales Material
and Other
Compensation Expenses Total
------------ -------- -----
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
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:
Year Ended Year Ended
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
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
47
<PAGE>
International Fund 42,411 49,788
Precious Metals Fund 21,416 22,178
Tax Exempt Fund 10,288 6,485
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:
Year Ended
Fund 06/30/97
- ---- --------
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
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:
Sales Material
and Other
Compensation Expenses Total
------------ -------------- -----
Equity Income Fund $ 4,235 $ 1,444 $ 5,679
Value Fund 42,327 14,433 56,760
48
<PAGE>
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
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:
Year Ended Year Ended
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
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
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:
Year Ended
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
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:
50
<PAGE>
Sales Material
and Other
Compensation Expenses Total
------------ -------- -----
Equity Income Fund $ 10,972 $ 3,741 $ 14,713
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
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
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:
Year Ended Year Ended
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
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
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.
51
<PAGE>
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 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.
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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.
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:
Year Ended
Fund 06/30/97
- ---- --------
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
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.
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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: 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.
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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 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.
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An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to adopt a policy of terminating the exchange privilege of any
shareholder who makes more than a specified number of exchanges in a 12-month
period or in any calendar quarter. The Trust reserves the right to modify or
discontinue the exchange privilege at any time.
The Trust reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed for other than customary
weekend and holiday closings; (b) the SEC has by order permitted such
suspension; or (c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of a Fund not
reasonably practicable.
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
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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 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:
Year Period Year
Ended Ended Ended
Fund 6/30/97 6/30/96 10/31/95
- ---- ----------- ---------- ----------
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
- ------------------
* For the period 1/18/97 through 6/30/97.
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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):
10/1/96 Year Year
to Ended Ended
Fund 1/17/97 9/30/96 9/30/95
- ---- ---------- ----------- -----------
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
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
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written contract between the Adviser or Portfolio Manager and the Trust
expressly permitting the affiliated broker-dealer to receive and retain such
compensation.
SEC rules further require that commissions paid to such an affiliated
broker-dealer, the Adviser, or Portfolio Manager by a Fund on exchange
transactions not exceed "usual and customary brokerage commissions." The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time."
Portfolio Turnover
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.
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Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). To qualify as a regulated investment company,
each Fund generally must, among other things, (a) derive in each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies ("Qualifying
Income Test"); (b) 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 (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.
The Tax Exempt Fund must have at least 50% of its total assets invested in
Tax Exempt Bonds at the end of each calendar quarter so that dividends derived
from its net interest income on Tax Exempt Bonds and so designated by the Fund
will be "exempt-interest dividends," which are exempt from federal income tax
when received by an investor. Certain exempt-interest dividends, as described
in the Class A, B and C Prospectus, may increase alternative minimum taxable
income for purposes of determining a shareholder's liability for the alternative
minimum tax. In addition, exempt-interest dividends allocable to interest from
certain "private activity bonds" will not be tax exempt for purposes of the
regular income tax to shareholders who are "substantial users" of the facilities
financed by such obligations or "related persons" of such "substantial users."
The tax-exempt portion of dividends paid for a calendar year constituting
"exempt-interest dividends" will be designated after the end of that year and
will be based upon the ratio of net tax-exempt income to total net income earned
by the Fund during the entire year. That ratio may be substantially different
than the ratio of net tax-exempt income to total net income earned during a
portion of the year. Thus, an investor who holds shares for only a part of the
year may be allocated more or less tax-exempt interest dividends than would be
the case if the allocation were based on the ratio of net tax-exempt income to
total net income actually earned by the Fund while the investor was a
shareholder. All or a portion of interest on indebtedness incurred or continued
by a shareholder to purchase or carry shares of the Tax Exempt Fund will not be
deductible by the shareholder. The portion of interest that is not deductible
is equal to the total interest paid or accrued on the indebtedness multiplied by
the percentage of the Fund's total distributions (not including distributions of
the excess of net long-term capital gains over net short-term capital losses)
paid to the shareholder that are exempt-interest dividends. Under rules used by
the Internal Revenue Service for determining when borrowed funds are considered
used for the purpose of purchasing or carrying particular assets, the purchase
of shares may be considered to have been made with borrowed funds even though
such funds are not directly traceable to the purchase of shares.
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<PAGE>
Shareholders of the Tax Exempt Fund receiving social security or railroad
retirement benefits may be taxed on a portion of those benefits as a result of
receiving tax exempt income (including exempt-interest dividends distributed by
the Fund). The tax may be imposed on up to 50% of a recipient's benefits in
cases where the sum of the recipient's adjusted gross income (with certain
adjustments, including tax-exempt interest) and 50% of the recipient's benefits,
exceeds a base amount. In addition, up to 85% of a recipient's benefits may be
subject to tax if the sum of the recipient's adjusted gross income (with certain
adjustments, including tax-exempt interest) and 50% of the recipient's benefits
exceeds a higher base amount. Shareholders receiving social security or
railroad retirement benefits should consult with their tax advisors.
In years when a Fund distributes amounts in excess of its earnings and
profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of reducing
the shareholder's basis in the shares. Since certain of the Tax Exempt Fund's
expenses attributable to earning tax-exempt income do not reduce such Fund's
current earnings and profits, it is possible that distributions, if any, in
excess of such Fund's net tax-exempt and taxable income will be treated as
taxable dividends to the extent of such Fund's remaining earnings and profits
(i.e., the amount of such expenses).
The proper tax treatment of income or loss realized by the Precious Metals
Fund from the retirement or sale of a Metal-Indexed Note is unclear. The
Precious Metals Fund will report such income or loss as capital or ordinary
income or loss in a manner consistent with any Internal Revenue Service position
on the subject following the publication of such a position. Gain or loss from
the sale or exchange of preferred stock indexed to the price of a natural
resource is expected to be capital gain or loss to the Precious Metals Fund.
Distributions
As a regulated investment company, a Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers from prior years) designated by the
Fund as capital gain dividends, if any, that it distributes to shareholders on a
timely basis. Each Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable income and any net
capital gains. In addition, amounts not distributed by a Fund on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid the tax, a Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (and adjusted for certain ordinary losses) for the twelve month period
ending on October 31 of the calendar year, and (3) all ordinary income and
capital gains for previous years that were not distributed during such years. A
distribution will be treated as paid on December 31 of the calendar year if it
is declared by a Fund in October, November or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be taxable to
shareholders (other than those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received. To avoid application of the
excise tax, each Fund intends to make its distributions in accordance with the
calendar year distribution requirement.
The tax status of each Fund and the distributions which it may make are
summarized in the 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." Except for
exempt-interest dividends paid by the Tax Exempt Fund, all dividends and
distributions of a Fund, whether received in shares or cash, are taxable and
must be reported on each shareholder's federal income tax return. Distributions
received by tax-exempt shareholders will not be subject to 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.
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<PAGE>
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.
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.
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<PAGE>
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
Rules governing the tax aspects of swap agreements are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Emerging Markets, Structured Emerging Markets, International Developed and
Balanced Funds intend to account for such transactions in a manner they deem to
be appropriate, the Internal Revenue Service might not accept such treatment.
If it did not, the status of a Fund as a regulated investment company might be
affected. The Trust intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for a Fund to qualify as a
regulated investment company may limit the extent to which a Fund will be able
to engage in swap agreements.
The 30% limit on gains from the disposition of certain options, futures,
forward contracts, and swap agreements held less than three months and the
qualifying income and diversification requirements applicable to a Fund's assets
may limit the extent to which a Fund will be able to engage in transactions in
options, futures contracts, forward contracts, and swap agreements. 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
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.
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<PAGE>
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, receivables and payables will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income, and to certain other types of
income. Shareholders may be unable to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the Fund. The foreign tax
credit can be used to offset only 90% of the revised alternative minimum tax
imposed on corporations and individuals and foreign taxes generally are not
deductible in computing alternative minimum taxable income.
Original Issue Discount
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities may be treated as a dividend for Federal
income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. A
Fund
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<PAGE>
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,
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
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<PAGE>
and freely transferable. Shares do not have preemptive rights or subscription
rights. In liquidation of a Fund, each shareholder is entitled to receive his
pro rata share of the net assets of that Fund.
Performance Information
Performance information is computed separately for each class of a Fund's
shares. Each Fund may from time to time include the total return of each class
of its shares in advertisements or in information furnished to present or
prospective shareholders. As noted below, in accordance with SEC rules and
informal guidance, total return presentations for periods prior to the inception
date of a particular class of a Fund are based on the historical performance of
an older class of the Fund (specified below) restated to reflect the current
sales charges (if any) of the newer class, but not reflecting any higher
operating expenses such as distribution and servicing fees and administrative
fees associated with the newer class. All other things being equal, such higher
expenses would have adversely affected (i.e., reduced) total return for the
newer classes (i.e., if they had been offered since the inception of the Fund)
by the amount of such higher expenses compounded over the relevant periods. The
Tax Exempt, Renaissance and Balanced Funds may from time to time include the
yield and total return of each class of their shares in advertisements or
information furnished to present or prospective shareholders. Each Fund may
from time to time include in advertisements the total return of each class (and
yield of each class in the case of the Tax Exempt and Balanced Funds) and the
ranking of those performance figures relative to such figures for groups of
mutual funds categorized by Lipper Analytical Services as having the same
investment objectives. Information provided to any newspaper or similar listing
of the Fund's net asset values and public offering prices will separately
present each class of shares. The Funds also may compute current distribution
rates and use this information in their Prospectuses and Statement of Additional
Information, in reports to current shareholders, or in certain types of sales
literature provided to prospective investors.
Calculation of Yield
Quotations of yield for certain of the Funds will be based on all
investment income per share (as defined by the SEC) during a particular 30-day
(or one month) period (including dividends and interest), less expenses accrued
during the period ("net investment income"), and are computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2[( a-b + 1)/6/ -1]
---
cd
where a = dividends and interest earned during the period,
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, Renaissance Fund and Tax Exempt Fund were as follows (Class D shares were
not offered during the period listed):
<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%
Tax Exempt Fund N/A N/A 4.31% 3.77% 3.76%
</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
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<PAGE>
shares. These factors, possible differences in the methods used in calculating
yield (and the tax exempt status of distributions for the Tax-Exempt Fund)
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 Tax Exempt Fund may advertise a tax equivalent yield of each class of
its shares, calculated as described above except that, for any given tax
bracket, net investment income of each class will be calculated using as gross
investment income an amount equal to the sum of (i) any taxable income of each
class of the Fund plus (ii) the tax exempt income of each class of the Fund
divided by the difference between 1 and the effective federal income tax rates
for taxpayers in that tax bracket. For example, taxpayers with the marginal
federal income tax rates indicated in the following table would have to earn the
tax equivalent yields shown in order to realize an after-tax return equal to the
corresponding tax-exempt yield shown.
<TABLE>
<CAPTION>
Filing Status Marginal tax rate* A tax-exempt yield of
is equivalent to a taxable yield of
Taxable income
Single (Married filing jointly) 3% 4% 5% 6% 7%
<S> <C> <C> <C> <C> <C> <C> <C>
$23,350 or less $39,000 or less 15% 3.53% 4.71% 5.88% 7.06% 8.24%
Over $23,350 but Over $39,000 but 28% 4.17% 5.56% 6.94% 8.33% 9.72%
not over $56,550 not over $94,250
Over $56,550 but Over $94,250 but 31% 4.35% 5.80% 7.25% 8.70% 10.14%
not over $117,950 not over $143,600
Over $117,950 but Over $143,600 but 36% 4.69% 6.25% 7.81% 9.38% 10.94%
not over $256,500 not over $256,500
Over $256,500 Over $256,500 39.6% 4.97% 6.62% 8.28% 9.93% 11.59%
</TABLE>
- -------------------
* These marginal tax rates do not take into account the effect of the phaseout
of itemized deductions and personal exemptions.
As is shown in the above table, the advantage of tax-exempt investing
becomes more advantageous to an investor as his or her marginal tax rate
increases.
The Trust, in its advertisements, may refer to pending legislation from
time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time
in the future, yields and total return may be higher or lower than past yields
and there can be no assurance that any historical results will continue.
Calculation of Total Return
Quotations of average annual total return for a Fund or class will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, five, and ten
years (up to the life of the Fund), calculated pursuant to the following
formula: P (1 + T)/n/ = ERV (where P = a hypothetical initial payment of
$1,000, T = the average annual total return, n = the number of years, and ERV =
the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). Except as noted below, all total return figures
reflect the deduction of a proportional share of Fund or class expenses on an
annual basis, and assume that (i) the maximum sales load (or other charges
deducted from payments) is deducted from the initial $1,000 payment and that the
maximum contingent deferred sales charge, if any, is deducted at the times, in
the amounts, and under the terms disclosed in the Prospectuses and (ii) all
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. Any such information would be accompanied by
standardized total return information.
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<PAGE>
The table below sets forth the average annual total return of certain
classes of shares of the following Funds for the periods ended December 31,
1997. As noted below, consistent with SEC rules and informal guidance, total
return presentations for periods prior to the inception date of a particular
class are based on the historical performance of Institutional Class shares
restated to reflect the current sales charges (if any) of the newer class, but
not reflecting any higher operating expenses such as 12b-1 distribution and
servicing fees, which may be paid by all classes except the Institutional Class
(at a maximum rate of 1.00% per annum), and the higher administrative fee
charges associated with Class A, Class B and Class C shares (a maximum
differential of .15% per annum). All other things being equal, such higher
expenses would have adversely affected (i.e., reduced) total return for the
newer classes (i.e., if they had been offered since the inception of the Fund)
by the amount of such higher expenses, compounded over the relevant period.
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% 17.67% 17.60% 11/30/94
Class A 23.71% 16.44% 16.72% 1/17/97
Class B 24.99% 17.39% 17.57% 1/17/97
Class C 28.97% 17.60% 17.57% 1/17/97
- --------------------------------------------------------------------------------------
Value Institutional 26.21% 18.69% 17.86% 12/30/91 12/30/91
Administrative 26.20% 18.69% 17.86% 1/17/97
Class A 18.80% 17.27% 16.70% 1/17/97
Class B 19.85% 18.23% 17.67% 1/17/97
Class C 23.78% 27.77% 17.66% 1/17/97
- --------------------------------------------------------------------------------------
Small-Cap Institutional 35.02% 18.86% 19.14% 10/1/91 10/1/91
Value Administrative 34.70% 18.73% 19.03% 11/1/95
Class A 27.09% 17.43% 18.01% 1/17/97
Class B 28.55% 18.40% 18.95% 1/17/97
Class C 32.57% 18.60% 18.95% 1/17/97
- --------------------------------------------------------------------------------------
Capital Institutional 34.23% 21.34% 20.04% 3/8/91 3/8/91
Appreciation Administrative 34.01% 21.27% 19.99% 1/17/97
Class A 26.37% 19.88% 19.01% 1/17/97
Class B 27.84% 20.90% 19.88% 1/17/97
Class C 31.82% 21.08% 19.88% 1/17/97
- --------------------------------------------------------------------------------------
Mid-Cap Institutional 34.17% 20.76% 19.92% 8/26/91 8/26/91
Growth Administrative 33.86% 20.57% 19.77% 11/30/94
Class A 26.29% 19.31% 18.80% 1/17/97
Class B 27.73% 20.31% 19.74% 1/17/97
Class C 31.73% 20.50% 19.74% 1/17/97
- --------------------------------------------------------------------------------------
Micro-Cap Institutional 36.69% N/A 25.01% 6/25/93 6/25/93
Growth Administrative 36.37% N/A 24.89% 4/1/96
- --------------------------------------------------------------------------------------
Small-Cap Institutional 26.72% 17.68% 22.89% 1/7/91 1/7/91
Growth Administrative 27.05% 18.04% 22.89% 9/27/95
- --------------------------------------------------------------------------------------
Enhanced Institutional 30.85% 17.07% 16.11% 2/11/91 2/11/91
Equity Administrative 30.69% 17.04% 16.09% 1/17/97
- --------------------------------------------------------------------------------------
</TABLE>
68
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Emerging Institutional -2.01% N/A 5.82% 6/1/93 6/1/93
Markets Administrative -2.26% N/A 5.60% 11/1/94
Class A -7.71% N/A 4.45% 1/17/97
Class B -7.86% N/A 5.23% 1/17/97
Class C -3.98% N/A 5.59% 1/17/97
- --------------------------------------------------------------------------------------
International Institutional 1.92% N/A 8.20% 6/8/93 6/8/93
Developed Administrative 1.63% N/A 8.02% 11/30/94
Class A -4.08% N/A 6.78% 1/17/97
Class B -4.09% N/A 7.63% 1/17/97
Class C -0.11% N/A 7.97% 1/17/97
- --------------------------------------------------------------------------------------
Balanced Institutional 21.93% 13.03% 13.64% 6/25/92 6/25/92
Administrative 21.93% 13.03% 13.64% 6/25/92
Class A 14.67% 11.65% 12.39% 1/17/97
Class B 15.59% 19.39% 13.32% 1/17/97
Class C 19.68% 12.80% 13.44% 1/17/97
- --------------------------------------------------------------------------------------
Core Equity Institutional 25.32% N/A 23.61% 12/28/94 12/28/94
Administrative 24.93% N/A 23.36% 5/31/95
- --------------------------------------------------------------------------------------
Mid-Cap Institutional 16.22% N/A 21.46% 12/28/94 12/28/94
Equity Administrative 16.14% N/A 21.43% 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, consistent with SEC rules and informal guidance, Class A,
Class B, Class C and Administrative Class total return presentations for
periods prior to the Inception Date of a particular class reflect the prior
performance of Institutional Class shares of the Fund adjusted to reflect the
actual sales charges (none in the case of the Administrative Class) of the
newer class. The adjusted Institutional Class performance does not, however,
reflect the higher Fund operating expenses applicable to Class A, Class B,
Class C, and Administrative Class shares, such as 12b-1 distribution and
servicing fees, which may be paid by all classes except the Institutional
Class (at a maximum rate of 1.00% per annum), and the higher administrative
fee charges associated with Class A, Class B and Class C shares (a maximum
differential of .15% per annum). All other things being equal, such higher
expenses would have adversely affected (i.e., reduced) total return for the
newer classes by the amount of such higher expenses, compounded over the
relevant period.
The table below sets forth the average annual total return of 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 the
periods ended December 31, 1997. The table presents total return information
from the inception of the PAF predecessor series through December 31, 1997.
Consistent with SEC rules and informal guidance, total return presentations for
periods prior to the inception date of a particular class are based on the
historical performance of Class A or Class C shares (the particular class used
in each case is noted below) restated to reflect the current sales charges (if
any) of the newer class, but not reflecting possibly lower operating expenses
such as 12b-1 distribution and servicing fees or lower administrative fee
charges associated with the newer class.
69
<PAGE>
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 28.44% 19.31% N/A 13.81% 4/18/88 2/1/91
Class B 29.85% 19.32% N/A 13.88% 5/22/95
Class C 33.90% 19.77% N/A 13.84% 4/18/88
Institutional 35.92% 20.67% N/A 20.40% 1/17/97
Administrative 35.92% 20.67% N/A 20.40% 1/17/97
- -------------------------------------------------------------------------------------------------------
Growth Class A 16.01% 14.20% 15.71% 16.59% 2/24/84 10/26/90
Class B 16.88% 14.19% 15.78% 16.63% 5/23/95
Class C 20.84% 14.64% 15.77% 16.59% 2/24/84
- -------------------------------------------------------------------------------------------------------
Target Class A 9.97% 17.02 N/A 17.13% 12/17/92 12/17/92
Class B 10.44% 17.40 N/A 17.56% 5/22/95
Class C 14.44% 17.44 N/A 17.55% 12/17/92
- -------------------------------------------------------------------------------------------------------
Opportunity Class A -9.32% 13.85% 19.17% 17.51% 2/24/84 12/17/90
Class C -5.71% 14.56% 19.25% 17.56% 2/24/84
- -------------------------------------------------------------------------------------------------------
Innovation Class A 3.03% N/A N/A 22.49% 12/22/94 12/22/94
Class B 3.17% N/A N/A 23.64% 5/22/95
Class C 7.10% N/A N/A 23.84% 12/22/94
Institutional 9.03% N/A N/A 24.80% 1/17/97
Administrative 9.03% N/A N/A 24.80% 1/17/97
- -------------------------------------------------------------------------------------------------------
International** Class A -3.01% 6.49% 6.54% 6.19% 8/25/86 2/1/91
Class B -3.15% 6.48% 6.59% 6.23% 5/22/95
Class C 0.85% 6.91% 6.59% 6.25% 8/25/86
- -------------------------------------------------------------------------------------------------------
Precious Class A -50.47% -4.01% N/A -5.80% 10/10/88 2/1/91
Metals** Class B -50.64% -4.40% N/A -5.74% 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
then been in effect.
*** With the exception of the Target Fund and Innovation Fund, Class A,
Class B, Class C, Institutional Class and Administrative Class total return
presentations for the Funds listed for periods prior to the Inception Date
of the particular class reflect the prior performance of Class C shares of
the former relevant PAF Fund adjusted to reflect the actual sales charges
(or no sales charges in the case of Administrative Class and
70
<PAGE>
Institutional Class shares) of the newer class. Consistent with SEC rules
and informal guidance, the adjusted performance does not, however, reflect
possibly different operating expenses, such as lower 12b-1 distribution and
servicing fees or lower administrative fee charges associated with the
newer class. For the Target (for Class B only) and Innovation Funds, (i)
Institutional Class and Administrative Class total return presentations for
periods prior to the Inception Date of a particular class reflect the prior
performance of Class A shares of the former PAF Fund adjusted in the manner
described above and (ii) Class B total return presentations for periods
prior to the Inception Date of that class reflect the prior performance of
Class C shares of the former PAF Fund adjusted in the manner described
above. Note also that, prior to January 17, 1997, Class A, Class B and
Class C shares of the former PAF Funds were subject to a variable level of
expenses for such services as legal, audit, custody and transfer agency
services. As described in the 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 should adversely affect future total
return performance for these Funds compared to historical periods.
Performance information for a Fund may also be compared to: (i) the
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Morgan Stanley Capital International EAFE (Europe, Australasia, Far
East) Index, the Morgan Stanley Capital International Emerging Markets Free
Index, the International Finance Corporation Emerging Markets Index, the Baring
Emerging Markets Index, or other unmanaged indexes that measure performance of a
pertinent group of securities; (ii) other groups of mutual funds tracked by
Lipper Analytical Services ("Lipper"), a widely used independent research firm
which ranks mutual funds by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications, or persons who
rank mutual funds on overall performance or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Funds. Unmanaged indexes (i.e., other than Lipper)
generally do not reflect deductions for administrative and management costs or
expenses. The Adviser and any of the Portfolio Managers may also report to
shareholders or to the public in advertisements concerning the performance of
the Adviser and/or the Portfolio Managers as advisers to clients other than the
Trust, and on the comparative performance or standing of the Adviser and/or the
Portfolio Managers in relation to other money managers. Such comparative
information may be compiled or provided by independent ratings services or by
news organizations. Any performance information, whether related to the Funds,
the Adviser or the Portfolio Managers, should be considered in light of the
Funds' investment objectives and policies, characteristics and quality of the
Funds, and the market conditions during the time period indicated, and should
not be considered to be representative of what may be achieved in the future.
The total return of each class (and yield of each class in the case of
the Tax Exempt, Renaissance and Balanced Funds) may be used to compare the
performance of each class of a Fund's shares against certain widely acknowledged
standards or indexes for stock and bond market performance, against interest
rates on certificates of deposit and bank accounts, against the yield on money
market funds, against the cost of living (inflation) index, and against
hypothetical results based on a fixed rate of return.
The S&P's Composite Index of 500 Stocks (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 385 industrial, 15 transportation, 45 utilities and 55
financial services concerns. The S&P 500 represents about 77% of the market
value of all issues traded on the New York Stock Exchange.
The S&P's 400 Mid-Cap Index (the "S&P 400 Mid-Cap Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 400 stocks of companies whose capitalization range from $100 million to
over $5 billion and which represent a wide range of industries. As of
71
<PAGE>
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 December 31,
1996, the U.S. equity market capitalization represented approximately 35% 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 1972 through 1996 (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.
Consumer Price
Period S&P 500 Treasury Bills Index
- ------ ------- -------------- --------------
1972 18.9 3.8 3.4
1973 -14.7 6.9 8.8
72
<PAGE>
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
- -------------------------------------------------------------------------------
Cumulative Return
1972-1996 1,826.8% 458.5% 285.9%
- -------------------------------------------------------------------------------
Average Annual Return
1972-1996 12.6% 7.1% 5.6%
- -------------------------------------------------------------------------------
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.
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, 1996 (as well as a
cumulative return and average annual return for this period) for stocks of
medium-sized companies (based on the Standard & Poor's Mid-Cap Index), stocks
of small companies (based on the Russell 2000 Index) and stocks of larger
companies (based on the S&P 500).
73
<PAGE>
Small Mid-Sized Large
Period Companies Companies Companies
- ------ --------- --------- ---------
1981 (2/28 -12/31) 1.8 10.6 -2.5
1982 25.0 22.7 21.4
1983 29.1 26.1 22.5
1984 -7.3 1.2 6.3
1985 31.1 36.0 32.2
1986 5.7 16.2 18.5
1987 -8.8 -2.0 5.2
1988 24.9 20.9 16.8
1989 16.2 35.6 31.5
1990 -19.5 -5.1 -3.2
1991 46.1 50.1 30.5
1992 18.4 11.9 7.7
1993 18.9 14.0 10.1
1994 -1.8 -3.6 1.3
1995 28.4 30.9 37.6
1996 16.5 19.2 22.9
- --------------------------------------------------------------------------------
Cumulative Return
2/28/81-12/31/96 579.7% 1096.3% 901.3%
- --------------------------------------------------------------------------------
Average Annual Return
2/28/81-12/31/96 12.9% 17.0% 15.7%
- --------------------------------------------------------------------------------
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 1972 through 1996 (as well as
cumulative return and average annual return for that 25 year period) for an all-
stock portfolio (using the S&P 500), an all-bond portfolio (using the Salomon
Brothers Long Term Corporate Bond Index), and for a hypothetical portfolio with
45% of its assets in stocks comprising the S&P 500, 45% in bonds comprising the
Salomon Brothers Long Term Corporate Bond Index and 10% in stocks comprising the
Morgan Stanley Capital International Gold Mining Index.
Stocks 45%
All All Bonds 45%
Period Stocks Bonds Gold Stocks 10%
- ------ ------ ----- ---------------
1972 19.0 7.3 15.5
1973 -14.7 1.1 4.2
1974 -26.5 -3.1 -10.9
1975 37.5 14.6 20.4
1976 23.8 18.6 15.0
1977 -7.2 1.7 .5
1978 6.5 0.00 3.4
1979 18.4 -4.2 21.3
1980 32.4 -2.6 19.3
1981 -4.9 -0.1 -6.0
1982 21.4 43.8 33.9
1983 22.5 4.7 12.0
1984 6.3 16.4 7.2
74
<PAGE>
1985 32.2 30.9 26.2
1986 18.5 19.8 18.5
1987 5.2 -0.02 6.6
1988 16.8 10.7 9.1
1989 31.5 16.2 26.4
1990 -3.2 6.8 -1.0
1991 30.5 19.9 21.8
1992 7.7 9.4 4.9
1993 10.1 13.2 23.5
1994 1.3 -5.8 -3.1
1995 37.4 27.2 29.0
1996 23.1 1.4 10.5
- --------------------------------------------------------------------------------
Cumulative Return
1972-1996 1819.9% 813.1% 1497.7%
- --------------------------------------------------------------------------------
Average Annual Return
1972-1996 12.6% 9.3% 11.7%
- --------------------------------------------------------------------------------
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 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
Start Public Private Start Public Private
Year College College Year College College
- ----- ------- ------- ----- ------- -------
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
Costs assume a steady increase in the annual cost of college of 7% per year from
a 1993-94 base year amount. Actual rates of increase may be more or less than 7%
and may vary.
In its advertisements and other materials, the Trust may compare the
returns over periods of time of investments in stocks, bonds and treasury bills
to each other and to the general rate of inflation. For example, the average
annual return of each during the 25 years from 1972 through 1996 was:
*Stocks: 12.5%
Bonds: 9.2%
75
<PAGE>
T-Bills: 7.0%
Inflation: 5.6%
*Returns of unmanaged indexes do not reflect past or future
performance of any of the Funds of PIMCO Funds: Multi-Manager Series.
Stocks is represented by Ibbotson's Common Stock Total Return Index. Bonds
are represented by Ibbotson's Long-term Corporate Bond Index. Treasury
bills are represented by Ibbotson's Treasury Bill Index and Inflation is
represented by the Cost of Living Index. These are all unmanaged indexes,
which can not be invested in directly. While Treasury bills are insured
and offer a fixed rate of return, both the principal and yield of
investment securities will fluctuate with changes in market conditions.
Source: Ibbotson, Roger G., and Rex A. Sinquefiled, Stocks, Bonds, Bill
and Inflation (SBBI), 1989, updated in Stocks, Bonds, Bills and Inflation
1996 Yearbook, Ibbotson Associates, Chicago. All rights reserved.
The Trust may also compare the relative historic returns and range of
returns for an investment in each of common stocks, bonds and treasury bills to
a portfolio that blends all three investments. For example, over the 25 years
from 1972 through 1996, 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 28.1% over the same period. The
average annual returns of each investment for each of the years from 1972
through 1996 is set forth in the following table.
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- ---- ------ ----- ------- --------- ---------
1972 18.98% 7.26% 3.84% 3.41% 11.26%
1973 -14.66% 1.14% 6.93% 8.80% -4.02%
1974 -26.47% -3.06% 8.00% 12.26% -10.21%
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%
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
76
<PAGE>
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:
Investment Annual Total Total
Period Contribution Contribution Saved
------ ------------ ------------ -----
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
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 1996:
% of Income for Individuals
Aged 65 Years and Older in 1996*
-------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
1996 43% 57%
* 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
77
<PAGE>
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.
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 February 28, 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 February 28, 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. 1,802,276.253 20.69%
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 ** 965,105.843 11.08%
A/C #22-39912
P.O. Box 92956
Chicago, Illinois 60675-2956
Santa Barbara Foundation 733,897.570 8.43%
15 East Carrillo Street
Santa Barbara, California 93101-2780
AM Castle & Company Employee P/S/P Equity Fund ** 720,865.381 8.28%
A/C #22-39919
P.O. Box 92956
Chicago, Illinois 60675-2956
Northern Trust Company as Trustee for 647,650.161 7.44%
Brush Wellman Inc.
P.O. Box 92956
Chicago, Illinois 60675-0001
Bank of America NT&SA as Trustee for 539,650.434 6.20%
Mazda Motor of America
P.O. Box 3577, Terminal Annex
Los Angeles, California 90051-1577
Administrative
- --------------
First Union National Bank ** 686,950.909 96.58%*
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. ** 254,785.089 37.41%*
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 69,961.411 10.27%
P.O. Box 3508
Salt Lake City, Utah 84110-3508
Merrill Lynch Pierce Fenner & Smith Inc. ** 34,591.275 5.08%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 64,001.993 9.92%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 82,458.004 7.73%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Value Fund
Institutional
- -------------
Pacific Life Insurance Company 1,944,112.986 39.68%*
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
The Northern Trust Company as Trustee for 895,215.208 18.27%
Great Lakes Chemical Corporation
P.O. Box 92956
Chicago, Illinois 00006-0690
CMTA-GMPP & Allied Workers Pension Trust 582,712.709 11.89%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
BAC Local 19 Pension Trust 354,552.947 7.24%
777 Davis Street
San Francisco, California 94126-2500
Pacific Life Foundation 276,282.067 5.64%
700 Newport Center Drive
Newport Beach, California 92660
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Value Fund
Institutional
- -------------
California Race Track Association 250,325.772 5.11%
P.O. Box 60014
Arcadia, California 91006-6014
Class A
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 159,968.115 12.45%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 443,144.113 20.54%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 583,976.070 10.56%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Small Cap Value Fund
Institutional
- -------------
Pacific Life Insurance Company 287,314.628 11.47%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
FTC & Co. Datalynx House Account ** 275,412.871 10.99%
P.O. Box 173736
Denver, Colorado 80217-3736
Trust Company of America ** 251,472.850 10.04%
P.O. Box 6503
Englewood, Colorado 80155
Lucile Packard Foundation for Children 220,202.390 8.79%
725 Welch Road
Palo Alto, California 94304
Pickles Investors, LLC 194,660,734 7.77%
4201 North 24th Street, Suite 120
Phoenix, AZ 85016
Donaldson Lufkin & Jenrette ** 136,046.330 5.43%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Small Cap Value Fund
Administrative
- --------------
First Union National Bank ** 484,826.039 81.83%*
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
Class A
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 304,493.408 11.34%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,346,101.877 30.81%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,540,712.153 26.46%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
FTC & Co.** 350,207.581 6.01%
Datalynx House Acct
P.O. Box 1731736
Denver, Colorado 80217-3736
PIMCO Capital Appreciation Fund
Institutional
- -------------
Donaldson Lufkin & Jenrette** 6,219,479.198 21.97%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Wendel & Co. A/C No. 571246 3,513,743.489 12.41%
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 ** 1,559,660.540 5.51%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Capital Appreciation Fund
Administrative
- --------------
First Union National Bank ** 881,097.893 32.50%*
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
Certain Employee (Fidelity) ** 880,407.426 32.48%*
100 Magetian KWIC
Covington, Kentucky 41015
New York Life Trust Company ** 320,591.290 11.83%
51 Madison Avenue, Room 117A
New York, New York 10010
National Financial Services Corporation for ** 275,442.739 10.16%
the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
The Northern Trust company as Trustee FBO 142,107.267 5.24%
OEA, Inc. Retirement Savings Plan
P.O. Box 92956
DV 2247126
Chicago, Illinois 60675
Class A
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 747,574.249 42.28%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
FTC & Co.** 173,031.324 9.79%
Datalynx House Acct
P.O. Box 1731736
Denver, Colorado 80217-3736
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 132,107.542 15.02%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 242,852.461 11.54%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Mid Cap Growth Fund
Institutional
- -------------
State Street Bank & Trust Company as Trustee for 1,421,531.485 8.18%
Dayton Hudson Retirement Savings Plan
One Enterprise Drive
North Quincy, Massachusetts 02171
Caremark International, Inc. 1,096,666.645 6.31%
c/o State Street Bank & Trust
1 Enterprise Drive
North Quincy, Massachusetts 02171-2126
Administrative
- --------------
Certain Employee (Fidelity) ** 728,638.743 50.26%*
100 Magellan KW1C
Covington, Kentucky 41015
National Financial Services Corporation for ** 306,726.864 21.16%
the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
First Union National Bank ** 116,243.977 8.02%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
Wells Fargo Bank as Trustee for 96,628.884 6.67%
ChoiceMaster
P.O. Box 9800
Calabasas, California 91302-9800
New York Life Trust Company 94,123.184 6.49%
51 Madison Avenue, Room 117A
New York, New York 10010
Class A
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 134,223.595 8.82%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 677,263.578 25.49%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Mid Cap Growth Fund
Class C
- --------
Merrill Lynch Pierce Fenner & Smith Inc. ** 851,225.064 17.37%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Micro Cap Growth Fund
Institutional
- -------------
Charles Schwab & Co., Inc.** 2,164,970.088 21.42%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Donald Lufkin & Jenrette** 1,289,272.417 12.75%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Bost & Co. A/C DOMF 8526562 1,072,912.358 10.61%
Dominion Resources
Attn: Mutual Fund Operations
A. O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
University of Southern California 1,020,412.993 10.09%
Treasurer's Office
University Park, BKS 402
Los Angeles, California 90089-2541
Mac & Co. A/C OBRF 3331012 FBO 681,890.401 6.75%
Oberlin College
Attn: Mutual Fund Operations
A. O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
St. Paul Foundation 605,854.422 5.99%
P.O. Box 64010
St. Paul, Minnesota 55164-0010
Administrative
- --------------
Northern Trust as Trustee for 147,153.881 77.62%*
Sunday School Board
P.O. Box 92956
Chicago, Illinois 60675
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Micro Cap Growth Fund
National Financial Services Corporation for ** 24,276.346 12.81%
the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
New York Life Trust Company ** 15,522.220 8.19%
51 Madison Avenue, Room 117A
New York, New York 10010
PIMCO Small Cap Growth Fund
Institutional
- -------------
The Jewish Federation of 972,699.835 29.53%*
Metropolitan Chicago
One South Franklin Street, Room 625
Chicago, Illinois 60606-4609
ESOR & Co. ** 453,722.992 13.77%
Associated Bank Green Bay
P.O. Box 19006
Green Bay, Wisconsin 54307-9006
Pacific Life Insurance Company 379,247.066 11.51%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Auburn Theological Seminary 334,745.959 10.16%
3041 Broadway
New York, New York 10027-5710
Bessemer Trust Company for ** 210,399.696 6.39%
Naidot & Co.
100 Woodbridge Center Drive
Woodbridge, New Jersey 07095
Employees Retirement System of Jersey City 168,181.206 5.11%
325 Palisade Avenue
Jersey City, New Jersey 07307-1714
Administrative
- --------------
Cody Kondo 970.430 6.82%
354 Sturbridge Road
Wyckoff, New Jersey 07481
Gary P. Dukewits 752.783 5.29%
6321 South Farm Road 189
Rogersville, Missouri 65742
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Small Cap Growth Fund
Administrative
- --------------
John Chandler 903.609 6.35%
12414 Barbury Road
Philadelphia, Pennsylvania 19154
PIMCO Core Equity Fund
Institutional
- -------------
Pacific Life Foundation 37,651.560 32.29%*
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 34,200.327 29.33%*
P.O. Box 60014
Arcadia, California 91006-6014
Mac & Co. A/C #080-435 19,879.614 17.05%
Fine Quaker L.P.
A. O. Box 3198
Mutual Fund Operations
Pittsburgh, Pennsylvania 15230-3198
Administrative
- --------------
The Bank of New York as Trustee for 5,437,843.230 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 55.69%*
700 Newport Center Drive
Newport Beach, California 92660
Pacific Life Foundation 97,773.532 14.43%
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 85,001.294 13.08%
P.O. Box 60014
Arcadia, California 91006-6014
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Mid Cap Equity Fund
Institutional
- -------------
IFTC as Custodian for 81,186.220 12.50%
John W. Barnum
5175 Tilden Street, N.W.
Washington, D.C. 20016-1961
PIMCO Enhanced Equity Fund
Institutional
- -------------
Pacific Life Insurance Company 1,522,647.021 50.24%*
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
CMTA-GMPP & Allied Workers Pension 457,174.781 15.09%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
BAC Local 19 Pension Trust Fund 277,910.742 9.17%
777 Davis Street
San Francisco, California 94126-2500
Pacific Life Foundation 216,691.791 7.15%
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 196,333.996 6.48%
P.O. Box 60014
Arcadia, California 91006-6014
Administrative
- --------------
Susan Johnson 22,246.819 5.45%
490 Celtic Court
Colorado Springs, Colorado 80921
PIMCO Emerging Markets Fund
Institutional
- -------------
Charles Schwab & Co., Inc. - Reinvest ** 768,017.091 29.84%*
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Pacific Life Insurance Company 575,190.664 22.35%
700 Newport Center Drive ,
Newport Beach, California 92660
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Emerging Markets Fund
Institutional
- -------------
Pacific Life Insurance Company 407,491.280 15.83%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Donaldson Lufkin & Jenrette** 207,319.165 8.06%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Administrative
- --------------
Susan Johnson 13,397.052 17.39%
490 Celtic Court
Colorado Springs, Colorado 80921
Class A
- -------
RPSS TR IRA 1,785.714 8.24%
Dale V. Kelman
5100 Poplar Avenue, Suite 3105
Memphis, Tennessee 38137-3101
Donald Lufkin & Jenrette** 1,544.734 7.12%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Howard Nusbaum Trust 1,530.303 7.06%
Howard Nusbaum DDS
Profit Sharing Plan
1145 Bordentown Avenue
Parlin, New Jersey 08859-1851
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,153.000 5.32%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Raymond James & Assoc Inc. Custodian 1,118.360 19.68%
Doty R. Nicolaus
2208 Ivy TRCE
Birmingham, Alabama 35243-4639
Donald Lufkin & Jenrette** 1,203.209 5.32%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
</TABLE>
89
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Emerging Markets Fund
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc. ** 2,475.000 6.46%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PAF Sales Inc. 2,347.418 6.12%
Profit Sharing Plan
P.O. Box 307
Scarborough, New York 10510-0807
Carolyn Lecompte 2,180.233 5.69%
231 Lyles Street
Houma, Louisiana
Class C
- -------
Raymond James & Assoc Inc. Custodian 24,940.178 24.00%
James F. Riopelle IRA
1 Foxhill Road
Englewood, Colorado 80110-4923
Merrill Lynch Pierce Fenner & Smith Inc.** 19,598.000 18.86%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO International Developed Fund
Institutional
- -------------
Pacific Life Insurance Company 1,467,904.784 17.49%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc. - Reinvest ** 1,149,098.973 13.69%
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 13.50%
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 11.09%
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 768,019.009 9.15%
Nissan Motor Mfg. Corp. U.S.A
983 Nissan Drive
Smyrna, Tennessee 37167-4400
FTC & Co. Datalynx House Account ** 750,745.089 8.94%
P.O. Box 173736
Denver, Colorado 80217-3736
Administrative
- --------------
FTC & Co. - Attn: Datalynx #165 ** 13,068.116 6.78%
First Trust (Multi Financial Group)
P.O. Box 173736
Denver, Colorado 80217-3736
Class A
- -------
American National Bank TR 71,068.200 35.38%*
FBO Emerald Investments
40 Skokie Boulevard, Suite 105
Northbrook, Illinois 60062-1614
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 23,742.000 13.74%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 17,510.076 5.21%
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. 1,236,869.681 35.82%*
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 763,005.072 22.10%
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 614,687.378 17.80%
21718 South Alameda Street
Long Beach, California 90810-0351
Bank of America as Trustee for 316,121.708 9.16%
The Music Center Operating Co.
P.O. Box 2788
Los Angeles, California 90051-0788
The Northern Trust Company as Trustee for 276,072.404 8.00%
Ameron 401(k)
P.O. Box 92956
Chicago, Illinois 60675
Class A
- -------
Merrill Lynch Trust Co. as Trustee FBO ** 406,855.493 69.75%*
Qualified Retirement Plans
265 Davidson Avenue
Somerset, New Jersey 08873-4120
Class B
- -------
MLPF&S for the sole benefit of its Customers ** 150,786.328 31.05%*
4800 Deer Lake Drive East, Floor 3
Jacksonville, Florida 32246-6484
Class C
- -------
MLPF&S for the sole benefit of its Customers ** 65,466.975 13.84%
4800 Deer Lake Drive East, Floor 3
Jacksonville, Florida 32246-6484
PIMCO Target Fund
Class A
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,867,778.604 17.19%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
J.C. Bradford & Company FBO 830,870.113 7.65%
RCIP Limited Partnership I
330 Commerce Street
Nashville, Tennessee 37201-1899
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,840,560.761 35.39%*
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.** 19,121,755.440 28.02%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Precious Metals Fund
Class A
- -------
Nationsbanc Montgomery Secs 260,130.747 16.16%
Attn: Mutual Funds - 4th Floor
600 Montgomery Street
San Francisco, California 94111
Woodland Investments Limited 230,594.263 14.33%
c/o Lyle Schlyer
30101 Agoura Ct., Suite 4311
Agoura Hills, California 91031-4300
J.C. Bradford & Company FBO 152,443.750 9.47%
RCIP Limited Partnership I
330 Commerce Street
Nashville, Tennessee 37201-1899
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 407,537.407 14.46%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Renaissance Fund
Institutional
- -------------
Richard Fiskind, Gregory A. Fiskind Co. TTEES 42,768.781 100.00%*
of the Seymour S. Finkind Martical Trust FBO
Selma Fiskind
One Station Place, 8th Floor
Stamford, Connecticut 06902
Class A
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 313,876.243 9.44%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 845,548.843 23.05%
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 C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 3,556,753.117 15.45%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Tax Exempt Fund
Class A
BT Alex Brown Incorporated 162,400.998 30.13%*
P.O. Box 1346
Baltimore, Maryland 21203
Merrill Lynch Pierce Fenner & Smith Inc.** 142,131.425 26.37%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Nationsbanc Montgomer Secs. 39,745.628 7.37%
Attn: Mutual Funds - 4th Floor
600 Montgomery Street
San Francisco, California 94111
Joseph R. White 33,033.610 6.13%
P.O. Box 572
Waltham, Massachusetts 02254-0572
Class B
- -------
Dain Rauscher Inc. FBO 48,167.954 15.87%
K. K. Kinsey Trustee
2801 NE 14th Street
Ft. Lauderdale, Florida 33304
Merrill Lynch Pierce Fenner & Smith Inc.** 45,676.769 15.05%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PaineWebber FBO 17,783.885 5.86%
William H. Hoehn
2906 S.W. 130th Terr.
Archer, Florida 32618-2124
Robert A. Fish & Susan Beville Fish Co-Trustees 17,654.543 5.82%
The Fish Family Trust
300 Tolak Road
Aptos, California 95003-2737
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO Tax Exempt Fund
Class B
- -------
Prudential Securities FBO 40,396.587 13.31%
Ruth G. Battel
6 Willowbank Ct.
Mahawah, New Jersey 07430-2909
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 380,676.855 12.04%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Growth Fund
Class A
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 369,512.144 5.98%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 803,982.137 30.82%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 8,248,518.647 12.99%
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.** 1,515,100.237 20.77%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 5,351,044.157 26.98%*
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
95
<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.** 429,779.850 13.74%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 754,389.958 22.85%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,344,094.050 14.50%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO International Fund
Class A
- -------
PaineWebber FBO 129,915.639 10.56%
Bakerrubine LLC
575 Madison Avenue, 10th Floor
New York, New York 10022-2511
Marin Sector Limited 129,259.964 10.51%
A Partnership
150 Great Neck Road
Great Neck, New York 11021-3309
Merrill Lynch Pierce Fenner & Smith Inc.** 118,301.441 9.62%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
American National Bank TR 70,725.703 5.75%
FBO Emerald Investments
40 Skokie Boulevard, Suite 105
Northbrook, Illinois 60062-1614
Class B
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 152,146.798 22.14%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
PIMCO International Fund
Class C
- -------
Merrill Lynch Pierce Fenner & Smith Inc.** 1,674,720.957 15.37%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO International Growth Fund
Institutional
- -------------
Pacific Asset Management LLC 500,000.000 100.00%*
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, 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
Price Waterhouse LLP, 1055 Broadway, Kansas City, Missouri 64105,
serves as the independent public accountants for the Funds. Price Waterhouse LLP
provides audit services, accounting assistance, and consultation in connection
with SEC filings. As noted under "Financial Highlights" in the Class A, B and C
Prospectus, the
97
<PAGE>
Renaissance, Growth, Target, Opportunity, International, Innovation, Precious
Metals and Tax Exempt 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.
98
<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.
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<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
100
<PAGE>
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC- debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This 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.
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<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.
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<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
(1) Part A
Financial Highlights.
(2) Part B
(a) Financial statements dated as of June 30, 1997 are
incorporated by reference in the Statement of Additional
Information from the Funds' Annual Reports dated as of June
30, 1997 and include the following:
Schedule of Investments
Financial Highlights
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Report of Independent Accountants.
(b) Exhibits (the number of each exhibit relates to the exhibit
designation in Form N-1A):
(1) Form of Second Amendment and Restated Agreement and Declaration
of Trust (2)
(2) Form of First Amended and Restated Bylaws (4)
<PAGE>
(3) Not Applicable
(4) (a) Article III (Shares) and Article V (Shareholders' Voting
Powers and Meetings) of the Second amended and Restated
Agreement and Declaration of Trust (2)
(5) (b) Article 9 (Issuance of Shares Certificates) and Article 11
(Shareholders' Voting Powers and Meetings) of the First
Amended and Restated Bylaws (4)
(5) (a) (i) Form of Amended and Restated Investment Advisory
Agreement (4)
(ii) Form of Addendum to Amended and Restated Investment
Advisory Agreement to add PIMCO International Growth
Fund and PIMCO Tax-Managed Structured Emerging
Markets Fund (6)
(iii) Form of Addendum to Amended and Restated Investment
Advisory Agreement to add PIMCO Value 25 Fund, PIMCO
Hard Assets Fund, and PIMCO Tax-Efficient Equity Fund
to be filed by post-effective amendment
(iv) Form of Addendum to Amended and Restated Investment
Advisory Agreement to add PIMCO Funds Asset
Allocation Series - 90/10 Portfolio, PIMCO Funds
Asset Allocation Series - 60/40 Portfolio, and PIMCO
Funds Asset Allocation Series - 30/70 Portfolio is
filed herewith.
(b) (i) Form of Portfolio Management Agreement with Pacific
Investment Management Company (6)
(ii) Form of Portfolio Management Agreement, as amended,
with NFJ Investment Group (4)
(iii) Form of Addendum to Portfolio Management Agreement
with NFJ Investment Group to add PIMCO Value 25 Fund
and PIMCO Hard Assets Fund to be filed by post-
effective amendment.
(iv) Form of Portfolio Management Agreement, as amended,
with Cadence Capital Management (4)
(v) Form of Portfolio Management Agreement, as amended,
with Parametric Portfolio Associates (4)
(vi) Form of Addendum to Portfolio Management Agreement
with Parametric Portfolio Associates to add PIMCO
Tax-Managed Structured Emerging Markets Fund (6)
(vii) Form of Addendum to Portfolio Management Agreement
with Parametric Portfolio Associates to add PIMCO
Tax-Efficient Equity Fund to be filed by post-
effective amendment.
(viii) Form of Amended and Restated Portfolio Management
Agreement with Blairlogic Capital Management (4)
(ix) Form of Amended and Restated Portfolio Management
Agreement with Columbus Circle Investors (4)
(x) Form of Addendum to Portfolio Management Agreement
with Columbus Circle Investors to add PIMCO
International Growth Fund (6)
-2-
<PAGE>
(xi) Form of Portfolio Management Agreement with Van Eck
Associates Corporation (4)
(6) (a) Amended Distribution Contract (4)
(b) Form of Amended and Restated Distribution Contract (to add
Class D shares) (7)
(c) Form of Addendum to Distribution Contract to add PIMCO
International Growth Fund and PIMCO Tax-Managed Structured
Emerging Markets Fund (6)
(d) Form of Addendum to Distribution Contract to add PIMCO Value
25 Fund, PIMCO Hard Assets Fund, and PIMCO Tax-Efficient
Equity Fund to be filed by post-effective amendment.
(e) Form of Addendum to Distribution Contract to add PIMCO Funds
Asset Allocation Series - 90/10 Portfolio, PIMCO Funds Asset
Allocation Series - 60/40 Portfolio and PIMCO Funds Asset
Allocation Series - 30/70 Portfolio is filed herewith.
(7) Not Applicable
(8) (a) Form of Custody Agreement and Addenda (1)
(b) Form of Addendum to Custody Agreement (4)
(c) Form of Assignment of Custody Agreement (4)
(d) Form of Addendum to Custody Agreement (6)
(9) (a) Form of Amended Administration Agreement between the Trust
and PIMCO Advisors L.P. (4)
(b) Form of Amended and Restated Administration Agreement (to
include Class D shares) between the Trust and PIMCO Advisors
L.P. (7)
(c) Form of Administration Agreement between PIMCO Advisors L.P.
and Pacific Investment Management Company (4)
(d) Form of Amendment to Administration Agreement (to include
Class D shares) between PIMCO Advisors L.P. and Pacific
Investment Management Company to be filed by post-effective
amendment
(e) Form of Agency Agreement and Addenda (1)
(f) Form of Addendum to Agency Agreement (4)
(g) Form of Assignment of Agency Agreement (4)
(h) Form of Addendum to Agency Agreement (6)
-3-
<PAGE>
(i) Form of Transfer Agency Agreement with Shareholder
Services, Inc. (3)
(j) Form of Service Plan for Institutional Services Shares (6)
(k) Form of Administrative Services Plan for Administrative
Class Shares (4)
(10) Opinion and Consent of Counsel (6)
(11) (a) Consent of Price Waterhouse LLP (8)
(b) Consent and Opinion of Coopers & Lybrand LLP (6)
(12) Not Applicable
(13) Initial Capital Agreement (6)
(14) Not Applicable
(15) (a) Form of Distribution and Servicing Plan (Class A) (4)
(b) Form of Distribution and Servicing Plan (Class B) (4)
(c) Form of Distribution and Servicing Plan (Class C) (4)
(d) Form of Distribution Plan for Administrative Class Shares
(4)
(e) Form of Distribution Plan for Class D Shares included as
part of the Form of Amended and Restated Administration
Agreement included in Exhibit 9(b)
(16) Schedule of Computation of Performance (6)
(17) (a) Financial Data Schedules for fiscal year ended 6/30/97 (6)
(18) Form of Amended and Restated Multi-Class Plan (7)
-4-
<PAGE>
(19) (a) Powers of Attorney and Certificate of Secretary (1)
(b) Power of Attorney for E. Philip Cannon, Donald P. Carter,
Gary A. Childress, William D. Cvengros, John P. Hardaway,
Joel Segall, W. Bryant Stooks, Gerald M. Thorne, Richard L.
Nelson, Lyman W. Porter and Alan Richards
(5)
- -------------------
1 Included in Post-Effective Amendment No. 22 to the Registration Statement
on Form N-1A (File No. 33-36528), as filed on July 1, 1996.
2 Included in Definitive Proxy Statement (File No. 811-06161), as filed on
November 7, 1996.
3 Included in Post-Effective Amendment No. 33 to the Registration Statement
on Form N-1A of PIMCO Advisors Funds (File No. 2-87203), as filed on
November 30, 1995.
4 Included in Post-Effective Amendment No. 25 to the Registration Statement
on Form N-1A (File 33-36528), as filed on January 13, 1997.
5 Included in Post-Effective Amendment No. 27 to the Registration Statement
on Form N-1A (File 33-36528), as filed on October 10, 1997.
6 Included in Post-Effective Amendment No. 28 to the Registration Statement
on Form N-1A (File 33-36528), as filed on October 31, 1997.
7 Included in Post-Effective Amendment No. 30 to the Registration Statement
on Form N-1A (File 33-36528), as filed on March 13, 1998.
8 Included in Post-Effective Amendment No. 32 to the Registration Statement
on Form N-1A (File 33-36528), as filed on April 21, 1998.
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
-5-
<PAGE>
Item 26. Number of Holders of Securities.
As of April 15, 1998, the number of shareholders of each operational Fund
was as follows:
<TABLE>
<CAPTION>
Institutional Class Administrative Class Class A Class B Class C
Number of Number of Number of Number of Number of
Fund Record Holders Record Holders Record Holders Record Holders Record Holders
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Income Fund 106 8 261 714 1,327
- ---------------------------------------------------------------------------------------------------------------------------------
Value Fund 40 310 1,175 2,305 6,743
- ---------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Fund 85 316 2,844 5,955 8,236
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 164 325 844 1,417 3,571
- ---------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund 150 327 2,159 4,459 9,079
- ---------------------------------------------------------------------------------------------------------------------------------
Micro-Cap Growth Fund 87 5 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Small-Cap Growth Fund 46 162 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Core Equity Fund 9 314 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund 11 311 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Enhanced Equity Fund 19 311 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund 65 261 61 102 316
- ---------------------------------------------------------------------------------------------------------------------------------
International Developed
Fund 54 361 87 177 723
- ---------------------------------------------------------------------------------------------------------------------------------
Balanced Fund 20 0 113 236 461
- ---------------------------------------------------------------------------------------------------------------------------------
Renaissance Fund 1 0 2,603 3,713 23,305
- ---------------------------------------------------------------------------------------------------------------------------------
Growth Fund 0 0 8,848 4,842 96,349
- ---------------------------------------------------------------------------------------------------------------------------------
Target Fund 0 0 10,167 6,652 75,241
- ---------------------------------------------------------------------------------------------------------------------------------
Opportunity Fund 0 0 11,779 N/A 38,341
- ---------------------------------------------------------------------------------------------------------------------------------
Innovation Fund 0 0 5,530 6,691 18,917
- ---------------------------------------------------------------------------------------------------------------------------------
International Fund 0 0 1,423 936 18,161
- ---------------------------------------------------------------------------------------------------------------------------------
Precious Metals Fund 0 0 585 567 3,762
- ---------------------------------------------------------------------------------------------------------------------------------
Tax Exempt Fund 0 0 116 80 1,741
- ---------------------------------------------------------------------------------------------------------------------------------
International Growth Fund 2 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 27. Indemnification.
Reference is made to Article VIII, Section 1 of the Registrant's Second
Amended and Restated Agreement and Declaration of Trust, which is incorporated
by reference herein.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to trustees, officers and
controlling persons of the Registrant by the Registrant pursuant to the Trust's
Second Amended and Restated Agreement and Declaration of Trust, its By-Laws or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers or controlling
persons of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustees, officers or controlling persons in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
-6-
<PAGE>
Item 28. Business and Other Connections of Investment Advisor and Portfolio
Managers.
Unless otherwise stated, the principal business address of each
organization listed in 800 Newport Center Drive, Newport Beach, CA 92660.
PIMCO Advisors L.P.
<TABLE>
<CAPTION>
Position
Name with Advisor Other Affiliations
<S> <C> <C>
Walter E. Auch, Sr. Member of Management Management Consultant;
Board Director, Fort Dearborn
Fund, Shearson VIP Fund,
Shearson Advisors Fund,
Shearson TRAK Fund,
Banyan land Trust, Banyan
Land Fund II, Banyan
Mortgage Fund, Allied
Healthcare Products,
Inc., First Western Inc.,
DHR Group and Geotech
Industries.
David B. Breed Member of Management Director, Managing
Board Director and Chief
Executive Officer,
Cadence Capital
Management, Inc.;
Managing Director and
Chief Executive Officer,
Cadence Capital
Management.
Donald A. Chiboucas Member of Management Director, Columbus Circle
Board Investors Management,
Inc.; Managing Director,
Columbus Circle Investors.
</TABLE>
-7-
<PAGE>
William D. Cvengros Chief Executive Trustee and Chairman of
Officer and President, the Trust; Chief
Member of Management Executive Officer and
Board President, Value Advisors
LLC; Director, PIMCO
Funds Advertising Agency;
Director, President and
Chief Executive Officer,
Thomson Advisory Group,
Inc.
Walter B. Gerken Chairman and Member of Director, Mullin
Management Board Consulting Inc.;
Director, Executive
Services Corps. of
Southern California.
William H. Gross Member of Operating Director and Managing
Board and Equity Board Director, PIMCO
Management, Inc.;
Managing Director,
Pacific Investment
Management Company;
Senior Vice President,
PIMCO Funds: Pacific
Investment Management
Series, PIMCO Variable
Insurance Trust; Director
and Vice President,
StocksPLUS Management,
Inc.; Member of PIMCO
Partners LLC.
John L. Hague Member of Operating Managing Director,
Board Pacific Investment
Management Company;
Director and Managing
Director, PIMCO
Management, Inc.; Member
of PIMCO Partners LLC.
-8-
<PAGE>
Brent R. Harris Member of Management Director and Managing
Board Director, PIMCO
Management, Inc.;
Managing Director,
Pacific Investment
Management Company;
Director and Vice
President, StocksPLUS
Management, Inc.;
Chairman of the Board and
Trustee, PIMCO Funds:
Pacific Investment
Management Series, PIMCO
Variable Insurance Trust
and PIMCO Commercial
Mortgage Securities
Trust, Inc.; Member of
PIMCO Partners LLC.
Donald R. Kurtz Member of Management Formerly, Vice President
Board of Internal Asset
Management, General
Motors Investment
Management Corp.;
Director, Thomson
Advisory Group L.P.
George A. Long Member of Management Chairman and Chief
Board Executive Officer of
Oppenheimer Capital.
James F. McIntosh Member of Management Executive Director, Allen
Board Matkins, Leck, Gamble &
Mallory LLP. Formerly,
Director, Pacific
Investment Management
Company.
Kenneth H. Mortenson Member of Management Managing Director of
Board Oppenheimer Capital.
-9-
<PAGE>
William F. Podlich, III Member of Management Director and Managing
Board Director, PIMCO
Management, Inc.;
Managing Director,
Pacific Investment
Management Company; Vice
President, PIMCO
Commercial Mortgage
Securities Trust, Inc.;
Member of PIMCO Partners
LLC.
Glenn S. Schafer Member of Management President and Director,
Board Pacific Mutual Holding
Company, Pacific
LifeCorp, Pacific Life
Insurance Company,
Pacific Financial Asset
Management Corp.,
PMRealty Advisors, Inc.;
Director, Pacific Mutual
Distributors, Inc.,
Mutual Service
Corporation, United
Planners' Group, Inc.,
Thomson Advisory Group.
Thomas C. Sutton Member of Management Chairman, Chief Executive
Board Officer and Director,
Pacific Mutual Holding
Company, Pacific
LifeCorp, Pacific Life
Insurance Company,
Pacific Financial Asset
Management Corp.;
Director, Pacific Mutual
Distributors, Inc.,
Mutual Service
Corporation, United
Planners' Group, Inc.,
PMRealty Advisors, Inc.
-10-
<PAGE>
William S. Thompson, Jr. Member of Management Director, Managing
Board; Chairman, Director and Chief
Executive Committee. Executive Officer, PIMCO
Management, Inc.; Chief
Executive Officer and
Managing Director,
Pacific Investment
Management Company;
Member, President and
Chief Executive Officer,
PIMCO Partners LLC;
Director and President,
StocksPLUS Management,
Inc.; Vice President,
PIMCO Variable Insurance
Trust, PIMCO Funds:
Pacific Investment
Management Series, and
PIMCO Commercial Mortgage
Securities Trust, Inc.;
Director, Thomson
Advisory Group, Inc.
-11-
<PAGE>
Robert M. Fitzgerald Senior Vice President Chief Financial Officer
and Chief Financial and Treasurer, PIMCO
Officer Funds Distributors, LLC,
Columbus Circle
Investors, Columbus
Circle Investors
Management, Inc., Cadence
Capital Management, Inc.,
NFJ Investment Group, NFJ
Management, Inc.,
Parametric Portfolio
Associates, Parametric
Management, Inc., PIMCO
Management, Inc., Pacific
Investment Management
Company, and StocksPLUS
Management, Inc.; Chief
Financial Officer and
Assistant Treasurer,
Cadence Capital
Management; Senior Vice
President and Chief
Financial Officer, Value
Advisors LLC; Chief
Financial Officer,
Columbus Circle Trust
Company; Chief Financial
Officer and Treasurer,
PIMCO Funds Advertising
Agency; Senior Vice
President, Chief
Financial Officer and
Treasurer, Thomson
Advisory Group, Inc.
Benjamin L. Trosky Member of Management Managing Director,
Board Pacific Investment
Management Company;
Director and Managing
Director, PIMCO
Management, Inc.; Senior
Vice President, PIMCO
Commercial Mortgage
Securities Trust, Inc.;
Member of PIMCO Partners
LLC.
-12-
<PAGE>
Kenneth M. Poovey Chief Operating Executive Vice President
Officer, General and General Counsel,
Counsel and Executive Value Advisors LLC and
Vice President Thomson Advisory Group,
Inc.
Stephen J. Treadway Executive Vice Chairman, President, and
President Chief Executive Officer,
PIMCO Funds Advertising
Agency, Inc., PIMCO Funds
Distributors LLC, and
Trustee, President and
Chief Executive Officer
of the Trust; Executive
Vice President, Value
Advisors LLC.
Robert S. Venable Vice President None.
James G. Ward Senior Vice President, Senior Vice President,
Human Resources Human Resources, Value
Advisors LLC; Senior Vice
President, Thomson
Advisory Group, Inc.
-13-
<PAGE>
Richard M. Weil Senior Vice President Senior Vice President,
- Legal and Secretary Assistant Secretary,
PIMCO Management, Inc.;
Secretary, Cadence
Capital Management, Inc.,
NFJ Investment Group, NFJ
Management, Inc.,
Parametric Portfolio
Associates, Parametric
Management, Inc., and
StocksPLUS Management,
Inc.; Assistant
Secretary, Columbus
Circle Investors,
Columbus Circle Investors
Management, Inc., Cadence
Capital Management, PIMCO
Funds Advertising Agency,
Inc., and Pacific
Management Investment
Company; Senior Vice
President, Legal,
Secretary, Value Advisors
LLC, Thomson Advisory
Group, Inc., and Vice
President of the Trust.
Mark J. Porterfield Vice President, None.
Compliance Officer
-14-
<PAGE>
Vinh T. Nguyen Vice President, Vice President,
Controller Controller, Columbus
Circle Investors
Management, Inc., Cadence
Capital Management, Inc.,
NFJ Management, Inc.,
Parametric Management,
Inc., StocksPLUS
Management, Inc., PIMCO
Funds Advertising Agency,
Inc., PIMCO Funds
Distributors LLC, and
Value Advisors LLC;
Controller, Pacific
Investment Management
Company and PIMCO
Management, Inc.
Cadence Capital Management
Exchange Place, 53 State Street,
Boston, Massachusetts 02109
Position
Name with Portfolio Manager Other Affiliations
William B. Bannick Managing Director and Director and Managing
Executive Vice Director, Cadence Capital
President Management, Inc.
David B. Breed Managing Director and Member of Management
Chief Executive Officer Board, PIMCO Advisors
L.P.; Director, Managing
Director and Chief
Executive Officer,
Cadence Capital
Management, Inc.
Katherine A. Burdon Managing Director None
Mary Ellen Melendez Secretary None
Robert M. Fitzgerald Chief Financial See PIMCO Advisors L.P.
Officer and Assistant
Treasurer
Barbara M. Green Treasurer None
-15-
<PAGE>
Richard M. Weil Assistant Secretary See PIMCO Advisors L.P.
NFJ Investment Group
2121 San Jacinto, Suite 1440,
Dallas, Texas 75201
Position
Name with Portfolio Manager Other Affiliates
Benno J. Fischer Managing Director Director, Managing
Director, and
Co-Chairman, NFJ
Management, Inc.
Robert M. Fitzgerald Chief Financial See PIMCO Advisors L.P.
Officer and Treasurer
John L. Johnson Managing Director Director, and Co-Chairman
Managing Director, NFJ
Management, Inc.
Jack C. Najork Managing Director Director, Managing
Director, Co-Chairman,
NFJ Management, Inc.
Richard M. Weil Secretary See PIMCO Advisors L.P.
Parametric Portfolio Associates
7310 Columbia Center, 701 Fifth Avenue,
Seattle, Washington 98104-7090
Position
Name with Portfolio Manager Other Affiliations
William E. Cornelius, Jr. Managing Director Director, Managing
Director, and Chief
Executive Officer,
Parametric Management,
Inc.
David M. Stein Managing Director Director and Managing
Director, Parametric
Management, Inc.
-16-
<PAGE>
Brian Langstraat Managing Director None.
Robert M. Fitzgerald Chief Financial Officer See PIMCO Advisors L.P.
and Treasurer
Richard M. Weil Secretary See PIMCO Advisors L.P.
Pacific Investment Management Company ("PIMCO")
840 Newport Center Drive, Suite 360
Newport Beach, California 92660
Position
Name with Portfolio Manager Other Affiliations
George C. Allan Vice President Vice President, PIMCO
Management, Inc.
Tamara J. Arnold Vice President Vice President, PIMCO
Management, Inc.
Denise C. Banno Vice President Vice President, PIMCO
Management, Inc.
Leslie A. Barbi Senior Vice President Senior Vice President,
PIMCO Management, Inc.
William R. Benz, II Managing Director Director and Managing
Director, PIMCO
Management, Inc.;
Member of PIMCO
Partners LLC.
Gregory A. Bishop Vice President None.
John B. Brynjolfsson Vice President Vice President, PIMCO
Management, Inc.
-17-
<PAGE>
R. Welsley Burns Executive Vice President Executive Vice
President, PIMCO
Management, Inc. and
the Trust; President,
PIMCO Funds: Pacific
Investment Management
Series, PIMCO
Commercial Mortgage
Securities Trust, Inc.;
President and Trustee,
PIMCO Variable
Insurance Trust.
Wendy W. Cupps Vice President Vice President, PIMCO
Management, Inc.
Charles M. Daniels, III Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
Michael Dow Vice President Vice President, PIMCO
Management, Inc. and
PIMCO Funds: Pacific
Investment Management
Series.
Anita Dunn Vice President Vice President, PIMCO
Management, Inc.
David H. Edington Managing Director Director and Managing
Director, PIMCO
Management, Inc.;
Director, StocksPLUS
Management, Inc.;
Member of PIMCO
Partners, LLC.
A. Benjamin Ehlert Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
Robert A. Ettl Vice President and Chief Vice President, PIMCO
Operations Officer Management, Inc.
Anthony L. Faillace Vice President Vice President, PIMCO
Management, Inc.
-18-
<PAGE>
Robert M. Fitzgerald Chief Financial Officer See PIMCO Advisors L.P.
and Treasurer
Ursula T. Frisch Vice President Vice President, PIMCO
Management, Inc. and
PIMCO Funds: Pacific
Investment Management
Series.
William H. Gross Managing Director See PIMCO Advisors L.P.
John L. Hague Managing Director Director, PIMCO
Management, Inc.,
Member of PIMCO
Partners LLC.
Gordon C. Hally Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
Pasi M. Hamalainen Senior Vice President Senior Vice President,
PIMCO Management, Inc.
John P. Hardaway Vice President Vice President, PIMCO
Management, Inc.;
Treasurer of the Trust,
PIMCO Funds: Pacific
Investment Management
Series, PIMCO
Commercial Mortgage
Securities Trust, Inc.,
and PIMCO Variable
Insurance Trust.
Brent R. Harris Managing Director See PIMCO Advisors L.P.
Joseph Hattesohl Vice President Vice President, PIMCO
Management, Inc.;
Assistant Treasurer,
the Trust, PIMCO Funds:
Pacific Investment
Management Series,
PIMCO Variable
Insurance Trust, and
PIMCO Commercial
Mortgage Securities
Trust, Inc.
-19-
<PAGE>
Raymond C. Hayes Vice President Vice President, PIMCO
Management, Inc. and
PIMCO Funds: Pacific
Investment Management
Series.
David C. Hinman Vice President Vice President, PIMCO
Management, Inc.
Liza Hocson Vice President Vice President, PIMCO
Management, Inc.
Douglas M. Hodge Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
Brent L. Holden Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
Dwight F. Holloway, Jr. Vice President Vice President, PIMCO
Management, Inc.
Jane T. Howe Vice President Vice President, PIMCO
Management, Inc.
Mark Hudoff Vice President Vice President, PIMCO
Management, Inc.
Margaret E. Isberg Executive Vice President Executive Vice
President, PIMCO
Management, Inc.;
Senior Vice President,
PIMCO Funds: Pacific
Investment Management
Series.
James M. Keller Vice President Vice President, PIMCO
Management, Inc.
Raymond G. Kennedy Vice President Vice President, PIMCO
Management, Inc.
Steven P. Kirkbaumer Vice President None.
-20-
<PAGE>
James Kociuba Vice President Vice President, PIMCO
Management, Inc.
John S. Loftus Executive Vice President Executive Vice
President, PIMCO
Management, Inc.; Vice
President and Assistant
Secretary, StocksPLUS
Management, Inc.
David Lown Vice President Vice President, PIMCO
Management, Inc.
Dean S. Meiling Managing Director Director and Managing
Director, PIMCO
Management, Inc.; Vice
President, PIMCO Funds:
Pacific Investment
Management Series and
PIMCO Commercial
Mortgage Securities
Trust, Inc.; Member of
PIMCO Partners LLC.
James F. Muzzy Managing Director Director and Managing
Director, PIMCO
Management, Inc.; Vice
President, PIMCO Funds:
Pacific Investment
Management Series;
Director and Vice
President, StocksPLUS
Management, Inc.;
Member of PIMCO
Partners LLC.
Vinh T. Nguyen Controller See PIMCO Advisors L.P.
Douglas J. Ongaro Vice President Vice President, PIMCO
Management, Inc. and
PIMCO Funds: Pacific
Investment Management
Series.
-21-
<PAGE>
Thomas J. Otterbein Vice President Vice President, PIMCO
Management, Inc.
David J. Pittman Vice President None.
William F. Podlich, III Managing Director See PIMCO Advisors L.P.
William C. Powers Managing Director Director and Managing
Director, PIMCO
Management, Inc.;
Senior Vice President
PIMCO Commercial
Mortgage Securities
Trust, Inc.; Member of
PIMCO Partners LLC.
Edward P. Rennie Senior Vice President Senior Vice President,
PIMCO Management, Inc.
Scott L. Roney Vice President Vice President, PIMCO
Management, Inc.
Michael J. Rosborough Senior Vice President Senior Vice President,
PIMCO Management, Inc.
Jeffrey M. Sargent Vice President Vice President of the
Trust, PIMCO
Management, Inc., PIMCO
Funds: Pacific
Investment Management
Series, PIMCO Variable
Insurance Trust, and
PIMCO Commercial
Mortgage Securities
Trust, Inc.
-22-
<PAGE>
Ernest L. Schmider Executive Vice Executive Vice
President, Secretary, President, Secretary,
Chief Administrative and Chief Administrative
Legal Officer and Legal Officer,
PIMCO Management, Inc.;
Director, Assistant
Secretary, Assistant
Treasurer, StocksPLUS
Management, Inc.;
Secretary, PIMCO
Partners LLC.
Leland T. Scholey Senior Vice President Senior Vice President,
PIMCO Management, Inc.,
and PIMCO Funds:
Pacific Investment
Management Series.
Richard W. Selby Senior Vice President None
and Chief Technology
Officer
Rita J. Seymour Vice President Vice President, PIMCO
Management, Inc.
Christopher Sullivan Vice President Vice President, PIMCO
Management, Inc.
Lee R. Thomas, III Managing Director Director and Managing
Director, PIMCO
Management, Inc.;
Member of PIMCO
Partners LLC.
William S. Thompson, Jr. Chief Executive Officer See PIMCO Advisors L.P.
and Managing Director
Benjamin L. Trosky Managing Director See PIMCO Advisors L.P.
Marilyn Wegener Vice President Vice President, PIMCO
Management, Inc.
Richard M. Weil Assistant Secretary See PIMCO Advisors L.P.
Ram Willner Vice President Vice President, PIMCO
Management, Inc.
-23-
<PAGE>
Kristen M. Wilsey Vice President Vice President, PIMCO
Management, Inc. and
PIMCO Funds: Pacific
Investment Management
Series.
George H. Wood Senior Vice President Senior Vice President,
PIMCO Management Inc.
Michael A. Yetter Vice President Vice President, PIMCO
Management, Inc.
David Young Vice President Vice President, PIMCO
Management, Inc.
Columbus Circle Investors
Metro Center
One Station Place, 8th Floor
Stamford, Connecticut 06902
Position
Name with Portfolio Other Affiliations
Manager
Christopher B. Burnham Managing Director, Director, Columbus
President and Chief Circle Investors
Executive Officer Management Inc.
Louis P. Celentano Managing Director Director, Columbus
Circle Investors
Management, Inc.;
Director, Chairman,
Columbus Circle Trust
Company.
Donald A. Chiboucas Managing Director See PIMCO Advisors L.P.
Robert W. Fehrmann Managing Director Director, Columbus
Circle Investors
Management, Inc.
Marc S. Felman Managing Director Director, Columbus
Circle Investors
Management, Inc.
Robert M. Fitgerald Chief Financial See PIMCO Advisors L.P.
Officer and
Treasurer
-24-
<PAGE>
Clifford G. Fox Managing Director Director, Columbus
Circle Investors
Management, Inc.
Taegan D. Goddard Senior Vice None.
President
Winthrop S. Headley Senior Vice None.
President
Amy M. Hogan Managing Director Director of Columbus
Circle Investors
Management, Inc.
Anthony Rizza Managing Director Director, Columbus
Circle Investors
Management, Inc.
Newton B. Schott, Jr. Chief Legal Officer Director, Executive Vice
and Secretary President, Chief
Administrative/Legal
Officer, Secretary,
PIMCO Funds
Distributors LLC and
PIMCO Funds Advertising
Agency, Inc.; Chief
Legal Officer and
Secretary, Columbus
Circle Investors,
Columbus Circle
Investors Management,
Inc.; Senior Vice
President, Mutual Fund
Division; General
Counsel and Secretary,
Columbus Circle Trust
Company; Vice President
and Secretary, the
Trust; Senior Vice
President, Value
Advisors LLC.
Irwin F. Smith Managing Director Director, Columbus
Circle Investors
Management, Inc.
Nathaniel J. Belknap Vice President None
Anne Maloney Vice President None
Paul Meeks Vice President None
Michele Montano Senior Vice Vice President, Columbus
President Circle Trust Company.
-25-
<PAGE>
Paul A. Pantalena Senior Vice None
President
Cecelia Pastore Vice President None
Harold R. Snedcof Vice President Senior Vice President,
Columbus Circle Trust
Company.
Sharon S. Weslow Vice President None
Andrew Jacobson Vice President - None
Portfolio Manager
Thomas Brophy Vice President None
Jennifer Kennedy Vice President None
Vinh T. Nguyen Vice President and See PIMCO Advisors L.P.
Controller
Richard M. Weil Assistant Secretary See PIMCO Advisors, Inc.
Blairlogie Capital Management, Limited
4th Floor, 125 Princes Street
Edinburgh EH2 4AD, Scotland
Position
Name with Portfolio Manager Other Affiliations
Gavin R. Dobson Chief Executive Officer Director and Chief
and Managing Director Executive Officer,
Blairlogie Holdings
Limited (U.K.)
James G. S. Smith Chief Investment Director and Chief
Officer and Managing Investment Officer,
Director Blairlogie Holdings
Limited (U.K.)
-26-
<PAGE>
Van Eck Associates Corporation
99 Park Avenue
New York, New York 10016
Position
Name with Portfolio Manager Other Affiliations
Philip DeFeo Director, President Trustee, Van Eck Funds
and Chief Executive ("VEF") and Van Eck
Officer Worldwide Insurance
Trust ("WWIT");
Director,President
and Chief Executive
Officer, Van Eck
Securities Corporation
("VESC").
John C. van Eck Chairman of the Board Chairman of the Board
and President, VEF and
WWIT;Chairman of the
Board, VESC; Director,
Eclipse Financial Asset
Trust. Formerly,
Director, Abex Inc.;
Director, The Henley
Group, Inc.
Fred M. van Eck Director Trustee, VEF and WWIT;
Private Investor,
Director, VESC
Sigrid S. van Eck Director, Vice Vice President,
President and Assistant
Assistant Treasurer Treasurer and Director,
VESC
Jan van Eck Director Director and Executive
Vice President, VESC
-27-
<PAGE>
Derek M. van Eck Director and Executive Director and Executive
Vice President; Vice President, VESC;
Director, Global President Global Hard
Investments Assets Series of the Van
Eck Funds and Worldwide
Hard Assets Series of
WWIT; Vice President,
Global Balanced Series
of VEF.
Bruce J. Smith Vice President, Vice President,
Treasurer, Controller Treasurer, Controller
and Chief Financial and Chief Financial
Officer Officer, VESC; Vice
President, VEF and WWIT
Thaddeus M. Leszcynski Vice President, Vice President and
Secretary and General Secretary, VEF and WWIT;
Counsel Vice President,
Secretary and General
Counsel, VESC.
Henry J. Bingham Executive Managing Executive Vice
Director President, VEF and
WWIT; Exeuctive Vice
President of VESC.
Lucille Palermo Associate, Mining President, International
Research Investors Gold and
Gold/Resources Series of
VEF.
Kevin Reid Director, Real Estate President, Global Real
Research Estate Series of VEF and
Worldwide Real Estate
Series of WWIT; Vice
President, Global Hard
Assets Series of VEF and
Worldwide Hard Assets
Series of WWIT.
Charles Cameron Director, Trading Vice President, VEF and
WWIT.
-28-
<PAGE>
Item 29. Principal Underwriters.
(a) PIMCO Funds Distributors LLC (the "Distributor") serves as Distributor
of shares for the Registrant and also of PIMCO Funds: Pacific
Investment Management Series. The Distributor is a wholly owned
subsidiary of PIMCO Advisors L.P., the Registrant's Adviser.
(b)
Positions and Positions
Name and Principal Offices with and Offices
Business Address* Underwriter with Registrant
Jeffrey L. Booth Vice President Vice President, PIMCO
Funds Advertising
Agency, Inc.
James D. Bosch Regional Vice President None
Deborah P. Brennan Vice President None
Timothy R. Clark Senior Vice President None
Jonathan P. Fessel Vice President None
Robert M. Fitzgerald Chief Financial Officer None
and Treasurer
Michael J. Gallagher Vice President None
David S. Goldsmith Vice President None
Ronald H. Gray Vice President None
John B. Hussey Vice President None
Edward W. Janeczek Senior Vice President None
Stephen R. Jobe Vice President Vice President, PIMCO
Funds Advertising
Agency, Inc.
Jonathan C. Jones Vice President None
-29-
<PAGE>
Raymond Lazcano Vice President None
William E. Lynch Senior Vice President None
Jacqueline A. McCarthy Vice President None
Andrew J. Meyers Executive Vice President Executive Vice
President, PIMCO Funds
Advertising Agency,
Inc.
Fiora N. Moyer Regional Vice President None
Philip J. Neugebauer Vice President Vice President, PIMCO
Funds Advertising
Agency.
Vinh T. Nguyen Vice President, Controller None
Joffrey H. Pearlman Regional Vice President None
Glynne P. Pisapia Regional Vice President None
Matthew M. Russell Vice President None
Newton B. Schott, Jr. Executive Vice President, Vice President and
Chief Administrative Secretary
Officer/Legal Officer and
Secretary
Robert M. Smith Vice President None
Ellen Z. Spear Vice President Vice President, PIMCO
Funds Advertising
Agency, Inc.
David P. Stone Regional Vice President None
Daniel W. Sullivan Vice President None
William H. Thomas, Jr. Regional Vice President None
Stephen J. Treadway Chairman, President and Executive Vice
Chief Executive Officer President, PIMCO
Advisors L.P. and
Trustee.
-30-
<PAGE>
Paul H. Troyer Senior Vice President None
Brian F. Trumbore Executive Vice President None
Richard M. Weil Assistant Secretary None
Glen A. Zimmerman Vice President None
- -----------------
Principal business address for all individuals listed is 2187 Atlantic
Street, Stamford, CT 06902.
(c) The Registrant has no principal underwriter that is not an affiliated
person of the Registrant or an affiliated person of such an affiliated
person.
Item 30. Location of Accounts and Records.
The account books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of Investors Fiduciary
Trust Company, 21 West 10th Street, Kansas City, Missouri 64105, and Shareholder
Services, Inc., P.O. Box 5866, Denver, CO 80217.
Item 31. Management Services.
Not Applicable.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not applicable.
(c) Registrant, if requested to do so by the holders of at least 10% of
the Registrants's outstanding shares, will call a meeting of
shareholders for the purpose of voting upon the question of removal of
a trustee or trustees, and will assist communications among
shareholders as set forth within Section 16(c) of the 1940 Act.
(d) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report(s) to
shareholders, upon request and without charge.
-31-
<PAGE>
NOTICE
------
A copy of the Agreement and Declaration of Trust of PIMCO Funds: Multi-
Manager Series (the "Trust"), together with all amendments thereto, is on file
with the Secretary of State of The Commonwealth of Massachusetts and notice is
hereby given that this instrument is executed on behalf of the Trust by an
officer of the Trust as an officer and not individually and that the obligations
of or arising out of this instrument are not binding upon any of the Trustees of
the Trust or shareholders of any series of the Trust individually but are
binding only upon the assets and property of the Trust or the respective series.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment No. 33 to this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Stamford, and
the State of Connecticut on the 24th of June, 1998.
PIMCO FUNDS: MULTI-MANAGER SERIES
By: /s/ Stephen J. Treadway
------------------------------
Stephen J. Treadway,
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 33 has been signed below by the following persons in the
capacities and on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Stephen J. Treadway Trustee and President June 24, 1998
- ----------------------------
Stephen J. Treadway
John P. Hardaway* Treasurer and Principal
- ---------------------------- Financial and Accounting
John P. Hardaway Officer
William D. Cvengros* Trustee
- ----------------------------
William D. Cvengros
Joel Segall* Trustee
- ----------------------------
Joel Segall
Donald P. Carter* Trustee
- ----------------------------
Donald P. Carter
E. Philip Cannon* Trustee
- ----------------------------
E. Philip Cannon
Gary A. Childress* Trustee
- ----------------------------
Gary A. Childress
Richard L. Nelson* Trustee
- ----------------------------
Richard L. Nelson
Lyman W. Porter* Trustee
- ----------------------------
Lyman W. Porter
Alan Richards* Trustee
- ----------------------------
Alan Richards
W. Bryant Stooks* Trustee
- ----------------------------
W. Bryant Stooks
Gerald M. Thorne* Trustee
- ----------------------------
Gerald M. Thorne
*By: /s/ Stephen J. Treadway
----------------------------
Stephen J. Treadway,
Attorney-In-Fact
Date: June 24, 1998
-2-
<PAGE>
EXHIBIT LIST
------------
Exhibit
- -------
5(a)(iv). Form of Addendum to Investment Advisory Agreement.
6(e). Form of Addendum to Distribution Contract.
<PAGE>
Exhibit 5(a)(IV)
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
----------------------------------------
PIMCO Funds: Multi-Manager Series
840 Newport Center Drive
Newport Beach, CA 92660
September , 1998
PIMCO Advisors L.P.
800 Newport Center Drive, Suite 100
Newport Beach, CA 92660
Re: PIMCO Funds Asset Allocation Series - 90/10 Portfolio; PIMCO Funds
Asset Allocation Series - 60/40 Portfolio; and PIMCO Funds Asset
Allocation Series -30/70 Portfolio
-------------------------------------------------------------------
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
PIMCO Advisors L.P. (the "Adviser") as follows:
1. The Trust is an open-end management investment company organized as a
Massachusetts business trust and consisting of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. PIMCO Funds Asset Allocation Series - 90/10 Portfolio, PIMCO
Funds Asset Allocation Series - 60/40 Portfolio, and PIMCO Funds Asset
Allocation Series - 30/70 Portfolio (together, the "Funds") are separate
investment portfolios of the Trust.
2. The Trust and the Adviser have entered into an Amended and Restated
Investment Advisory Agreement dated November 15, 1994, as further amended and
restated as of January 14, 1997 (the "Agreement"), pursuant to which the Trust
has employed the Adviser to provide investment advisory and other services
specified in the Agreement, and the Adviser has accepted such employment.
3. As provided in paragraph 1 of the Agreement, the Trust hereby appoints
the Adviser to serve as Investment Adviser with respect to the Funds, and the
Adviser accepts such appointment, the terms and conditions of such employment to
be governed by the Agreement, which is hereby incorporated herein by reference.
4. The Trust will pay no compensation to the Adviser under Section 9 of
the Agreement for services rendered by the Adviser on behalf of the Funds.
<PAGE>
5. This Addendum and the Agreement shall take effect with respect to each
Fund on September __, 1998, and shall remain in effect, unless sooner terminated
as provided in the Agreement and herein, with respect to each Fund for a period
of two years following such date. This Addendum and the Agreement shall continue
thereafter on an annual basis with respect to a Fund provided that such
continuance is specifically approved at least annually (a) by vote of a majority
of the Board of Trustees of the Trust, or (b) by vote of a majority of the
outstanding voting shares of the Fund, and provided continuance is also approved
by vote of a majority of the Board of Trustees of the Trust who are not parties
to this Addendum or the Agreement or "interested persons" (as defined in the
1940 Act) of the Trust, or the Adviser, cast in person at a meeting called for
the purpose of voting on such approval. This Addendum and the Agreement may not
be materially amended without a majority vote of the outstanding voting shares
(as defined in the 1940 Act) of the pertinent Fund or Funds.
However, any approval of this Addendum and the Agreement by the holders of
a majority of the outstanding shares (as defined in the 1940 Act) of a
particular Fund shall be effective to continue the Addendum and the Agreement
with respect to such Fund notwithstanding (a) that this Addendum and the
Agreement have not been approved by the holders of a majority of the outstanding
shares of any other investment portfolio of the Trust or (b) that this Addendum
and the Agreement have not been approved by the vote of a majority of the
outstanding shares of the Trust, unless such approval shall be required by any
other applicable law or otherwise. The Agreement will terminate automatically
with respect to the services provided by the Adviser in the event of its
assignment, as that term in defined in the 1940 Act, by the Adviser.
This Addendum and the Agreement may be terminated:
(a) by the Trust at any time with respect to the services provided by
the Adviser, without the payment of any penalty, by vote of a majority of the
Board of Trustees of the Trust or by vote of a majority of the outstanding
voting shares of the Trust or, with respect to a particular Fund, by vote of a
majority of the outstanding voting shares of such Fund, on 60 days' written
notice to the Adviser;
(b) by the Adviser at any time, without the payment of any penalty,
upon 60 days' written notice to the Trust.
-2-
<PAGE>
If the foregoing correctly sets forth the agreement between the Trust and
the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO Funds: Multi-Manager Series
By:
-------------------------------
Title:
ACCEPTED:
PIMCO Advisors L.P.
By:
-------------------------------
Title:
-3-
<PAGE>
Exhibit 6(e)
SUPPLEMENT TO DISTRIBUTION CONTRACT
----------------------------------
PIMCO Funds: Multi-Manager Series
840 Newport Center Drive
Newport Beach, CA 92660
September __, 1998
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, Connecticut 06902
Re: PIMCO Funds Asset Allocation Series - 90/10 Portfolio; PIMCO Funds
Asset Allocation Series - 60/40 Portfolio; and PIMCO Funds Asset
Allocation Series -30/70 Portfolio
------------------------------------------------------------------
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
PIMCO Funds Distributors LLC (the "Distributor") as follows:
1. The Trust is an open-end management investment company organized as a
Massachusetts business trust and consisting of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. Up to six separate classes of shares of beneficial interest in
the Trust are offered to investors with respect to each investment portfolio.
PIMCO Funds Asset Allocation Series - 90/10 Portfolio, PIMCO Funds Asset
Allocation Series - 60/40 Portfolio, and PIMCO Funds Asset Allocation Series -
30/70 Portfolio (together, the "Funds") are separate investment portfolios of
the Trust.
2. The Trust and the Distributor have entered into an Amended and
Restated Distribution Contract (the "Contract") dated April 8, 1998, pursuant to
which the Distributor has agreed to be the distributor of shares of beneficial
interest in the Trust.
3. In accordance with paragraph 1 of the Contract, the Trust and the
Distributor hereby designate the Funds as additional investment portfolios to
which the Contract pertains and adopt the Contract with respect to the Funds,
the terms and conditions of the Contract being hereby incorporated herein by
reference.
4. This Supplement and the Contract shall become effective with respect
to the Funds on September __, 1998 and shall remain in full force and effect
continuously as to a Fund and a class of shares thereof (unless terminated
automatically as set forth in Section 17 of the Contract) until terminated:
(a) Either by such Fund or such class or the Distributor by not more than
sixty (60) days' nor less than thirty (30) days' written notice delivered or
mailed by registered mail, postage prepaid, to the other party; or
<PAGE>
(b) Automatically as to a Fund or class thereof at the close of business
one year from the date hereof, or upon the expiration of one year from the
effective date of the last continuance of the Contract, whichever is later, if
the continuance of the Contract is not specifically approved at least annually
by the Trustees of the Trust or the shareholders of such Fund or such class by
the affirmative vote of a majority of the outstanding shares of such Fund or
such class, and by a majority of the Trustees of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plans (as defined in the Contract) or the
Contract by vote cast in person at a meeting called for the purpose of voting on
such approval.
Action by a Fund or a class thereof under (a) above may be taken either (i)
by vote of the Trustees of the Trust, or (ii) by the affirmative vote of a
majority of the outstanding shares of such Fund or such class. The requirement
under (b) above that the continuance of this Contract be "specifically approved
at least annually" shall be construed in a manner consistent with the 1940 Act
and the rules and regulations thereunder.
Termination of this Addendum and the Contract pursuant to this section
shall be without the payment of any penalty.
If the Contract is terminated or not renewed with respect to a Fund or any
other investment portfolio of the Trust or class of shares thereof, it may
continue in effect with respect to any Fund or any class thereof as to which it
has not been terminated (or has been renewed).
If the foregoing correctly sets forth the agreement between the Trust
and the Distributor, please so indicate by signing and returning to the Trust
the enclosed copy hereof.
Very truly yours,
PIMCO Funds: Multi-Manager Series
By:
-----------------------------
Title:
ACCEPTED:
PIMCO Funds Distributors LLC
By:
--------------------------
Title:
-2-
