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Rule 497(c)
33-36528
811-6161
PIMCO FUNDS: MULTI-MANAGER SERIES
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1999
This Statement of Additional Information is not a prospectus, and should be
read in conjunction with the prospectuses of PIMCO Funds: Multi-Manager Series
(the "Trust"), as supplemented from time to time. Through five Prospectuses,
the Trust offers up to six classes of shares of each of its "Funds" and five
classes of shares of each of its "Portfolios" (each as defined herein). Class
A, Class B and Class C shares of certain Funds are offered through the "Class A,
B and C Prospectus," dated November 1, 1999, Class D shares of certain Funds are
offered through the "Class D Prospectus," dated November 1, 1999, and
Institutional and Administrative Class shares of certain Funds are offered
through the "Institutional Prospectus," dated November 1, 1999. Class A, Class
B and Class C shares of the Portfolios are offered through the "Retail Portfolio
Prospectus," dated November 1, 1999, and Institutional and Administrative Class
Shares of the Portfolios are offered through the "Institutional Portfolio
Prospectus," dated November 1, 1999. The Class A, B and C Prospectus, the Class
D Prospectus, the Institutional Prospectus, the Retail Portfolio Prospectus and
the Institutional Portfolio Prospectus are collectively referred to herein as
the "Prospectuses."
Audited financial statements for the Trust, as of June 30, 1999, including
notes thereto, and the reports of PricewaterhouseCoopers LLP thereon, are
incorporated herein by reference from the Trust's five June 30, 1999 Annual
Reports. Because the Portfolios invest a portion of their assets in series of
PIMCO Funds ("PIMS"), the PIMS Prospectus for Institutional Class shares, dated
August 1, 1999 and as from time to time amended or supplemented (the "PIMS
Prospectus"), and the PIMS Statement of Additional Information, dated August 31,
1999 and as from time to time amended or supplemented, are also incorporated
herein by reference. See "Investment Objectives and Policies--Investment
Strategies of the Portfolios--Incorporation by Reference" in this Statement of
Additional Information. A copy of the applicable Prospectus and the Annual
Report corresponding to such Prospectus, and the PIMCO Funds Shareholders' Guide
for Class A, B and C Shares (the "Guide"), which is a part of this Statement of
Additional Information, may be obtained free of charge at the addresses and
telephone number(s) listed below.
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Class A, B and C, Class D,
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Institutional and Institutional and Retail Portfolio Prospectuses,
----------------------------- ----------------------------------
Portfolio Prospectuses, Annual Reports, the Guide
----------------------- -------------------------
Annual Reports and the PIMS and the Prospectus and
--------------------------- ----------------------
Prospectus and Statement of Statement of Additional
--------------------------- ------------------------
Additional Information Information
---------------------- -----------
PIMCO Funds PIMCO Funds Distributors LLC
840 Newport Center Drive 2187 Atlantic Street
Suite 300 Stamford, Connecticut 06902
Newport Beach, California 92660 Telephone: Class A, B and C - 1-800-426-0107
Telephone: 1-800-927-4648 Class D - 1-888-87-PIMCO
1-800-987-4626 (PIMCO Retail Portfolio - 1-800-426-0107
Infolink Audio Response Network)
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TABLE OF CONTENTS
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THE TRUST............................................................................. 1
INVESTMENT OBJECTIVES AND POLICIES.................................................... 1
U.S. Government Securities....................................................... 1
Borrowing........................................................................ 2
Preferred Stock.................................................................. 3
Corporate Debt Securities........................................................ 3
High Yield Securities ("Junk Bonds")............................................. 3
Loan Participations and Assignments.............................................. 5
Participation on Creditors Committees............................................ 5
Variable and Floating Rate Securities............................................ 5
Mortgage-Related and Asset-Backed Securities..................................... 6
Convertible Securities........................................................... 10
Equity-Linked Securities......................................................... 10
Foreign Securities............................................................... 11
Foreign Currencies............................................................... 13
Bank Obligations................................................................. 14
Commercial Paper................................................................. 15
Money Market Instruments......................................................... 15
Derivative Instruments........................................................... 15
When-Issued, Delayed Delivery and Forward Commitment Transactions................ 23
Warrants to Purchase Securities.................................................. 23
Repurchase Agreements............................................................ 24
Securities Loans................................................................. 24
Stocks of Small and Medium Capitalization Companies.............................. 24
Illiquid Securities.............................................................. 25
Inflation-Indexed Bonds.......................................................... 25
Delayed Funding Loans and Revolving Credit Facilities............................ 26
Catastrophe Bonds................................................................ 27
Hybrid Instruments............................................................... 27
Precious Metals and Metal-Indexed Notes.......................................... 28
Investment Strategies of the Portfolios - Incorporation by Reference............. 29
INVESTMENT RESTRICTIONS............................................................... 29
Fundamental Investment Restrictions.............................................. 29
Non-Fundamental Investment Restrictions.......................................... 32
MANAGEMENT OF THE TRUST............................................................... 34
Trustees and Officers............................................................ 34
Trustees' Compensation........................................................... 37
Investment Adviser............................................................... 38
Portfolio Management Agreements.................................................. 42
Fund Administrator............................................................... 45
DISTRIBUTION OF TRUST SHARES.......................................................... 49
Distributor and Multi-Class Plan................................................. 49
Distribution and Servicing Plans for Class A, Class B and Class C Shares......... 51
Payments Pursuant to Class A Plans............................................... 54
Payments Pursuant to Class B Plans............................................... 56
Payments Pursuant to Class C Plans............................................... 58
Distribution and Administrative Services Plans for Administrative Class Shares... 61
Payments Pursuant to the Administrative Plans.................................... 62
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Plan for Class D Shares.......................................................... 63
Purchases, Exchanges and Redemptions............................................. 64
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................. 67
Investment Decisions and Portfolio Transactions.................................. 67
Brokerage and Research Services.................................................. 68
Portfolio Turnover............................................................... 70
NET ASSET VALUE....................................................................... 71
TAXATION.............................................................................. 72
Distributions.................................................................... 73
Sales of Shares.................................................................. 74
Backup Withholding............................................................... 74
Options, Futures, Forward Contracts and Swap Agreements.......................... 75
Foreign Currency Transactions.................................................... 75
Foreign Taxation................................................................. 75
Original Issue Discount and Pay-In-Kind Securities............................... 76
Other Taxation................................................................... 76
OTHER INFORMATION..................................................................... 77
Capitalization................................................................... 77
Performance Information.......................................................... 78
Calculation of Yield............................................................. 79
Calculation of Total Return...................................................... 80
Year 2000 Readiness Disclosure................................................... 97
Compliance Efforts Related to the Euro........................................... 98
Voting Rights.................................................................... 98
Certain Ownership of Trust Shares................................................ 99
Custodian........................................................................ 127
Independent Accountants.......................................................... 128
Transfer and Shareholder Servicing Agents........................................ 128
Legal Counsel.................................................................... 128
Registration Statement........................................................... 128
Financial Statements............................................................. 128
APPENDIX
DESCRIPTION OF SECURITIES RATINGS................................................ 1
Moody's Investors Service, Inc................................................... 1
Standard & Poor's Ratings Services............................................... 2
PIMCO FUNDS SHAREHOLDERS' GUIDE FOR CLASS A, B AND C SHARES........................... SG-1
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THE TRUST
PIMCO Funds: Multi-Manager Series (the "Trust"), is an open-end management
investment company ("mutual fund") that currently consists of twenty-six
separate diversified investment series. The following twenty-three series (the
"Funds") invest directly in common stocks and other securities and instruments:
the Equity Income Fund, the Value Fund, the Renaissance Fund, the Tax-Efficient
Equity Fund, the Enhanced Equity Fund, the Growth Fund, the Value 25 Fund, the
Mega-Cap 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 Growth Fund, the Tax-
Efficient Structured Emerging Markets Fund, the Structured Emerging Markets Fund
and the Precious Metals Fund. Three additional 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," and together
with the 90/10 Portfolio and the 60/40 Portfolio, the "Portfolios"), are so-
called "funds-of-funds" which invest all of their assets in certain of the Funds
and other series in the PIMCO Funds family.
The Trust was organized as a Massachusetts business trust on August 24,
1990. On January 17, 1997, the Trust and PIMCO Advisors Funds, a separate
trust, were involved in a transaction in which certain series of PIMCO Advisors
Funds reorganized into series of the Trust. In connection with this
transaction, the Trust changed its name from PIMCO Funds: Equity Advisors
Series to its current name. Prior to being known as PIMCO Funds: Equity
Advisors Series, the Trust was named PIMCO Advisors Institutional Funds, PFAMCO
Funds and PFMACO Fund.
INVESTMENT OBJECTIVES AND POLICIES
In addition to the principal investment strategies and the principal risks
of the Funds and Portfolios described in the Prospectuses, each Fund may employ
other investment practices and may be subject to additional risks which are
described below. Because the following is a combined description of investment
strategies and risks for all the Funds and Portfolios, certain strategies and/or
risks described below may not apply to particular Funds and/or Portfolios.
Unless a strategy or policy described below is specifically prohibited by the
investment restrictions listed in the Prospectuses, under "Investment
Restrictions" in this Statement of Additional Information, or by applicable law,
a Fund or Portfolio may engage in each of the practices described below.
The 90/10 Portfolio, 60/40 Portfolio and 30/70 Portfolio invest all of
their assets in certain Funds and series of PIMCO Funds ("PIMS"), an open-end
series management investment company advised by Pacific Investment Management
Company ("Pacific Investment Management"), an affiliate of PIMCO Advisors. PIMS
is referred to in the Prospectuses as PIMCO Funds: Pacific Investment
Management Series. These Funds and other series in which the Portfolios invest
are referred to in this Statement as "Underlying PIMCO Funds." By investing in
Underlying PIMCO Funds, the Portfolios may have an indirect investment interest
in some or all of the securities and instruments described below depending upon
how their assets are allocated among the Underlying PIMCO Funds. The Portfolios
may also have an indirect investment interest in other securities and
instruments utilized by the Underlying PIMCO Funds which are series of PIMS.
These securities and instruments are described in the current PIMS prospectus
for Institutional Class and Administrative Class shares and in the PIMS
statement of additional information. The PIMS prospectus and statement of
additional information are incorporated in this document by reference. See
"Investment Strategies of the Portfolios--Incorporation by Reference" below.
The Funds' sub-advisers, which are responsible for making investment
decisions for the Funds, are referred to in this section and the remainder of
this Statement of Additional Information as "Sub-Advisers." As discussed below
under "Management of the Trust--Investment Adviser," the PIMCO Equity Advisors
division of PIMCO Advisors is also referred to as a "Sub-Adviser."
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.
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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.
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, as amended ("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.
From time to time, the Trust may enter into, and make borrowings for
temporary purposes related to the redemption of shares under, a credit agreement
with third-party lenders. Borrowings made under such a credit agreement will be
allocated among the Funds and Portfolios pursuant to guidelines approved by the
Board of Trustees.
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 segregate assets
determined to be liquid by the Adviser or the Fund's Sub-Adviser 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.
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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 and/or hold their assets
in these securities for cash management purposes. 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 Sub-Adviser.
A description of the ratings categories used is set forth in the Appendix to
this Statement of Additional Information.
A security is considered to be below "investment grade" quality if it is
either (1) not rated in one of the four highest rating categories by one of the
Nationally Recognized Statistical Rating Organizations ("NRSROs") (i.e., rated
Ba or below by Moody's Investors Service, Inc. ("Moody's") or BB or below by
Standard & Poor's Ratings Services ("S&P")) or (2) if unrated, determined by the
relevant Sub-Adviser to be of comparable quality to obligations so rated.
Certain 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 Sub-Adviser to be
of comparable quality. In addition, certain of these Funds may invest in
convertible securities rated below B by Moody's or S&P (or, if unrated,
considered by the Sub-Adviser to be of comparable quality). Securities
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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. Although
each of the Funds that invests in high yield securities reserves the right to do
so at any time, as of the date of this Statement of Additional Information, none
of these Funds invest or has the present intention to invest more than 5% of its
assets in high yield securities or junk bonds. 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 Sub-Adviser, 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 Sub-Adviser'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. Even
though such securities do not pay current interest in cash, a Fund nonetheless
is required to accrue interest income on these investments and to distribute the
interest income on a current basis. Thus, a Fund could be required at times to
liquidate other investments in order to satisfy its distribution requirements.
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 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
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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.
Loan Participations and Assignments
Certain Funds may invest in fixed- and floating-rate loans arranged through
private negotiations between an issuer of debt instruments and one or more
financial institutions ("lenders"). Generally, a Fund's investments in loans
are expected to take the form of loan participations and assignments of portions
of loans from third parties.
Large loans to corporations or governments may be shared or syndicated
among several lenders, usually banks. A Fund may participate in such
syndicates, or can buy part of a loan, becoming a direct lender. Participations
and assignments involve special types of risk, including liquidity risk and the
risks of being a lender. If a Fund purchases a participation, it may only be
able to enforce its rights through the lender, and may assume the credit risk of
the lender in addition to the borrower. In assignments, a Fund's rights against
the borrower may be more limited than those held by the original lender.
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 Sub-
Adviser 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
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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.
Mortgage-Related and Asset-Backed Securities
All Funds that may purchase debt securities for investment purposes 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. 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. 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
depending part upon the ability of the Sub-Adviser to forecast interest rates
and other economic factors correctly. 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. Mortgage Pass-Through Securities are
securities representing interests in ''pools'' of mortgage loans secured by
residential or commercial real property. 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
Government National Mortgage Association ("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. 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. 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 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"). 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").
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Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the FNMA and the 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 U.S. Government. Instead, they are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations.
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 U.S. Government. Instead, they are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations.
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 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 Sub-
Adviser 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 Sub-Adviser'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-
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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.
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.
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. 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.
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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 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 developed fairly recently 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
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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 developed fairly recently. 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 Sub-Advisers
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
ReceivablesSM ("CARSSM"). CARSSM 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 CARSSM 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 CARSSM 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 Sub-Adviser also may invest in other types of asset-backed securities.
Convertible Securities
Many of the Funds may invest in convertible securities. A Fund's Sub-
Adviser will select convertible securities to be purchased by the Fund based
primarily upon its evaluation of the fundamental investment characteristics and
growth prospects of the issuer of the security. As a fixed income security, a
convertible security tends to increase in market value when interest rates
decline and to decrease in value when interest rates rise. While convertible
securities generally offer lower interest or dividend yields than non-
convertible fixed income securities of similar quality, their value tends to
increase as the market value of the underlying stock increases and to decrease
when the value of the underlying stock decreases.
The Renaissance Fund may invest in so-called "synthetic convertible
securities," which are composed of two or more different securities whose
investment characteristics, taken together, resemble those of convertible
securities. For example, the Renaissance Fund may purchase a non-convertible
debt security and a warrant or option. The synthetic convertible differs from
the true convertible security in several respects. Unlike a true convertible
security, which is a single security having a unitary market value, a synthetic
convertible comprises two or more separate securities, each with its own market
value. Therefore, the "market value" of a synthetic convertible is the sum of
the values of its fixed income component and its convertible component. For this
reason, the values of a synthetic convertible and a true convertible security
may respond differently to market fluctuations.
Equity-Linked Securities
Each of the Structured Emerging Markets and Tax-Efficient Structured
Emerging Markets Funds may invest up to 15% of its net assets in equity-linked
securities. Equity-linked securities are privately issued securities whose
investment results are designed to correspond generally to the performance of a
specified stock index or "basket" of stocks, or sometimes a single stock. To
the extent that a Fund invests in an equity-linked security whose return
corresponds to the performance of a foreign securities index or one or more
foreign stocks, investing in equity-linked securities will involve risks similar
to the risks of investing in foreign equity securities. See "Foreign
Securities" in
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this Statement of Additional Information. In addition, the Funds bear the risk
that the issuer of an equity-linked security may default on its obligations
under the security. Equity-linked securities may be considered illiquid and
thus subject to the Funds' restrictions on investments in illiquid securities.
Foreign Securities
The Structured Emerging Markets, Tax-Efficient Structured Emerging Markets,
International Growth and International Funds may invest in U.S. dollar or
foreign currency-denominated corporate debt securities of foreign issuers;
foreign equity securities, including 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. The
Structured Emerging Markets, Tax-Efficient Structured Emerging Markets,
International Growth, International and Precious Metals Funds may also invest in
common stocks issued by foreign companies. 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.
Each of the Funds may invest in American Depository Receipts ("ADRs"). The
Renaissance, Growth, Target, Core Equity, Mid-Cap Equity, Opportunity,
Innovation, Structured Emerging Markets, Tax-Efficient Structured Emerging
Markets, International Growth, International and Precious Metals Funds may
invest in European Depository Receipts ("EDRs") or Global Depository Receipts
("GDRs"). ADRs are dollar-denominated receipts issued generally by domestic
banks and represent the deposit with the bank of a security of a foreign issuer.
EDRs are foreign currency-denominated receipts similar to ADRs and are issued
and traded in Europe, and are publicly traded on exchanges or over-the-counter
in the United States. GDRs may be offered privately in the United States and
also trade in public or private markets in other countries. ADRs, EDRs and GDRs
may be issued as sponsored or unsponsored programs. In sponsored programs, an
issuer has made arrangements to have its securities trade in the form of ADRs,
EDRs or GDRs. In unsponsored programs, the issuer may not be directly involved
in the creation of the program. Although regulatory requirements with respect
to sponsored and unsponsored programs are generally similar, in some cases it
may be easier to obtain financial information from an issuer that has
participated in the creation of a sponsored program.
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
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involvement in the economy; 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 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. In addition, a number of emerging market countries restrict,
to various degrees, foreign investment in securities, and high rates of
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. 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.
A Fund's investments in foreign currency denominated debt obligations and
hedging activities will likely produce a difference between its book income and
its taxable income. This difference may cause a portion of the Fund's income
distributions to constitute returns of capital for tax purposes or require the
Fund to make distributions exceeding book income to qualify as a regulated
investment company for federal tax purposes.
Special Risks of Investing in Russian and Other Eastern European
Securities. The International, International Growth, Tax-Efficient Structured
Emerging Markets and Structured Emerging Markets Funds may invest a portion of
their assets in securities of issuers located in Russia and in other Eastern
European countries. The political, legal and operational risks of investing in
the securities of Russian and other Eastern European issuers, and of having
assets custodied within these countries, may be particularly acute. Investments
in Eastern European countries may involve acute risks of nationalization,
expropriation and confiscatory taxation. The communist governments of a number
of Eastern European countries expropriated large amounts of private property in
the past, in many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future. Also, certain
Eastern European countries, which do not have market economies, are
characterized by an absence of developed legal structures governing private and
foreign investments and private property.
In addition, governments in certain Eastern European countries may require
that a governmental or quasi-governmental authority act as custodian of a Fund's
assets invested in such country. To the extent such governmental or quasi-
governmental authorities do not satisfy the requirements of the 1940 Act to act
as foreign custodians of the Fund's cash and securities, the Fund's investment
in such countries may be limited or may be required to be effected through
intermediaries. The risk of loss through governmental confiscation may be
increased in such circumstances.
Investments in securities of Russian issuers may involve a particularly
high degree of risk and special considerations not typically associated with
investing in U.S. and other more developed markets, many of which stem from
Russia's continuing political and economic instability and the slow-paced
development of its market economy. Investments in Russian securities should be
considered highly speculative. Such risks and special considerations include:
(a) delays in settling portfolio transactions and the risk of loss arising out
of Russia's system of share registration and custody (see below); (b)
pervasiveness of corruption, insider trading, and crime in the Russian economic
system; (c) difficulties associated in obtaining accurate market valuations of
many Russian securities, based partly on the limited amount of publicly
available information; (d) the general financial condition of Russian companies,
which may involve particularly large amounts of inter-company debt; and (e) the
risk that the Russian tax system will not be reformed to prevent inconsistent,
retroactive and/or exorbitant taxation or, in the alternative, the risk that a
reformed tax system may result in the inconsistent and unpredictable enforcement
of the new tax laws. Also, there is the risk that the government of Russia or
other executive or legislative bodies may decide not to continue to support the
economic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries at the expense of other sectors or investors, a
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return to the centrally planned economy that existed prior to the dissolution of
the Soviet Union, or the nationalization of privatized enterprises.
A risk of particular note with respect to direct investment in Russian
securities is the way in which ownership of shares of companies is normally
recorded. Ownership of shares (except where shares are held through
depositories that meet the requirements of the 1940 Act) is defined according to
entries in the company's share register and normally evidenced by "share
extracts" from the register or, in certain limited circumstances, by formal
share certificates. However, there is no central registration system for
shareholders and these services are carried out by the companies themselves or
by registrars located throughout Russia. The share registrars are controlled by
the issuer of the securities, and investors are provided with few legal rights
against such registrars. These registrars are not necessarily subject to
effective state supervision nor are they licensed with any governmental entity.
It is possible for a Fund to lose its registration through fraud, negligence or
even mere oversight. While a Fund will endeavor to ensure that its interest
continues to be appropriately recorded, which may involve a custodian or other
agent inspecting the share register and obtaining extracts of share registers
through regular confirmations, these extracts have no legal enforceability and
it is possible that subsequent illegal amendment or other fraudulent act may
deprive the Fund of its ownership rights or improperly dilute its interests. In
addition, while applicable Russian regulations impose liability on registrars
for losses resulting from their errors, it may be difficult for a Fund to
enforce any rights it may have against the registrar or issuer of the securities
in the event of loss of share registration.
Also, although a Russian public enterprise with more than 500 shareholders
is required by law to contract out the maintenance of its shareholder register
to an independent entity that meets certain criteria, this regulation has not
always been strictly enforced in practice. Because of this lack of
independence, management of a company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent a Fund from
investing in the securities of certain Russian companies deemed suitable by the
Fund's Sub-Adviser. Further, this also could cause a delay in the sale of
Russian securities held by a Fund if a potential purchaser is deemed unsuitable,
which may expose the Fund to potential loss on the investment.
Foreign Currencies
The Renaissance, Core Equity, Mid-Cap Equity, Growth, Target, Opportunity,
Innovation, International, International Growth, Structured Emerging Markets,
Tax-Efficient Structured Emerging Markets and Precious Metals Funds invest
directly in foreign currencies and may enter into forward foreign currency
exchange contracts to reduce the risks of adverse changes in foreign exchange
rates. In addition, the Structured Emerging Markets, Tax-Efficient Structured
Emerging Markets, International, International Growth and Precious Metals Funds
may buy and sell foreign currency futures contracts and options on foreign
currencies and foreign currency futures.
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. Suitable hedging transactions may not be available in all
circumstances. Also, such hedging transactions may not be successful and may
eliminate any chance for a Fund to benefit from favorable fluctuations in
relevant foreign currencies.
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The International, International Growth, Structured Emerging Markets and
Tax-Efficient Structured Emerging Markets Funds may also enter into forward
foreign currency exchange contracts for purposes of increasing exposure to a
foreign currency or to shift exposure to foreign currency fluctuations from one
currency to another. To the extent that they do so, the International,
International Growth, Structured Emerging Markets and Tax-Efficient Structured
Emerging Markets Funds will be subject to the additional risk that the relative
value of currencies will be different than anticipated by the particular Fund's
Sub-Adviser. 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 Adviser
or a Sub-Adviser in accordance with procedures established by the Board of
Trustees 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.
Special Risks Associated with the Introduction of the Euro. The
introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the European Economic and Monetary Union
presents unique uncertainties for European securities in the markets in which
they trade and with respect to the operation of the Funds that invest in
securities denominated in European currencies and other European securities.
The introduction of the euro will result in the redenomination of European debt
and equity securities over a period of time. Uncertainties raised by the
introduction of the euro include whether the payment and operational systems of
banks and other financial institutions will function correctly, whether clearing
and settlement payment systems developed for the new currency will be suitable,
the valuation and legal treatment of outstanding financial contracts after
January 1, 1999 that refer to existing currencies rather than the euro, and
possible adverse accounting or tax consequences that may arise from the
transition to the euro. These or other factors could cause market disruptions
and could adversely affect the value of securities and foreign currencies held
by the Funds.
Bank Obligations
Bank obligations in which the Funds may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. A Fund will not invest in
fixed time deposits which (1) are not subject to prepayment or (2) provide for
withdrawal penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more than 15% of its net assets (taken at market value at the time of
investment) would be invested in such deposits, repurchase agreements maturing
in more than seven days and other illiquid assets. Each Fund may also hold
funds on deposit with its sub-custodian bank in an interest-bearing account for
temporary purposes.
Each Fund limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. A Fund
also may invest in certificates of deposit of savings and loan associations
(federally or state chartered and federally insured) having total assets in
excess of $1 billion.
The Renaissance, Growth, Target, Core Equity, Mid-Cap Equity, Opportunity,
Innovation, International, Structured Emerging Markets, Tax-Efficient Structured
Emerging Markets, International Growth and Precious Metals 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
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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 Sub-
Adviser, 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, Structured Emerging Markets,
Tax-Efficient Structured Emerging Markets, International, International Growth
and Precious Metals 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 Sub-Adviser, 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.
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 Sub-Adviser.
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 Sub-Adviser; (4) corporate obligations with a remaining maturity of
397 days or less whose issuers have outstanding short-term debt obligations
rated in the highest rating category by at least two NRSROs, or, if rated by
only one NRSRO, in such agency's highest grade, or, if unrated, determined to be
of comparable quality by the Adviser or a Sub-Adviser; and (5) repurchase
agreements with domestic commercial banks or registered broker-dealers.
Derivative Instruments
The following describes certain derivative instruments and products in
which certain Funds may invest and risks associated therewith.
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The Funds might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. Also, suitable
derivative and/or hedging transactions may not be available in all circumstances
and there can be no assurance that a Fund will be able to identify or employ a
desirable derivative and/or hedging transaction at any time or from time to
time.
Options on Securities and Indexes. As described under "Characteristics and
Risks of Securities and Investment Techniques--Derivatives" in the Prospectuses,
certain Funds may purchase and sell both put and call options on equity, 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. Among other reasons, a Fund may purchase put options to
protect holdings in an underlying or related security against a decline in
market value, and may purchase call options to protect against increases in the
prices of securities it intends to purchase pending its ability to invest in
such securities in an orderly manner.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect 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 Sub-Adviser in accordance with procedures established by the Board of
Trustees in such amount are segregated) 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 segregates assets determined to be liquid by the Adviser or
a Sub-Adviser 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 segregated by the Fund in assets
determined to be liquid by the Adviser or a Sub-Adviser in accordance with
procedures established by the Board of Trustees. A put option on a security or
an index is "covered" if the Fund segregates assets determined to be liquid by
the Sub-Adviser in accordance with procedures established by the Board of
Trustees equal to the exercise price. 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 segregated by the Fund in assets determined to be liquid by
the Adviser or a Sub-Adviser in accordance with procedures established by the
Board of Trustees.
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). In addition, 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. There can be no assurance, however, that a closing purchase or
sale transaction can be effected when the Fund desires.
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A Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset
of the Fund. The premium received for an option written by a Fund is recorded
as a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
OTC Options. The Renaissance, Growth, Target, Opportunity, Innovation,
International, International Growth and Precious Metals Funds may enter into
over-the-counter ("OTC") options transactions only with primary dealers in U.S.
Government securities and only pursuant to agreements that will assure that the
relevant Fund will at all times have the right to repurchase the option written
by it from the dealer at a specified formula price. 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, and they 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 but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying security at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security remains equal to or greater than the
exercise price (in the case of a put), or remains less than or equal to the
exercise price (in the case of a call), the Fund will lose its entire investment
in the option. Also, where a put or call option on a particular security is
purchased to hedge against price movements in a related security, the price of
the put or call option may move more or less than the price of the related
security.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position. Similarly, 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,
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such losses may be mitigated by changes in the value of the Fund's securities
during the period the option was outstanding.
For each of the International, International Growth, Renaissance, Growth,
Target, Opportunity and Innovation Funds, in the case of a written call option
on a securities index, the Fund will own corresponding securities whose historic
volatility correlates with that of the index.
Foreign Currency Options. The International, Core Equity, Mid-Cap Equity,
International Growth, Structured Emerging Markets, and Tax-Efficient Structured
Emerging Markets 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. In addition, 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. Certain Funds may use
interest rate, foreign currency or index futures contracts. The International,
Core Equity, Mid-Cap Equity, International Growth, Structured Emerging Markets
and Tax-Efficient Structured Emerging Markets 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 as an adjunct to their securities
activities. The International, Core Equity, Mid-Cap Equity, International
Growth, Renaissance, Growth, Target, Opportunity, Innovation, Enhanced Equity,
Tax-Efficient Equity, Structured Emerging Markets and Tax-Efficient Structured
Emerging Markets Funds may purchase and sell futures contracts on various
securities indexes ("Index Futures") and related options for hedging purposes
and for investment purposes. A Fund's purchase and sale of Index Futures is
limited to contracts and exchanges which have been approved by the Commodity
Futures Trading Commission ("CFTC"). Each of the International, International
Growth, Structured Emerging Markets and Tax-Efficient Structured Emerging
Markets Funds may invest to a significant degree in Index Futures on stock
indexes and related options (including those which may trade outside of the
United States) as an alternative to purchasing individual stocks in order to
adjust the Fund's exposure to a particular market. These Funds may invest in
Index Futures and related options when a Sub-Adviser 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.
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. 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 segregate initial margin 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
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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.
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.
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.
When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to segregate a specified amount of assets determined to be liquid by
the Adviser or a Sub-Adviser 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,
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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 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. The Funds may enter into positions in
futures contracts and related options for "bona fide hedging" purposes (as such
term is defined in applicable regulations of the CFTC), for example, to hedge
against changes in interest rates, foreign currency exchange rates or securities
prices. In addition, certain Funds may utilize futures contracts for investment
purposes. For instance, the International, International Growth, Structured
Emerging Markets and Tax-Efficient Structured Emerging Markets Funds may invest
to a significant degree in Index Futures on stock indexes and related options
(including those which may trade outside of the United States) as an alternative
to purchasing individual stocks in order to adjust their exposure to a
particular market. With respect to positions in futures and related options
that do not constitute bona fide hedging positions, a Fund will not enter into a
futures contract or futures option contract if, immediately thereafter, the
aggregate initial margin deposits relating to such positions plus premiums paid
by it for open futures option positions, less the amount by which any such
options are "in-the-money," would exceed 5% of the Fund's net assets. A call
option is "in-the-money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in-the-
money" if the exercise price exceeds the value of the futures contract that is
the subject of the option.
When purchasing a futures contract, a Fund will segregate (and mark-to-
market on a daily basis) assets determined to be liquid by the Adviser or a Sub-
Adviser 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 segregate (and mark-to-market
on a daily basis) assets determined to be liquid by the Adviser or a Sub-Adviser
in accordance with procedures established by the Board of Trustees that are
equal to the market value of the instruments underlying the contract.
Alternatively, the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an Index Future, a portfolio with a
volatility substantially similar to that of the Index on which the futures
contract is based), or by holding a call option permitting the Fund to purchase
the same futures contract at a price no higher than the price of the contract
written by the Fund (or at a higher price if the difference is maintained in
liquid assets with the Trust's custodian).
When selling a call option on a futures contract, a Fund will segregate
(and mark-to-market on a daily basis) assets determined to be liquid by the
Adviser or a Sub-Adviser in accordance with procedures established by the
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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 segregate (and
mark-to-market on a daily basis) assets determined to be liquid by the Adviser
or a Sub-Adviser 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.
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.
Also, 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. 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. Also, suitable hedging transactions may not be available in all
circumstances.
Additionally, 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.
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
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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. The value of some derivative
instruments in which the Funds may 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 Sub-Adviser to forecast interest rates
and other economic factors correctly. If the Sub-Adviser incorrectly forecasts
such factors and has taken positions in derivative instruments contrary to
prevailing market trends, the Funds could be exposed to risk of loss. In
addition, a Fund's use of such instruments may cause the Fund to realize higher
amounts of short-term capital gains (generally taxed to shareholders at ordinary
income tax rates) than if the Fund had not used such instruments.
Swap Agreements. The Tax-Efficient Equity, Structured Emerging Markets and
Tax-Efficient Structured Emerging Markets Funds may enter into equity index swap
agreements for purposes of attempting to gain exposure to the stocks making up
an index of securities in a market without actually purchasing those stocks.
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 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 any amounts owing to the Fund) and any accrued but unpaid net
amounts owed to a swap counter party will be covered by segregating assets
determined to be liquid by the Adviser or a Sub-Adviser in accordance with
procedures established by the Board of Trustees, to avoid any potential
leveraging of the Fund's portfolio. Obligations under swap agreements so covered
will not be construed to be "senior securities" for purposes of a Fund's
investment restriction concerning senior securities. A Fund will not enter into
a swap agreement with
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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 Sub-Adviser's ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. 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).
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 segregate until the settlement date
assets determined to be liquid by the Adviser or a Sub-Adviser in accordance
with procedures established by the Board of Trustees in an amount sufficient to
meet the purchase price. Typically, no income accrues on securities purchased
on a delayed delivery basis prior to the time delivery of the securities is
made, although a Fund may earn income on segregated securities. 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) segregates until the settlement date assets determined to be liquid
by the Adviser or a Sub-Adviser in accordance with procedures established by the
Board of Trustees in an amount sufficient to meet the purchase price or (ii)
enters into an offsetting contract for the forward sale of securities of equal
value that it owns. Certain Funds may enter into forward commitments for the
purchase or sale of foreign currencies. Forward commitments may be considered
securities in themselves. They involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in value of the Fund's other assets. A Fund may
dispose of a commitment prior to settlement and may realize short-term profits
or losses upon such disposition.
Warrants to Purchase Securities
Certain Funds may invest in warrants to purchase equity or fixed income
securities. Bonds with warrants attached to purchase equity securities have
many characteristics of convertible bonds and their prices may, to some degree,
reflect the performance of the underlying stock. Bonds also may be issued with
warrants attached to purchase additional fixed income securities at the same
coupon rate. A decline in interest rates would permit a Fund
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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.
Repurchase Agreements
For the purposes of maintaining liquidity and achieving income, each Fund
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. This risk includes the risk of procedural costs or delays in
addition to a loss on the securities if their value should fall below their
repurchase price. The Adviser and the Sub-Advisers, as appropriate, will
monitor the creditworthiness of the counter parties.
Securities Loans
Subject to certain conditions described in the Prospectuses and below, each
of the Equity Income, Value, Tax-Efficient Equity, Enhanced Equity, Value 25,
Mega-Cap, Capital Appreciation, Mid-Cap Growth, Small-Cap Value, Small-Cap
Growth, Core Equity, Mid-Cap Equity, Target, Micro-Cap Growth, Structured
Emerging Markets and Tax-Efficient Structured Emerging Markets Funds may make
secured loans of its portfolio securities to brokers, dealers and other
financial institutions amounting to no more than 331/3% of its total assets, and
each of the Renaissance, Growth, Opportunity, Innovation, International,
International Growth and Precious Metals Funds may make such loans amounting to
no more than 25% of its total assets. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. However, such loans will be made only to broker-
dealers that are believed by the Adviser or the Sub-Advisers 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 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 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 and obtain the return of the
securities loaned 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. 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.
Stocks of Small and Medium Capitalization Companies
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. 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
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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 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.
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 Sub-Adviser may be subject to
significant delays in disposing of illiquid securities, and transactions in
illiquid securities may entail registration expenses and other transaction costs
that are higher than 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 Sub-Adviser'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 Sub-
Adviser has determined to be liquid under procedures approved by the Board of
Trustees).
Inflation-Indexed Bonds
Certain Funds may invest in inflation-indexed bonds, which are fixed income
securities whose value is periodically adjusted according to the rate of
inflation. Two structures are common. The U.S. Treasury and some other issuers
utilize a structure that accrues inflation into the principal value of the bond.
Most other issuers pay out the Consumer Price Index ("CPI") accruals as part of
a semiannual coupon.
Inflation-indexed securities issued by the U.S. Treasury have maturities of
approximately five, ten or thirty years, although it is possible that securities
with other maturities will be issued in the future. The U.S. Treasury securities
pay interest on a semi-annual basis equal to a fixed percentage of the
inflation-adjusted principal amount. For example, if a Fund 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 the rate of inflation over the first
six months was 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%).
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If inflation during the second half of the year resulted in the whole year's
inflation equaling 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. A Fund may also
invest in other inflation-related bonds which may or may not provide a similar
guarantee. If a guarantee of principal is not provided, the adjusted principal
value of the bond repaid at maturity may be less than the original principal
amount.
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 the rate of inflation rises 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 increase at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.
The 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.
Delayed Funding Loans and Revolving Credit Facilities
The Funds may also enter into, or acquire participations in, delayed
funding loans and revolving credit facilities. Delayed funding loans and
revolving credit facilities are borrowing arrangements in which the lender
agrees to make loans up to a maximum amount upon demand by the borrower during a
specified term. A revolving credit facility differs from a delayed funding loan
in that as the borrower repays the loan, an amount equal to the repayment may be
borrowed again during the term of the revolving credit facility. These
commitments may have the effect of requiring a Fund to increase its investment
in a company at a time when it might not otherwise decide to do so (including a
time wh/en the company's financial condition makes it unlikely that such amounts
will be repaid).
The Funds may acquire a participation interest in delayed funding loans or
revolving credit facilities from a bank or other financial institution. See
"Loan Participations and Assignments." The terms of the participation require a
Fund to make a pro rata share of all loans extended to the borrower and entitles
a Fund to a pro rata share of all payments made by the borrower. Delayed
funding loans and revolving credit facilities usually provide for floating or
variable rates of interest. To the extent that a Fund is committed to advance
additional funds, it will at all times segregate assets, determined to be liquid
by the Adviser or a Sub-Adviser in accordance with procedures established by the
Board of Trustees, in an amount sufficient to meet such commitments.
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Catastrophe Bonds
The Funds may invest in "catastrophe bonds." Catastrophe bonds are fixed
income securities, for which the return of principal and payment of interest is
contingent on the non-occurrence of a specific "trigger" catastrophic event,
such as a hurricane or an earthquake. They may be issued by government
agencies, insurance companies, reinsurers, special purpose corporations or other
on-shore or off-shore entities. If a trigger event causes losses exceeding a
specific amount in the geographic region and time period specified in a bond, a
Fund investing in the bond may lose a portion or all of its principal invested
in the bond. If no trigger event occurs, the Fund will recover its principal
plus interest. For some catastrophe bonds, the trigger event or losses may be
based on company wide losses, index-portfolio losses, industry indices or
readings of scientific instruments rather than specified actual losses. Often
the catastrophe bonds provide for extensions of maturity that are mandatory, or
optional at the discretion of the issuer, in order to process and audit loss
claims in those cases where a trigger event has, or possibly has, occurred. In
addition to the specified trigger events, catastrophe bonds may also expose a
Fund to certain unanticipated risks including but not limited to issuer (credit)
default, adverse regulatory or jurisdictional interpretations and adverse tax
consequences.
Catastrophe bonds are a relatively new type of financial instrument. As
such, there is no significant trading history of these securities, and there can
be no assurance that a liquid market in these instruments will develop. See
"Characteristics and Risks of Securities and Investment Techniques--Illiquid
Securities" in the Class A, B and C, Class D and Institutional Prospectuses.
Lack of a liquid market may impose the risk of higher transaction costs and the
possibility that a Fund may be forced to liquidate positions when it would not
be advantageous to do so. Catastrophe bonds are typically rated, and the Fund
will only invest in catastrophe bonds that meet the credit quality requirements
for the Fund.
Hybrid Instruments
The Funds may invest in "hybrid" or indexed securities. A hybrid
instrument can combine the characteristics of securities, futures, and options.
For example, the principal amount or interest rate of a hybrid could be tied
(positively or negatively) to the price of some commodity, currency or
securities index or another interest rate (each a "benchmark"). The interest
rate or (unlike most fixed income securities) the principal amount payable at
maturity of a hybrid security may be increased or decreased, depending on
changes in the value of the benchmark.
Hybrids can be used as an efficient means of pursuing a variety of
investment goals, including currency hedging, duration management, and increased
total return. Hybrids may not bear interest or pay dividends. The value of a
hybrid or its interest rate may be a multiple of a benchmark and, as a result,
may be leveraged and move (up or down) more steeply and rapidly than the
benchmark. These benchmarks may be sensitive to economic and political events,
such as commodity shortages and currency devaluations, which cannot be readily
foreseen by the purchaser of a hybrid. Under certain conditions, the redemption
value of a hybrid could be zero. Thus, an investment in a hybrid may entail
significant market risks that are not associated with a similar investment in a
traditional, U.S. dollar-denominated bond that has a fixed principal amount and
pays a fixed rate or floating rate of interest. The purchase of hybrids also
exposes a Fund to the credit risk of the issuer of the hybrids. These risks may
cause significant fluctuations in the net asset value of a Fund. Accordingly,
no Fund will invest more than 5% of its assets (taken at market value at the
time of investment) in hybrid instruments.
Certain issuers of structured products such as hybrid instruments may be
deemed to be investment companies as defined in the 1940 Act. As a result, a
Fund's investments in these products will be subject to limits applicable to
investments in investment companies and may be subject to restrictions contained
in the 1940 Act.
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Precious Metals and Metal-Indexed Notes
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 Sub-
Adviser has determined to be of similar creditworthiness. Debt obligations
rated in the fourth highest rating category by an NRSRO are considered to have
some speculative characteristics. The Metal-Indexed Notes might be backed by a
bank letter of credit, performance bond or might be otherwise secured, and any
such security, which would be held by the Fund's custodian, would be taken into
account in determining the creditworthiness of the securities. The Precious
Metals Fund might purchase unsecured Metal-Indexed Notes if the issuer thereof
met the Fund's credit standards without any such security. While the principal
amount or redemption price of Metal-Indexed Notes would vary with the price of
the resource, such securities would not be secured by a pledge of the resource
or any other security interest in or claim on the resource. In the case of
Metal-Indexed Notes not backed by a performance bond, letter of credit or
similar security, it is expected that such securities generally would not be
secured by any other specific assets.
The Precious Metals Fund anticipates that if Metal-Indexed senior
securities were to be purchased, such securities would be issued by precious
metals or commodity brokers or dealers, by mining companies, by commercial banks
or by other financial institutions. Such issuers would issue notes to hedge
their inventories and reserves of the resource, or to borrow money at a
relatively low cost (which would include the nominal rate of interest paid on
Metal-Indexed Notes, described below, and the cost of hedging the issuer's
metals exposure). The Precious Metals Fund would not purchase a Metal-Indexed
Note issued by a broker or dealer if as a result of such purchase more than 5%
of the value of the Fund's total assets would be invested in securities of such
issuer. The Precious Metals Fund might purchase Metal-Indexed Notes from
brokers or dealers which are not also securities brokers or dealers. Precious
metals or commodity brokers or dealers are not subject to supervision or
regulation by any governmental authority or self-regulatory organization in
connection with the issuance of Metal-Indexed Notes.
Until fairly recently, there were no Metal-Indexed Notes outstanding and
consequently there is no secondary trading market for such securities. Although
a limited secondary market might develop among institutional traders, there is
no assurance that such a market will develop. No public market is expected to
develop, since the Precious Metals Fund expects that Metal-Indexed Notes will
not be registered under the 1933 Act, and therefore disposition of such
securities, other than to the issuer thereof (as described below), would be
dependent upon the availability of an exemption from such registration.
Any Metal-Indexed Notes which the Precious Metals Fund might purchase
generally will have maturities of one year or less. Such notes, however, will
be subject to being called for redemption by the issuer on relatively short
notice. In addition, it is expected that the Metal-Indexed Notes will be
subject to being put by the Precious Metals Fund to the issuer or to a stand-by
broker meeting the credit standards set forth above, with payments being
received by the Precious Metals Fund on no more than seven days' notice. A
stand-by broker might be a securities broker-dealer, in which case the Precious
Metals Fund's investment will be limited by applicable regulations of the
Securities and Exchange Commission (the "SEC"). The put feature of the Metal-
Indexed Notes will ensure liquidity even in the absence of a secondary trading
market. The securities will be repurchased upon exercise of the holder's put at
the specified exercise price, less repurchase fees, if any, which are not
expected to exceed 1% of the 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
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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.
Investment Strategies of the Portfolios - Incorporation by Reference
The 90/10 Portfolio, 60/40 Portfolio and 30/70 Portfolio invest all of
their assets in Underlying PIMCO Funds, which include certain Funds of the Trust
and series of PIMS as specified in the Retail Portfolio Prospectus and
Institutional Portfolio Prospectus. By investing in Underlying PIMCO Funds, the
Portfolios may be subject to some or all of the risks associated with the
securities, instruments and techniques utilized by the Funds described above.
They may also be subject to additional risks associated with other securities,
instruments and techniques utilized by Underlying Funds which are series of
PIMS. The PIMS series and their attendant risks as described in the current
PIMS prospectus for Institutional Class and Administrative Class shares and PIMS
statement of additional information, which are included in the PIMS registration
statement (File Nos. 033-12113 and 811-5028) on file with the Securities and
Exchange Commission. The current PIMS prospectus and statement of additional
are each on file with the Securities and Exchange Commission and are
incorporated in this document by reference. The PIMS documents may also be
obtained free of charge by calling PIMCO Funds Distributors LLC at 1-800-426-
0107.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The investment restrictions set forth below are fundamental policies of the
Renaissance, Growth, Target, Opportunity, Innovation, International,
International Growth and Precious Metals Funds and may not be changed with
respect to any such Fund without shareholder approval by vote of a majority of
the outstanding voting securities of that Fund. Under these restrictions, none
----
of the above-mentioned Funds may:
(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
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(6) concentrate more than 25% of the value of its total assets in any one
industry; except that the Precious Metals Fund will concentrate more than 25% of
its total assets in securities of companies principally engaged in the
extraction, processing, distribution or marketing of precious metals, and the
Innovation Fund will concentrate more than 25% of its assets in companies which
use innovative technologies to gain a strategic, competitive advantage in their
industry as well as companies that provide and service those technologies.
The investment objective of each of the above-referenced Funds and the Tax-
Efficient Equity, Value 25 and Tax-Efficient Structured Emerging Markets Funds
is non-fundamental and may be changed with respect to each such Fund by the
Trustees without shareholder approval.
The investment restrictions set forth below are fundamental policies of
each of the Equity Income, Value, Tax-Efficient Equity, Enhanced Equity, Value
25, Mega-Cap, Capital Appreciation, Mid-Cap Growth, Small-Cap Value, Small-Cap
Growth, Core Equity, Mid-Cap Equity, Micro-Cap Growth, Structured Emerging
Markets and Tax-Efficient Structured Emerging Markets 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 Mega-Cap, Tax-Efficient Equity,
Value 25 and Tax-Efficient Structured Emerging Markets Funds) is also
fundamental and may not be changed without such shareholder approval. Under the
following restrictions, none of the above-mentioned Funds may:
----
(1) invest in a security if, as a result of such investment, more than 25%
of its total assets (taken at market value at the time of such investment) would
be invested in the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements with
respect thereto);
(2) with respect to 75% of its assets, invest in a security if, as a
result of such investment, more than 5% of its total assets (taken at market
value at the time of such investment) would be invested in the securities of any
one 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
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purchase of securities on a when-issued or delayed delivery basis and collateral
arrangements with respect to initial or variation margin deposits for futures
contracts, options on futures contracts, and forward foreign currency contracts
will not be deemed to be pledges of such Fund's assets);
(8) issue senior securities, except insofar as such Fund may be deemed to
have issued a senior security by reason of borrowing money in accordance with
the Fund's borrowing policies, and except for purposes of this investment
restriction, collateral, escrow, or margin or other deposits with respect to the
making of short sales, the purchase or sale of futures contracts or related
options, purchase or sale of forward foreign currency contracts, and the writing
of options on securities are not deemed to be an issuance of a senior security;
(9) lend any funds or other assets, except that such Fund may, consistent
with its investment objective and policies: (a) invest in debt obligations,
including bonds, debentures, or other debt securities, bankers' acceptances and
commercial paper, even though the purchase of such obligations may be deemed to
be the making of loans, (b) enter into repurchase agreements and reverse
repurchase agreements, and (c) lend its portfolio securities in an amount not to
exceed one-third of the value of its total assets, provided such loans are made
in accordance with applicable guidelines established by the SEC and the Trustees
of the Trust; or
(10) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under the federal securities laws.
Notwithstanding the provisions of fundamental investment restrictions (7)
and (8) above, a Fund may borrow money for temporary administrative purposes.
To the extent that borrowings for temporary administrative purposes exceed 5% of
the total assets of a Fund, such excess shall be subject to the 300% asset
coverage requirement of fundamental investment restriction (7).
The investment restrictions set forth below are fundamental policies of the
90/10 Portfolio, the 60/40 Portfolio and the 30/70 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 Prospectus(es) 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
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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 the provisions of fundamental investment restrictions (5)
and (6) above, a Portfolio may borrow money for temporary administrative
purposes. To the extent that borrowings for temporary administrative purposes
exceed 5% of the total assets of a Portfolio, such excess shall be subject to
the 300% asset coverage requirement of fundamental investment restriction (5).
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 the Trustees without
shareholder approval.
Non-Fundamental Investment Restrictions
Each Fund (but not any Portfolio) is also subject to the following non-
fundamental restrictions and policies (which may be changed without shareholder
approval) and, unless otherwise indicated, may not:
(1) invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities the disposition of which is restricted under
federal securities laws, (c) repurchase agreements maturing in more than seven
days, (d) OTC options (to the extent described above under "Derivative
Instruments -- OTC Options"), and (e) IO/PO SMBS (as described above under
"Mortgage-Related and Asset-Backed Securities -- Stripped Mortgage - Backed
Securities") if, as a result, more than 15% of a Fund's net assets, taken at
current value, would then be invested in securities described in (a), (b), (c),
(d) and (e) above. For the purpose of this restriction, securities subject to a
7-day put option or convertible into readily saleable securities or commodities
are not included with subsections (a) or (b);
(2) purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities. (For this
purpose, the deposit or payment by a Fund of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.);
(3) make short sales of securities or maintain a short position for the
account of a Fund unless at all times when a short position is open such Fund
owns an equal amount of such securities or owns or has the right to acquire
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securities which, without payment of any further consideration, are convertible
into or exchangeable for securities of the same issue as, and equal in amount
to, the securities sold short;
(4) purchase or sell commodities or commodity contracts except that a Fund
may purchase and sell financial futures contracts and related options and the
Precious Metals Fund may purchase and sell precious metals and other commodities
and futures thereon;
(5) with respect to the Renaissance, Growth, Target, Opportunity,
Innovation, International, International Growth and Precious Metals Funds, make
loans, except by purchase of debt obligations or by entering into repurchase
agreements or through the lending of the Fund's portfolio securities with
respect to not more than 25% of its total assets (33 1/3% in the case of the
Target Fund);
(6) with respect to the Renaissance, Growth, Target, Opportunity,
Innovation, International, International Growth and Precious Metals Funds, and
in each case with respect to 75% of such Fund's total assets, invest in
securities of any issuer if, immediately after such investment, more than 5% of
the total assets of such Fund (taken at current value) would be invested in the
securities of such issuer; provided that this limitation does not apply to bank
certificates of deposit or to obligations issued or guaranteed as to interest
and principal by the U.S. government or its agencies or instrumentalities;
(7) purchase securities the disposition of which is restricted under the
federal securities laws (excluding for purposes of this restriction securities
offered and sold pursuant to Rule 144A of the 1933 Act and Section 4(2)
commercial paper) if, as a result, such investments would exceed 15% of the
value of the net assets of the relevant Fund;
(8) write (sell) or purchase options except that each Fund may (a) write
covered call options or covered put options on securities that it is eligible to
purchase and enter into closing purchase transactions with respect to such
options, and (b) in combination therewith, or separately, purchase put and call
options on securities it is eligible to purchase, and (c) each Fund may engage
in options on securities indexes, options on foreign currencies, options on
futures contracts, and options on other financial instruments or one or more
groups of instruments; provided that the premiums paid by each Fund on all
outstanding options it has purchased do not exceed 5% of its total assets. Each
Fund may enter into closing sale transactions with respect to options it has
purchased;
(9) invest more than 15% of the net assets of a Fund (taken at market
value at the time of the investment) in "illiquid securities," illiquid
securities being defined to include repurchase agreements maturing in more than
seven days, certain loan participation interests, fixed time deposits which are
not subject to prepayment or provide withdrawal penalties upon prepayment (other
than overnight deposits), or other securities which legally or in the Adviser's
or Sub-Adviser'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 Sub-Adviser has determined to be liquid under procedures approved by
the Board of Trustees); or
(10) borrow money (excluding reverse repurchase agreements which are
subject to such Fund's fundamental borrowing restriction), except for temporary
administrative purposes.
The Trust has not adopted any non-fundamental investment restrictions or
policies for the 90/10 Portfolio, 60/40 Portfolio or 30/70 Portfolio.
Unless otherwise indicated, all limitations applicable to a Fund's or
Portfolio's 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 a Fund's or Portfolio's assets invested in certain securities or
other instruments resulting from market fluctuations or other changes in a
Fund's or Portfolio's total assets will not require the Fund or Portfolio to
dispose of an investment until the Adviser or Sub-Adviser determines that it is
practicable to sell or close out the investment without undue market or tax
consequences to the Fund or Portfolio. In the event that ratings services
assign different ratings to the same security, the Adviser
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or Sub-Adviser will determine which rating it believes best reflects the
security's quality and risk at that time, which may be the higher of the several
assigned ratings.
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, the Portfolio or the Trust, as the case may be,
or (2) 67% or more of the shares of the Fund, the Portfolio or the Trust, as the
case may be, present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.
MANAGEMENT OF THE TRUST
Trustees and Officers
The business of the Trust is managed under the direction of the Trust's
Board of Trustees. Subject to the provisions of the Trust's Declaration of
Trust, its By-Laws and Massachusetts law, the Trustees have all powers necessary
and convenient to carry out this responsibility, including the election and
removal of the Trust's officers.
The Trustees and officers 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 and officer'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). Unless otherwise indicated, the business address of the persons
listed below is 840 Newport Center Drive, Suite 300, Newport Beach, California
92660.
<TABLE>
<CAPTION>
Name, Address and Age Position(s) With the Trust Principal Occupation(s) During the Past Five Years
- --------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
E. Philip Cannon Trustee Proprietor, Cannon & Company, an affiliate of
3838 Olympia Inverness Management LLC, a private equity
Houston, TX 77019 investment firm. Formerly, Headmaster, St. John's
Age 58 School, Houston, Texas; Trustee of PIMCO Advisors
Funds ("PAF") and Cash Accumulation Trust ("CAT");
General Partner, J.B. Poindexter & Co., Houston,
Texas, a private partnership; and Partner, Iberia
Petroleum Company, an oil and gas production
company. Mr. Cannon was a director of WNS Inc., a
retailing company which filed a petition in
bankruptcy within the last five years.
Donald P. Carter Trustee Formerly, Trustee of PAF and CAT; Chairman,
434 Stable Lane Executive Vice President and Director, Cunningham &
Lake Forest, IL 60045 Walsh, Inc., Chicago, an advertising agency.
Age 72
Gary A. Childress Trustee Private investor. Formerly, Chairman and Director,
11 Longview Terrace Bellefonte Lime Company, Inc., and partner in
Madison, CT 06443 GenLime, L.P., a private limited partnership which
Age 65 filed a petition in bankruptcy within the last five
years. Formerly, Trustee of PAF and CAT.
</TABLE>
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<TABLE>
<CAPTION>
Name, Address and Age Position(s) With the Trust Principal Occupation(s) During the Past Five Years
- --------------------- --------------------------- -----------------------------------------------------
<S> <C> <C>
William D. Cvengros* Trustee Chairman of the Board of the Trust; Chief Executive
800 Newport Center Drive Officer, President, and member of the Management
Newport Beach, CA 92660 Board, PIMCO Advisors; Chairman, Value Advisors LLC;
Age 50 Co-Chairman, The 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.; Chairman
and Director, PIMCO Funds: Global Investors Series
plc and PIMCO Global Advisors (Ireland) Limited.
Formerly, Trustee of PAF and CAT; President of the
Trust; Director, Vice Chairman, and Chief Investment
Officer, Pacific Life Insurance Company ("Pacific
Life"); and Director, PIMCO Funds Distribution
Company (currently, PIMCO Funds Distributors LLC).
Richard L. Nelson Trustee President, Nelson Financial Consultants; Director,
8 Cherry Hills Lane Wynn's International, Inc., a building supplies
Newport Beach, CA 92660 company; and Trustee, Pacific Select Fund.
Age 69 Formerly, Partner, Ernst & Young.
Lyman W. Porter Trustee Professor of Management at the University of
2639 Bamboo Street California, Irvine; and Trustee, Pacific Select Fund.
Newport Beach, CA 92660
Age 69
Alan Richards Trustee Retired Chairman of E.F. Hutton Insurance Group;
7381 Elegans Place Former Director of E.F. Hutton and Company, Inc.;
Carlsbad, CA 92009 Chairman of IBIS Capital, LLC, a reverse mortgage
Age 69 company; Director, Inspired Arts, Inc.; Former
Director of Western National Corporation.
Joel Segall Trustee Formerly, Trustee of PAF and CAT, President and
11 Linden Shores University Professor, Bernard M. Baruch College, The
Branford, CT 06405 City University of New York; Deputy Under Secretary
Age 76 for International Affairs, United States Department
of Labor; Professor of Finance, University of
Chicago; and Board of Managers, Coffee, Sugar and
Cocoa Exchange.
W. Bryant Stooks Trustee President, Bryant Investments, Ltd.; Director,
9701 E. Happy Valley Rd. American Agritec LLC, a manufacturer of hydrophonics
# 15 products; and Director, Valley Isle Excursions,
Scottsdale, AZ 85255 Inc., a tour operator. Formerly, Trustee of PAF and
Age 59 CAT, President, Senior Vice President, Director and
Chief Executive Officer, Archirodon Group Inc.;
Partner, Arthur Andersen & Co.
</TABLE>
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<TABLE>
<CAPTION>
Name, Address and Age Position(s) With the Trust Principal Occupation(s) During the Past Five Years
- --------------------- --------------------------- -----------------------------------------------------
<S> <C> <C>
Gerald M. Thorne Trustee Director, VPI Inc., a plastics company, and American
5 Leatherwood Lane Orthodontics Corp. Formerly, Trustee of PAF and
Savannah, GA 31414 CAT; Director, Kaytee, Inc., a birdseed company;
Age 61 President and Director, Firstar National Bank of
Milwaukee; Chairman, President and Director,
Firstar National Bank of Sheboygan; Director,
Bando-McGlocklin, a small business investment
company.
Stephen J. Treadway* Trustee, President and Executive Vice President, PIMCO Advisors;
2187 Atlantic Street Chief Executive Officer Chairman and President, PIMCO Funds
Stamford, CT 06902 Distributors LLC ("PFD"); Executive Vice
Age 52 President, Value Advisors LLC; Chairman,
Municipal Advantage Fund, Inc. and The
Central European Value Fund, Inc.;
President, The 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, President and Chief Executive
Officer of CAT; Executive Vice President,
Smith Barney Inc.
R. Wesley Burns Executive Vice Trustee and President, PIMS; Managing
Age 40 President Director, Pacific Investment Management;
Trustee and President, PIMCO Variable
Insurance Trust ("PVIT"); Director and
President, PIMCO Commercial Mortgage
Securities Trust, Inc. ("PCM"); Director,
PIMCO Funds: Global Investors Series plc,
and PIMCO Global Advisors (Ireland) Limited.
Formerly, Executive Vice President, Pacific
Investment Management, PAF and CAT.
Newton B. Schott, Jr. Vice President and Director, Executive Vice President, Chief
2187 Atlantic Street Secretary Administrative Officer, General Counsel and
Stamford, CT 06902 Secretary, PFD; Senior Vice President, Value
Age 57 Advisors LLC; Executive Vice President, The
Emerging Markets Income Fund, Inc., The
Emerging Markets Income Fund II, Inc., The
Emerging Markets Floating Rate Fund, Inc.,
The Central European Value Fund, Inc.,
Global Partners Income Fund, Inc., Municipal
Advantage Fund, Inc., Municipal Partners
Fund, Inc. and Municipal Partners Fund II,
Inc. Formerly, Vice President and Clerk of
PAF and CAT.
Jeffrey M. Sargent Vice President Vice President and Manager Shareholder
Age 36 Services and Fund Administration, Pacific
Investment Management; Senior Vice President
of PIMS, PVIT and PCM.
</TABLE>
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<TABLE>
<CAPTION>
Name, Address and Age Position(s) With the Trust Principal Occupation(s) During the Past Five Years
- --------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
Richard M. Weil Vice President General Counsel, Senior Vice President and
Age 36 Secretary, PIMCO Advisors. Formerly, Vice
President, Bankers Trust Company; Associate,
Simpson, Thatcher & Bartlett.
John P. Hardaway Treasurer Senior Vice President and Manager of
Age 42 Investment Operations Accounting, Pacific
Investment Management; Treasurer, PIMS, PVIT
and PCM. Formerly, Vice President, Pacific
Investment Management.
Joseph D. Hattesohl Assistant Treasurer Vice President and Manager of Financial
Age 35 Reporting and Taxation, Pacific Investment
Management; Assistant Treasurer, PIMS, PVIT
and PCM. Formerly, Manager of Fund
Taxation, Pacific Investment Management,
Director of Financial Reporting, Carl J.
Brown & Co.; Tax Manager, Price Waterhouse
LLP.
Garlin G. Flynn Assistant Secretary Specialist, Pacific Investment Management;
Age 53 Secretary, PIMS, PVIT and PCM. Formerly,
Senior Fund Administrator, Pacific
Investment Management; Senior Mutual Fund
Analyst, PIMCO Advisors Institutional
Services.
</TABLE>
* Trustee, is an "interested person" of the Trust (as defined in Section
2(a)(19) of the 1940 Act).
Trustees' Compensation
Trustees, other than those affiliated with PIMCO Advisors, a Sub-Adviser,
or Pacific Investment Management, receive an annual retainer of $47,000, plus
$2,000 for each Board of Trustees meeting attended ($1,000 if the meeting is
attended by telephone), and $1,000 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 $2,000,
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 Independent
Trustees receives an additional annual retainer of $3,000. If in the judgment
of the Independent Trustees, it is necessary or appropriate for any Independent
Trustee, including the Chairman, to perform services in connection with
extraordinary Fund activities or circumstances, the Trustee shall be compensated
for such services at the rate of $2,000 per day, plus reimbursement of
reasonable expenses. 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.
-37-
<PAGE>
The following table sets forth information regarding compensation received
by those Trustees who are not "interested persons" (as defined in the 1940 Act)
of the Trust for the fiscal year ended June 30, 1999:
<TABLE>
<CAPTION>
(1) (2) (3)
Total
Aggregate Compensation from
Compensation from Trust and Fund
Name of Trustee Trust Complex/1/
--------------- ----------------- ------------------
<S> <C> <C>
E. Philip Cannon/2/ $57,000.00 $ 57,000.00
Donald P. Carter $66,500.00 $ 66,500.00
Gary A. Childress $58,000.00 $ 58,000.00
Richard L. Nelson $58,500.00 $ 96,500.00
Lyman W. Porter/2/ $57,000.00 $ 96,000.00
Alan Richards $62,000.00 $100,000.00
Joel Segall $58,000.00 $ 58,000.00
W. Bryant Stooks $56,500.00 $ 56,500.00
Gerald M. Thorne/2/ $57,500.00 $ 57,500.00
</TABLE>
Investment Adviser
PIMCO Advisors serves as investment adviser to each of the Funds and
Portfolios 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 ("Pac Life"), and PIMCO Partners LLC, a California
limited liability company controlled by the current Managing Directors and two
former Managing Directors of Pacific Investment Management (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.
PGP and PAH have substantially delegated their management and control of
PIMCO Advisors to a Management Board. 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
representatives of the Public General Partner or, if there is no Public General
Partner, PGP or its successor as general partner of PIMCO Advisors; (iv) the
Chief
- --------------------
/1/ The amounts listed in column (3) include total compensation paid to the
Trustees for their services as Trustees of the Trust (for all Trustees) and
Pacific Select Fund (for Messrs. Nelson, Porter, and Richards) for the twelve-
month period ended June 30, 1999. By virtue of having PIMCO Advisors or an
affiliate of PIMCO Advisors as investment adviser, the Trust and Pacific Select
Fund were considered to be part of the same "Fund Complex" for these purposes.
/2/ The Trust has adopted a deferred compensation plan (the "Plan") which went
into place during fiscal 1997. 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 -
$57,000, $57,000; Porter - $57,000, $57,000; and Thorne - $57,500, $57,500.
-38-
<PAGE>
Executive Officer and one Managing Director of each of the two Investment
Managing Companies having the greatest total income, determined as of the date
of appointment; and (v) one Managing Director of each of two other Investment
Managing Companies 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.
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 four members. The members of the Executive Committee are William
D. Cvengros, Brent R. Harris, Glenn S. Schafer and William S. Thompson, Jr.
PIMCO Advisors, PGP and PAH are located at 800 Newport Center Drive,
Newport Beach, California 92660. PIMCO Advisors and its subsidiary partnerships
had approximately $256 billion of assets under management as of September 30,
1999.
Agreement with Allianz AG
- -------------------------
On October 31, 1999, PIMCO Advisors, PAH and Allianz AG announced that they
have reached a definitive agreement for Allianz, a German insurance company, to
acquire majority ownership of PIMCO Advisors and its subsidiaries, including
Pacific Investment Management, Cadence, NFJ and Parametric (the "Allianz
Transaction"). In the Allianz Transaction, Allianz will acquire all of PAH, the
publicly traded general partner of PIMCO Advisors. Pac Life will retain an
approximately 30% interest in PIMCO Advisors after the Allianz Transaction. The
consummation of the Allianz Transaction is subject to the approval of the public
unitholders of PAH, as well as to certain regulatory and client approvals. The
approval of the Board of Trustees of the Trust and the shareholders of the Funds
and Portfolios will be sought in connection with the Allianz Transaction. The
Allianz Transaction is expected to be completed by the end of the first quarter
of 2000.
This Statement of Additional Information will be supplemented or revised if
the Allianz Transaction does not occur substantially as set forth above.
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
Portfolios and for managing, either directly or through others selected by the
Adviser, the investment of the Funds and Portfolios. PIMCO Advisors also
furnishes to the Board of Trustees periodic reports on the investment
performance of each Fund and Portfolio. As more fully discussed below, for all
of the Funds except the Growth, Target, Opportunity, Innovation, Renaissance,
International, Core Equity, Mid-Cap Equity, International Growth and Precious
Metals Funds, PIMCO Advisors has engaged affiliates to serve as Sub-Advisers.
The PIMCO Equity Advisors division ("PIMCO Equity Advisors") of PIMCO Advisors
manages the investment portfolios of the Growth, Target, Opportunity,
Innovation, Renaissance, Core Equity, Mid-Cap Equity and International Growth
Funds. Acting in this capacity, PIMCO Equity Advisors is also referred to
herein as a "Sub-Adviser." If a Sub-Adviser ceases to manage the portfolio of a
Fund, PIMCO Advisors will either assume full responsibility for the management
of that Fund, or retain a new Sub-Adviser subject to the approval of the
Trustees and, if required, the Fund's shareholders.
PIMCO Advisors' Asset Allocation Committee is responsible for determining
how the assets of the 90/10 Portfolio, the 60/40 Portfolio and the 30/70
Portfolio are allocated and reallocated from time to time among the Underlying
PIMCO Funds. The Portfolios do not pay any fees to PIMCO Advisors in return for
these services under the Advisory Agreement. The Portfolios do, however,
indirectly pay a proportionate share of the advisory fees paid to PIMCO Advisors
and Pacific Investment Management by the Underlying PIMCO Funds in which the
Portfolios invest.
Under the terms of the Advisory Agreement, PIMCO Advisors is obligated to
manage the Funds and the Portfolios 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.
-39-
<PAGE>
The Advisory Agreement will continue in effect with respect to a Fund and
Portfolio 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 Portfolio, or by
the Board of Trustees, and (ii) by a majority of the Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the Advisory Agreement. The Advisory
Agreement may be terminated without penalty by vote of the Trustees or the
shareholders of the Trust, or by the Adviser, on 60 days' written notice to the
other party and will terminate automatically in the event of its assignment. In
addition, the Advisory Agreement may be terminated with regard to the
Renaissance, Growth, Target, Opportunity, Innovation, International and Precious
Metals Funds by vote of a majority of the Trustees who are not interested
persons of PIMCO Advisors, on 60 days' written notice to PIMCO Advisors.
The Adviser currently receives a monthly investment advisory fee from each
Fund at the following annual rates (based on the average daily net assets of the
particular Funds):
<TABLE>
<CAPTION>
Fund Advisory
- ---- Fee Rate
--------
<S> <C>
Equity Income, Value, Tax-Efficient Equity, Mega-Cap, Capital Appreciation,
Mid-Cap Growth, Structured Emerging Markets, Tax-Efficient
Structured Emerging Markets and Enhanced Equity Funds............................ .45%
Growth and Value 25 Funds......................................................... .50%
International and Target Funds.................................................... .55%
Core Equity Fund.................................................................. .57%
Small-Cap Value, Renaissance and Precious Metals Funds............................ .60%
Mid-Cap Equity Fund............................................................... .63%
Opportunity and Innovation Funds.................................................. .65%
International Growth Fund......................................................... .85%
Small-Cap Growth Fund............................................................. 1.00%
Micro-Cap Growth Fund............................................................. 1.25%
</TABLE>
-40-
<PAGE>
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997
the Funds paid the Adviser (or its predecessor) the following amounts under the
Advisory Contract:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 6/30/99 6/30/98 6/30/97
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Equity Income Fund $ 892,889 $ 795,252 $ 555,146
Value Fund 1,043,826 951,140 463,869
Small-Cap Value Fund 2,215,048 1,395,130 249,347
Core Equity Fund 413,258 504,760 234,333
Mid-Cap Equity Fund 74,646 53,956 48,656
Capital Appreciation Fund 5,057,813 3,627,790 1,953,374
Mid-Cap Growth Fund 3,926,642 2,622,029 1,219,531
Micro-Cap Growth Fund 3,035,025 2,759,876 1,390,317
Small-Cap Growth Fund 574,447 411,785 327,245
Enhanced Equity Fund 238,001 199,467 292,187
Emerging Markets Fund /(1)/ N/A 349,026 568,277
International Developed Fund /(1)/ N/A 653,050 525,817
Balanced Fund /(1)/ 311,190 300,049 306,756
Renaissance Fund* 3,771,388 3,010,051 913,256
Growth Fund* 10,728,640 9,329,701 3,758,433
Target Fund* 5,837,985 6,607,151 2,887,743
Opportunity Fund* 3,171,024 5,172,363 2,324,663
Innovation Fund* 4,453,888 2,028,712 750,414
International Fund* 753,828 922,680 559,353
International Growth Fund** 58,010 24,756 N/A
Precious Metals Fund* 125,947 165,918 119,710
Tax Exempt Fund* /(1)/ N/A 144,515 66,977
Value 25 Fund 7,550 N/A N/A
Tax-Efficient Equity Fund 56,985 N/A N/A
Structured Emerging Markets Fund 156,322 N/A N/A
Tax-Efficient Structured Emerging Markets Fund 212,327 N/A N/A
60/40 Portfolio N/A N/A N/A
70/30 Portfolio N/A N/A N/A
90/10 Portfolio N/A N/A N/A
----------- ----------- -----------
TOTAL $47,116,679 $42,029,157 $19,515,404
- --------------
</TABLE>
* Amounts for the year ended June 30, 1997 are for the period 1/18/97 through
6/30/97.
** Amounts for the year ended June 30, 1998 are for the period 12/31/97 through
6/30/98.
(1) The Tax Exempt Fund reorganized with and into the Municipal Bond Fund of
PIMS in a transaction which took place on June 26, 1998. The Tax Exempt Fund
was liquidated in connection with the transaction and is no longer a series of
the Trust. The International Developed and Emerging Markets Funds reorganized
with and into newly formed series of Alleghany Funds in a transaction which took
place on April 30, 1999. The International Developed and Emerging Markets Funds
were liquidated in connection with the transaction and are no longer series of
the Trust. The Balanced Fund reorganized with and into the Strategic Balanced
Fund of PIMS in a transaction which took place on September 17, 1999. The
Balanced Fund was liquidated in connection with the transaction and is no longer
a series of the Trust.
-41-
<PAGE>
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 year ended September 30, 1996 under
separate management contracts between the Adviser and PAF:
<TABLE>
<CAPTION>
10/1/96 Year
to Ended
Fund 1/17/97 9/30/96
- ---- ------- -------
<S> <C> <C>
Renaissance Fund $ 653,744 $ 1,627,632
Growth Fund 3,370,567 9,987,541
Target Fund 2,584,257 7,295,767
Opportunity Fund 1,898,337 6,183,575
Innovation Fund 545,586 1,063,584
International Fund 537,647 1,872,608
Precious Metals Fund 107,290 397,969
Tax Exempt Fund 99,023 333,349
---------- -----------
TOTAL $9,796,451 $28,762,025
</TABLE>
Portfolio Management Agreements
PIMCO Equity Advisors manages the investment portfolios of the Growth,
Target, Opportunity, Innovation, Renaissance, Core Equity, Mid-Cap Equity and
International Growth Funds. The Adviser employs Sub-Advisers to provide
investment advisory services to each other Fund pursuant to portfolio management
agreements (each a "Portfolio Management Agreement") between the Adviser and the
Fund's Sub-Adviser. Each Sub-Adviser retained by the Adviser is an affiliate
of the Adviser except for Van Eck Associates Corporation ("Van Eck"), which
advises the Precious Metals Fund, and Blairlogie Capital Management
("Blairlogie"), which advises the International Fund. The Adviser currently has
eight subsidiary partnerships, the following three of which manage one or more
of the Funds: Parametric Portfolio Associates ("Parametric"), Cadence Capital
Management ("Cadence") and NFJ Investment Group ("NFJ"). On April 30, 1999, the
Adviser sold all of its ownership interest in Blairlogie. See "Blairlogie"
below.
PIMCO Equity Advisors
- ---------------------
PIMCO Equity Advisors, a division of PIMCO Advisors, acts as the Sub-Adviser
and provides investment advisory services to the Growth, Target, Opportunity,
Innovation, Renaissance, Core Equity, Mid-Cap Equity and International Growth
Funds. PIMCO Equity Advisors' address is 1345 Avenue of the Americas, 50th
Floor, New York, NY 10105. Additional information about PIMCO Advisors,
including information regarding investment advisory fees paid to PIMCO Advisors
by the Growth, Target, Opportunity, Innovation, Renaissance, Core Equity, Mid-
Cap Equity and International Growth Funds, is provided above under "Investment
Adviser." Prior to March 5, 1999, Columbus Circle Investors ("Columbus
Circle"), a former subsidiary partnership of the Adviser, served as Sub-Adviser
to the Growth, Target, Opportunity and Innovation Funds. Columbus Circle served
as Sub-Adviser to the Renaissance Fund until May 7, 1999, and it served as Sub-
Adviser to the Core Equity, Mid-Cap Equity and International Growth Funds until
July 1, 1999. On July 1, 1999, the Adviser sold all of its ownership interest
in Columbus Circle to certain of Columbus Circle's employees.
Parametric
- ----------
Pursuant to a Portfolio Management Agreement between the Adviser and
Parametric, Parametric is the Sub-Adviser and provides investment advisory
services to the Tax-Efficient Equity, Enhanced Equity, Structured Emerging
Markets and Tax-Efficient Structured Emerging Markets Funds. For the services
provided to each Fund, the Adviser (not the Trust) pays Parametric a monthly fee
for each Fund at the following annual rates (based on the average daily
-42-
<PAGE>
net assets of the particular Fund): .35% for the Tax-Efficient Equity Fund, .35%
for the Enhanced Equity Fund, .35% for the Structured Emerging Markets Fund, and
.35% for the Tax-Efficient Structured Emerging Markets Fund.
Parametric is an investment management firm organized as a general
partnership. Parametric is the successor investment adviser to Parametric
Portfolio Associates, Inc., a wholly-owned corporate subsidiary of PFAMCo.
Parametric has two partners: PIMCO Advisors as the supervisory partner, and
Parametric 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
September 30, 1999, of approximately $3.9 billion.
Cadence
- -------
Pursuant to a Portfolio Management Agreement between the Adviser and
Cadence, Cadence provides investment advisory services to the Mega-Cap, Capital
Appreciation, Mid-Cap Growth, Micro-Cap Growth and Small-Cap Growth Funds. 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 Mega-Cap Fund, .35% for the Capital
Appreciation Fund, .35% for the Mid-Cap Growth Fund, .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 September 30, 1999, of approximately $6.5
billion.
NFJ
- ---
Pursuant to a Portfolio Management Agreement between the Adviser and NFJ,
NFJ provides investment advisory services to the Equity Income, Value, Value 25
and Small-Cap Value Funds. 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, .40% for the Value 25 Fund 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 September 30, 1999, of approximately
$2.2 billion.
Blairlogie
- ----------
Pursuant to a Portfolio Management Agreement between the Adviser and
Blairlogie, Blairlogie provides investment advisory services to the
International Fund. For the services provided, the Adviser (not the Trust) pays
Blairlogie a monthly fee for the Fund at the annual rate of .40% based on the
average daily net assets of the International Fund.
-43-
<PAGE>
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 is an indirect
majority-owned subsidiary of the Alleghany Corporation. The Alleghany
Corporation is engaged through its subsidiaries in the businesses of title
insurance, reinsurance, other financial services and industrial minerals.
Blairlogie is located at 125 Princes Street, 4th Floor, 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
September 30, 1999, of approximately $903 million.
Until April 30, 1999, Blairlogie was an affiliate of the Adviser. On April
30, 1999, the Adviser sold all of its ownership interests in Blairlogie to
subsidiaries of the Alleghany Corporation (the "Blairlogie Transaction") and
Blairlogie is no longer affiliated with the Adviser.
In connection with the Blairlogie Transaction, the Emerging Markets and
International Developed Funds (the "Transferred Funds") transferred all of their
assets and liabilities to newly formed series of Alleghany Funds managed by
Blairlogie. The Transferred Funds were liquidated in connection with the
Blairlogie Transaction and are no longer series of the Trust.
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 September 30, 1999, of approximately $1.2 billion.
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997,
the amount of portfolio management fees paid by the Adviser (or its predecessor)
to the applicable Sub-Adviser (or its predecessor) for each of the Funds was as
follows:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
06/30/99 06/30/98 06/30/97
-------- -------- ---------
<S> <C> <C> <C>
Equity Income Fund $ 694,469 $ 618,529 $ 492,429
Value Fund 811,864 739,776 388,966
Small-Cap Value Fund 1,845,873 1,162,608 224,788
Core Equity Fund 340,758 416,205 215,998
Mid-Cap Equity Fund 62,797 45,391 45,074
Capital Appreciation Fund 3,933,855 2,821,614 1,714,191
Mid-Cap Growth Fund 3,054,054 2,039,356 1,059,242
Micro-Cap Growth Fund 2,794,415 2,539,086 1,325,695
Small-Cap Growth Fund 517,002 370,606 311,280
Enhanced Equity Fund 185,113 155,141 268,021
Emerging Markets Fund 133,867 307,963 501,411
International Developed Fund 509,210 544,208 478,789
Balanced Fund 212,316 212,532 228,898
Renaissance Fund* 2,033,332 1,906,366 575,288
Growth Fund* 4,727,674 6,344,197 2,544,364
Target Fund* 2,563,818 4,324,681 1,869,073
</TABLE>
-44-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Opportunity Fund* 1,682,634 3,819,591 1,709,827
Innovation Fund* 1,325,219 1,186,016 435,246
International Fund* 540,637 671,040 348,938
International Growth Fund** 27,298 11,650 N/A
Precious Metal Fund* 73,469 96,785 66,070
Value 25 Fund 6,021 N/A N/A
Tax-Efficient Equity Fund 44,322 N/A N/A
Structured Emerging Markets Fund 121,584 N/A N/A
Tax-Efficient Structured Emerging Markets Fund 165,144 N/A N/A
Tax Exempt Fund* N/A 144,515 66,756
----------- ----------- -----------
TOTAL $28,406,745 $30,477,856 $14,870,344
- -----------------
</TABLE>
* Amounts for the year ended June 30, 1997 are for the period 1/18/97 through
6/30/97.
** Amounts for the year ended June 30, 1998 are for the period 12/31/97 through
6/30/98.
The Adviser paid the Sub-Advisers 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 year ended September 30, 1996 under
separate sub-advisory agreements between the Adviser and the relevant Sub-
Adviser:
<TABLE>
<CAPTION>
10/1/96 Year
to Ended
Fund 1/17/97 09/30/96
- ---- ---------- -----------
<S> <C> <C>
Renaissance Fund $ 326,864 $ 813,816
Growth Fund 1,685,284 4,993,770
Target Fund 1,292,168 3,647,884
Opportunity Fund 949,192 3,091,788
Innovation Fund 272,772 531,792
International Fund 268,824 936,304
Precious Metals Fund 53,837 198,985
Tax Exempt Fund 49,512 166,675
---------- -----------
TOTAL $4,898,453 $14,381,014
</TABLE>
Fund Administrator
In addition to its services as Adviser, PIMCO Advisors serves as
administrator (and is referred to in this capacity as the "Administrator") to
the Funds and Portfolios pursuant to an administration agreement (the
"Administration Agreement") with the Trust. The Administrator provides or
procures administrative services to the Funds and Portfolios, which include
clerical help and accounting, bookkeeping, internal audit services and certain
other services they require, and preparation of reports to the Trust's
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 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. 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 and
Portfolio (each expressed
-45-
<PAGE>
as a percentage of the Fund's or Portfolio's average daily net assets
attributable to the indicated class or classes of shares on an annual basis):
Administrative Fee Rate
-----------------------
<TABLE>
<CAPTION>
Institutional and Class A, Class B,
Administrative and Class C Class D
Fund or Portfolio Classes* Shares* Shares**
- ----------------- ----------------- ------------------ -------------
<S> <C> <C> <C>
Equity Income Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5
billion
Tax-Efficient Equity .25% .40% of first $2.5 billion .65%
Fund .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
.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
Value 25 Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5
billion
Mega-Cap Fund .25% N/A N/A
Capital Appreciation .25% .40% of first $2.5 billion .65%
Fund .35% of amounts in excess of $2.5
billion
Mid-Cap Growth Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5
billion
Micro-Cap Growth Fund .25% N/A N/A
Small-Cap Growth Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5
billion
Enhanced Equity Fund .25% N/A N/A
Renaissance Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5
billion
Growth Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5
billion
Target Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5
billion
Opportunity Fund .25% .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 .50% N/A N/A
Fund
</TABLE>
-46-
<PAGE>
<TABLE>
<CAPTION>
Institutional and Class A, Class B,
Administrative and Class C Class D
Fund or Portfolio Classes* Shares* Shares**
- ----------------- ----------------- ------------------ -----------
<S> <C> <C> <C>
Precious Metals Fund N/A .45% of first $2.5 billion N/A
.40% of amounts in excess of $2.5
billion
Tax-Efficient .50% N/A N/A
Structured Emerging
Markets Fund
Structured Emerging .50% N/A N/A
Markets Fund
90/10 Portfolio .10%*** .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5
billion
60/40 Portfolio .10%*** .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5
billion
30/70 Portfolio .10%*** .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5
billion
</TABLE>
* The Administrator receives administrative fees based on a Fund's or
Portfolio's average daily net assets attributable in the aggregate to its
Institutional and Administrative Class shares on the one hand, and to its 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.
*** The Administrative Fee for Institutional and Administrative Class shares of
each Portfolio reflects a fee waiver currently in effect. In the absence of
this waiver, the Administrative Fee rate for Institutional and Administrative
Class shares of each Portfolio would be 0.15% per annum.
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 Sub-Adviser, or the Trust, and any counsel
retained exclusively for their benefit ("disinterested Trustees' expenses");
(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 Administrator has contractually agreed to waive, reduce or reimburse
its Administrative Fee for each class of the Mega-Cap Fund in an amount that, in
essence, is equal to such Fund's organizational expenses and disinterested
Trustees' expenses attributed to that class.
-47-
<PAGE>
The Administration Agreement may be terminated by the Trust at any time by
vote of (1) a majority of the Trustees, (2) a majority of the outstanding voting
securities of the Trust, or (3) with respect to the Renaissance, Growth, Target,
Opportunity, Innovation, International and Precious Metals Funds, by a majority
of the Trustees who are not interested persons of the Trust or PIMCO Advisors,
on 60 days' written notice to PIMCO Advisors.
Under the Administration Agreement, the Administrator or an affiliate may
pay financial service firms a portion of the Class D administration fees in
return for the firms' services (normally not to exceed an annual rate of .35% of
a Fund's average daily net assets attributable to Class D shares purchased
through such firms). The Administration Agreement includes a plan specific to
Class D shares which has been adopted in conformity with the requirements set
forth under Rule 12b-1 of the 1940 Act to allow for payment of up to .25% per
annum of the Class D administrative fees as reimbursement for expenses in
respect of activities that may be deemed to be primarily intended to result in
the sale of Class D shares. The principal types of activities for which such
payments may be made are services in connection with the distribution of Class D
shares and/or the provision of shareholder services. See "Distribution of Trust
Shares--Plan for Class D Shares."
After an initial two-year term, the Sub-Administration Agreement will
continue from year to year upon the approval of the parties thereto. The Sub-
Administration Agreement may be terminated at any time by PIMCO Advisors or
Pacific Investment Management upon 60 days' written notice to the other party
and, with respect to the services rendered to the Trust, at any time by vote of
a majority of the disinterested Trustees of the Trust. The Sub-Administration
Agreement will also terminate upon termination of the Administration Agreement.
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997,
the aggregate amount of the administration fees paid by the Funds and Portfolios
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 prior to April 8, 1998):
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 06/30/99 06/30/98 06/30/97
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Equity Income Fund $ 579,501 $ 487,106 $ 311,798
Value Fund 778,004 720,965 318,624
Small-Cap Value Fund 1,373,378 850,182 114,067
Core Equity Fund 181,254 221,386 102,634
Mid-Cap Equity Fund 29,621 21,411 19,291
Capital Appreciation Fund 3,129,528 2,144,151 1,093,013
Mid-Cap Growth Fund 2,641,971 1,722,412 729,997
Micro-Cap Growth Fund 607,005 551,975 278,025
Small-Cap Growth Fund 143,612 102,410 81,774
Enhanced Equity Fund 132,223 110,815 161,982
Emerging Markets Fund N/A 208,654 312,540
International Developed Fund N/A 555,314 437,490
Balanced Fund 220,148 186,627 170,134
Renaissance Fund* 2,513,413 2,006,144 605,566
Growth Fund* 8,581,473 7,463,761 2,993,370
Target Fund* 4,244,469 4,805,201 2,076,748
Opportunity Fund* 1,950,916 3,182,992 1,424,856
Innovation Fund* 2,740,592 1,248,438 458,154
International Fund* 877,968 1,090,440 567,025
International Growth Fund** 34,123 14,562 N/A
Precious Metals Fund* 94,460 124,438 84,947
Tax Exempt Fund* N/A 193,724 89,008
Value 25 Fund 5,790 N/A N/A
Tax-Efficient Equity Fund 49,326 N/A N/A
</TABLE>
-48-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Structured Emerging Markets Fund 173,691 N/A N/A
Tax-Efficient Structured Emerging Markets Fund 235,919 N/A N/A
60/40 Portfolio 20,123 N/A N/A
70/30 Portfolio 10,422 N/A N/A
90/10 Portfolio 14,344 N/A N/A
----------- ----------- -----------
TOTAL $31,363,276 $28,013,108 $12,431,043
</TABLE>
- ------------------------
* Amounts for the year ended June 30, 1997 are for the period from 1/17/97
through 6/30/97.
** Amounts for the year ended June 30, 1998 are for the period from 12/31/97
through 6/30/98.
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 years 1997 and 1996 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 years 1997 and 1996.
Shares of the Portfolios were not offered during the periods listed above.
DISTRIBUTION OF TRUST SHARES
Distributor and Multi-Class Plan
PIMCO Funds Distributors LLC (the "Distributor") serves as the principal
underwriter 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 Distributor, located at 2187
Atlantic Street, Stamford, Connecticut 06902, is a broker-dealer registered
with the Securities and Exchange Commission. The Distribution Contract is
terminable with respect to a Fund, Portfolio or class of shares without penalty,
at any time, by the Fund, Portfolio 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 Portfolio, 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, Portfolio 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, Portfolios or classes, it may continue in effect with respect to any
Fund, Portfolio 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. The Trust currently offers Class A, Class B, Class
C, Institutional Class and Administrative Class shares of each Portfolio.
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").
-49-
<PAGE>
Class D shares are generally offered to clients of financial service firms,
such as broker-dealers or registered investment advisers, 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 and
Portfolio represent an equal pro rata interest in the Fund or Portfolio 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 has exclusive voting rights on any matter submitted to shareholders that
relates solely to its distribution or service arrangements; and (c) 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.
Each class of shares bears any class specific expenses allocated to such
class, such as expenses related to the distribution and/or shareholder servicing
of such class. In addition, 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. 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 and the Retail Portfolio
Prospectus under the caption "Investment Options (Class A, B and C Shares)," 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 series-
by-series basis, shareholders should consider whether to exchange shares of one
Fund or Portfolio for shares of another Fund or Portfolio prior to redeeming an
investment if such an exchange would reduce the contingent deferred sales charge
applicable to such redemption.
During the fiscal years ended June 30, 1999, June 30, 1998 and June 30,
1997, the Distributor received the following aggregate amounts in contingent
deferred sales charges on Class A shares, Class B shares and Class C shares of
the Funds and the Portfolios:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Class 6/30/99 6/30/98 6/30/97
- ---------- ---------- -------- --------
<S> <C> <C> <C>
Class A $ 5,341 $ 2,273 $ 40,456
Class B $2,063,747 $945,353 $789,851
Class C $ 618,030 $480,061 $533,975
</TABLE>
The Funds did not offer Class A, B and C shares in fiscal years prior to
the fiscal year ended June 30, 1997. 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,
--------------
-50-
<PAGE>
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 and the Retail Portfolio
Prospectus under the caption "Investment Options (Class A, B and C Shares),"
Class A shares of the Trust are sold pursuant to an initial sales charge, which
declines as the amount of the purchase reaches certain defined levels. For the
fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997, the
Distributor received an aggregate of $7,013,745, $4,878,434 and $2,927,636,
respectively, and retained an aggregate of $904,586, $506,878 and $369,546,
respectively, in initial sales charges paid by Class A shareholders of the
Trust.
The Trust did not offer Class A shares in fiscal years prior to the fiscal
year ended June 30, 1997. 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.
Distribution and Servicing Plans for Class A, Class B and Class C Shares
As stated in the Class A, B and C Prospectus and the Retail Portfolio
Prospectus under the caption "Investment Options -- Class A, B and C Shares--
Distribution and Servicing (12b-1) 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"), 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 below, 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 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 (although the Distributor may
pay brokers additional compensation in connection with sales of Class A shares
without a 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 the Distribution Agreement, with respect to each Fund's or
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.
Class A Servicing Fees
- ----------------------
As compensation for services rendered and expenses borne by the Distributor
in connection with personal services rendered to Class A shareholders of the
Trust and the maintenance of Class A shareholder accounts, the Trust
-51-
<PAGE>
pays the Distributor servicing fees up to the annual rate of .25% (calculated as
a percentage of each Fund's or 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 Fund's or
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 Funds and Portfolios .25% .75%
</TABLE>
The Retail Plans were adopted pursuant to Rule 12b-1 under 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 Retail 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 distributions of sales
literature. The servicing fee, which is 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 Fund's or 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 Fund or
Portfolio may indirectly support sales and servicing efforts relating to the
other Funds' or Portfolios' shares of the same class. In reporting its expenses
to the Trustees, the Distributor itemizes expenses that relate to the
distribution and/or servicing of a single Fund's or Portfolio's shares, and
allocates other expenses among the Funds or Portfolios based on their relative
net assets. Expenses allocated to each Fund or 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:
-52-
<PAGE>
<TABLE>
<CAPTION>
All Funds and Portfolios/(1)/
Servicing Distribution
Fee Fee
--------- ------------
<S> <C> <C>
Class A .25% N/A
Class B /(2)/ .25% None
Class C (purchased before July 1, 1991) .25% None
Class C/(3)/ (purchased on or after .25% .65%
July 1, 1991)
</TABLE>
1. Applies, in part, to Class A, Class B and Class C shares of the Trust
issued to former shareholders of PIMCO Advisors Funds in connection with
the reorganizations/mergers of series of PIMCO Advisors Funds as/with Funds
of the Trust in transactions which took place on January 17, 1997
2. Payable only with respect to shares outstanding for one year or more.
3. Payable only with respect to shares outstanding for one year or more except
in the case of shares for which no payment is made to the party at the time
of sale.
The Distributor may from time to time pay additional cash 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 Funds or 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 Fund or Portfolio and/or all
of the Funds or Portfolios 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 Funds and 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 Retail Plan with
respect to such class of shares continues to be in effect in some later year
when such 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 Retail Plan terminates.
Each Retail Plan may be terminated with respect to any Fund or Portfolio 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
or Portfolio. Any change in any Retail Plan that would materially increase the
cost to the class of shares of any Fund or Portfolio to which the Plan relates
requires approval by the affected class of shareholders of that Fund or
Portfolio. 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
Portfolio, 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.
-53-
<PAGE>
If a Retail Plan is terminated (or not renewed) with respect to one or more
Funds or Portfolios, or classes thereof, it may continue in effect with respect
to any class of any Fund or Portfolio 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 expenses of the Funds and Portfolios are
essentially fixed, the Trustees believe that the effect of the Retail Plans on
sales and/or redemptions may benefit the Trust by reducing expense ratios and/or
by affording greater flexibility to the Sub-Advisers. From time to time,
expenses of the Distributor incurred in connection with the sale of Class B and
Class C shares of the Trust, and in connection with the servicing of Class B and
Class C shareholders 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 and Portfolios 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 years ended June 30, 1999, June 30, 1998 and June 30, 1997,
the Trust paid the Distributor an aggregate of $2,635,864, $2,017,316 and
$1,147,572, respectively, pursuant to the Class A Retail Plan. Such payments
were allocated among the operational Funds and Portfolios as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
- ---- --------- --------- ---------
<S> <C> <C> <C>
Equity Income Fund $ 37,477 $ 20,227 $ 938
Value Fund 51,171 46,720 14,876
Small-Cap Value Fund 226,167 91,688 2,770
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 224,084 75,035 5,510
Mid-Cap Growth Fund 251,954 72,631 12,246
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 N/A 697 108
International Developed Fund N/A 2,903 169
Balanced Fund 23,696 12,278 173
Renaissance Fund 214,100 130,230 53,527
Growth Fund 464,918 403,013 290,828
Target Fund 347,814 394,300 288,012
Opportunity Fund 338,303 531,993 320,127
Innovation Fund 406,854 164,089 99,910
International Fund 29,153 42,700 34,195
International Growth Fund N/A N/A N/A
Precious Metals Fund 8,880 13,370 14,218
Tax Exempt Fund N/A 15,442 9,965
Value 25 Fund 1,189 N/A N/A
Tax-Efficient Equity Fund 7,937 N/A N/A
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
60/40 Portfolio 1,312 N/A N/A
70/30 Portfolio 348 N/A N/A
90/10 Portfolio 504 N/A N/A
</TABLE>
-54-
<PAGE>
During the fiscal year ended June 30, 1999, the amounts collected pursuant
to the Class A Retail Plan were used as follows by the Distributor: sales
commissions and other compensation to sales personnel, $2,135,047; 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), $500,814. These totals,
allocated among (i) compensation and (ii) sales material and other expenses for
each Fund and Portfolio, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
-------------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $ 30,356 $ 7,121 $ 37,477
Value Fund 41,449 9,722 51,171
Small-Cap Value Fund 183,195 42,972 226,167
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 181,508 42,576 224,084
Mid-Cap Growth Fund 204,083 47,871 251,954
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 N/A N/A N/A
International Developed Fund N/A N/A N/A
Balanced Fund 19,194 4,502 23,696
Renaissance Fund 173,421 40,679 214,100
Growth Fund 376,584 88,334 464,918
Target Fund 281,729 66,085 347,814
Opportunity Fund 274,025 64,278 338,303
Innovation Fund 329,552 77,302 406,854
International Fund 23,614 5,539 29,153
International Growth Fund N/A N/A N/A
Precious Metals Fund 7,193 1,687 8,880
Tax Exempt Fund N/A N/A N/A
Value 25 Fund 963 226 1,189
Tax-Efficient Equity Fund 6,429 1,508 7,937
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
60/40 Portfolio 1,063 249 1,312
70/30 Portfolio 282 66 348
90/10 Portfolio 408 96 504
</TABLE>
The Trust did not offer Class A shares in fiscal years prior to the fiscal
year ended June 30, 1997. For the fiscal year ended September 30, 1996, PAF
paid the Distributor an aggregate of $1,556,119 pursuant to a Distribution and
Servicing Plan applicable to the Class A shares of PAF (the "PAF Class A Plan"),
which is similar to the Class A Plan of the Trust. Such payments were
allocated among the predecessors of the following Funds (each of which was
formerly a series of PAF which reorganized as a series of the Trust on January
17, 1997) as follows:
<TABLE>
<CAPTION>
Year Ended
Sept. 30, 1996
--------------
<S> <C>
Renaissance Fund $ 38,973
Growth Fund 351,506
Target Fund 338,598
Opportunity Fund 308,794
</TABLE>
-55-
<PAGE>
<TABLE>
<S> <C>
Innovation Fund 88,089
International Fund 42,411
Precious Metals Fund 21,416
Tax Exempt Fund 10,288
</TABLE>
The remainder of the total payments made under the PAF Class A Plan for
such fiscal years was allocated among other series of PAF which either merged
with Funds of the Trust or merged with/reorganized as series of PIMS, an
affiliated mutual fund family, in transactions which took place on January 17,
1997.
Payments Pursuant to Class B Plans
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997,
the Trust paid the Distributor an aggregate of $7,649,186, $4,549,168 and
$1,670,623, respectively, pursuant to the Class B Retail Plan. Such payments
were allocated among the operational Funds and Portfolios as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
- ---- ---------- --------- ---------
<S> <C> <C> <C>
Equity Income Fund $ 174,783 $ 80,992 $ 5,019
Value Fund 332,761 311,768 101,067
Small-Cap Value Fund 984,479 611,536 17,419
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 483,520 165,015 5,077
Mid-Cap Growth Fund 834,091 528,760 104,374
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 N/A 4,696 633
International Developed Fund N/A 21,969 2,256
Balanced Fund 109,348 42,373 2,223
Renaissance Fund 1,133,814 603,997 204,965
Growth Fund 996,276 660,761 351,684
Target Fund 703,506 727,857 450,009
Opportunity Fund 428 N/A N/A
Innovation Fund 1,707,917 629,537 332,295
International Fund 84,644 85,359 53,098
International Growth Fund N/A N/A N/A
Precious Metals Fund 40,742 41,484 21,713
Tax Exempt Fund N/A 33,064 18,818
Value 25 Fund 3,700 N/A N/A
Tax-Efficient Equity Fund 28,316 N/A N/A
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
60/40 Portfolio 15,370 N/A N/A
70/30 Portfolio 8,250 N/A N/A
90/10 Portfolio 7,240 N/A N/A
</TABLE>
During the fiscal year ended June 30, 1999, the amounts collected pursuant
to the Class B Retail Plan were used as follows by the Distributor: sales
commissions and other compensation to sales personnel, $6,195,840; 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), $1,453,345. These totals,
allocated among (i) compensation and (ii) sales material and other expenses for
each Fund and Portfolio, were as follows:
-56-
<PAGE>
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
-------------- -------- ----------
<S> <C> <C> <C>
Equity Income Fund $ 141,574 $ 33,209 $ 174,783
Value Fund 269,536 63,225 332,761
Small-Cap Value Fund 797,428 187,051 984,479
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 391,651 91,869 483,520
Mid-Cap Growth Fund 675,614 158,477 834,091
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 N/A N/A N/A
International Developed Fund N/A N/A N/A
Balanced Fund 88,572 20,776 109,348
Renaissance Fund 918,389 215,425 1,133,814
Growth Fund 806,984 189,292 996,276
Target Fund 569,840 133,666 703,506
Opportunity Fund 347 81 428
Innovation Fund 1,383,413 324,504 1,707,917
International Fund 68,562 16,082 84,644
International Growth Fund N/A N/A N/A
Precious Metals Fund 33,001 7,741 40,742
Tax Exempt Fund N/A N/A N/A
Value 25 Fund 2,997 703 3,700
Tax-Efficient Equity Fund 22,936 5,380 28,316
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
60/40 Portfolio 12,450 2,920 15,370
70/30 Portfolio 6,683 1,568 8,250
90/10 Portfolio 5,864 1,376 7,240
</TABLE>
The Trust did not offer Class B shares in fiscal years prior to the fiscal
year ended June 30, 1997. For the fiscal year ended September 30, 1996, PAF
paid the Distributor an aggregate of $1,839,931 pursuant to a Distribution and
Servicing Plan applicable to the Class B shares of PAF (the "PAF Class B Plan"),
which is similar to the Class B Plan of the Trust. Such payments were allocated
among the predecessors of the following Funds (each of which was formerly a
series of PAF which reorganized as a series of the Trust on January 17, 1997) as
follows:
<TABLE>
<CAPTION>
Year Ended
Sept. 30, 1996
--------------
<S> <C>
Renaissance Fund $ 62,195
Growth Fund 211,778
Target Fund 241,125
Opportunity Fund N/A
Innovation Fund 166,747
International Fund 289,719
Precious Metals Fund 14,083
Tax Exempt Fund 14,673
</TABLE>
The remainder of the total payments made under the PAF Class B Plan for
such fiscal years was allocated among other series of PAF which either merged
with Funds of the Trust or merged with/reorganized as series of PIMS, an
affiliated mutual fund family, in transactions which took place on January 17,
1997.
-57-
<PAGE>
Payments Pursuant to Class C Plans
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997,
the Trust paid the Distributor an aggregate of $43,907,220, $42,819,673 and
$28,944,078, respectively, pursuant to the Class C Retail Plan. Such payments
were allocated among the operational Funds and Portfolios as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Equity Income Fund $ 230,353 $ 139,875 $ 13,919
Value Fund 779,730 784,829 245,893
Small-Cap Value Fund 1,113,794 814,232 39,558
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 748,698 392,705 28,078
Mid-Cap Growth Fund 1,225,691 951,993 197,365
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 N/A 14,813 5,070
International Developed Fund N/A 40,459 4,936
Balanced Fund 110,967 41,412 1,876
Renaissance Fund 4,288,538 3,887,867 2,024,245
Growth Fund 18,591,740 16,386,591 11,107,219
Target Fund 8,510,832 9,707,945 7,238,372
Opportunity Fund 3,521,632 5,829,510 4,950,118
Innovation Fund 3,440,411 1,834,958 1,149,018
International Fund 1,083,209 1,421,443 1,354,452
International Growth Fund N/A N/A N/A
Precious Metals Fund 133,650 181,565 255,508
Tax Exempt Fund N/A 389,476 328,451
Value 25 Fund 4,980 N/A N/A
Tax-Efficient Equity Fund 50,345 N/A N/A
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
60/40 Portfolio 29,671 N/A N/A
70/30 Portfolio 16,395 N/A N/A
90/10 Portfolio 26,585 N/A N/A
</TABLE>
During the fiscal year ended June 30, 1999, the amounts collected pursuant
to the Class C Retail Plan were used as follows by the Distributor: sales
commissions and other compensation to sales personnel, $35,564,849; preparing,
printing and distributing sales material and advertising (including preparing,
printing and distributing prospectuses to non-shareholders) and other expenses
(including data processing, legal and operations), $8,342,372. These totals,
allocated among (i) compensation and (ii) sales material and other expenses for
each Fund and Portfolio, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
------------ --------------- -----------
<S> <C> <C> <C>
Equity Income Fund $ 186,586 $ 43,767 $ 230,353
Value Fund 631,581 148,149 779,730
Small-Cap Value Fund 902,173 211,621 1,113,794
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
</TABLE>
-58-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital Appreciation Fund 606,445 142,253 748,698
Mid-Cap Growth Fund 992,810 232,881 1,225,691
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 N/A N/A N/A
International Developed Fund N/A N/A N/A
Balanced Fund 89,883 21,084 110,967
Renaissance Fund 3,473,716 814,822 4,288,538
Growth Fund 15,059,309 3,532,431 18,591,740
Target Fund 6,893,774 1,617,058 8,510,832
Opportunity Fund 2,852,522 669,110 3,521,632
Innovation Fund 2,786,733 653,678 3,440,411
International Fund 877,399 205,810 1,083,209
International Growth Fund N/A N/A N/A
Precious Metals Fund 108,257 25,394 133,650
Tax Exempt Fund N/A N/A N/A
Value 25 Fund 4,034 946 4,980
Tax-Efficient Equity Fund 40,779 9,566 50,345
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
60/40 Portfolio 24,034 5,637 29,671
70/30 Portfolio 13,280 3,115 16,395
90/10 Portfolio 21,534 5,051 26,585
</TABLE>
The Trust did not offer Class C shares in fiscal years prior to the fiscal
year ended June 30, 1997. For the fiscal year ended September 30, 1996, PAF
paid the Distributor an aggregate of $41,704,155 pursuant to a Distribution and
Servicing Plan applicable to the Class C shares of PAF (the "PAF Class C Plan"),
which is similar to the Class C Plan of the Trust. Such payments were allocated
among the predecessors of the following Funds (each of which was formerly a
series of PAF Fund which reorganized as a series of the Trust on January 17,
1997) as follows:
<TABLE>
<CAPTION>
Year Ended
Sept. 30, 1996
--------------
<S> <C>
Renaissance Fund $ 1,965,449
Growth Fund 13,593,775
Target Fund 8,684,223
Opportunity Fund 7,455,633
Innovation Fund 899,377
International Fund 1,858,512
Precious Metals Fund 430,849
Tax Exempt Fund 499,738
</TABLE>
The remainder of the total payments made under the PAF Class C Plan for
such fiscal years was allocated among other series of PAF which either merged
with Funds of the Trust or merged with/reorganized as series of PIMS, an
affiliated mutual fund family, in transactions which took place on January 17,
1997.
From time to time, expenses of principal underwriters incurred in
connection with the distribution of Class B and Class C shares of the Funds and
Portfolios, and in connection with the servicing of Class A, Class B and Class C
shareholders of the Funds and Portfolios and the maintenance of Class A, Class B
and Class C shareholder accounts, may exceed the distribution and/or servicing
fees collected by the Distributor. As noted above, Class A,
-59-
<PAGE>
Class B and Class C Distribution and Servicing Plans, which are similar to the
Trust's current Retail Plans, were in effect prior to January 17, 1997 in
respect of series of PAF that were predecessors of certain of the Funds listed
below. The remaining Funds and the Portfolios did not offer Class A, Class B or
Class C shares prior to January 17, 1997. As of June 30, 1999, such expenses
were approximately $18,240,00 in excess of payments under the Class A Plan,
$29,500,00 in excess of payments under the Class B Plan and $2,068,00 in excess
of payments under the Class C Plan.
The allocation of such excess (on a pro rata basis) among the Funds and
Portfolios listed below as of June 30, 1999 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
- ---- ----------- ---------- ------------
<S> <C> <C> <C>
Balanced Fund $ 45,000 $ 398,000 $ 59,000
Capital Appreciation Fund 617,000 1,471,000 125,000
Emerging Markets Fund (3,000) 25,000 9,000
Equity Income Fund 116,000 579,000 118,000
Growth Fund 6,987,000 4,479,000 (4,815,000)
Innovation Fund 728,000 7,949,000 1,820,000
International Developed Fund 33,000 76,000 (2,000)
International Fund 641,000 368,000 1,541,000
Mid-Cap Growth Fund 1,242,000 2,468,000 340,000
Small-Cap Growth Fund N/A N/A N/A
Opportunity Fund 2,772,000 3,000 (5,601,000)
Precious Metals Fund 98,000 333,000 186,000
Renaissance Fund 1,095,000 3,832,000 1,279,000
Small-Cap Value Fund 652,000 3,845,000 389,000
Target Fund 3,041,000 2,590,000 6,109,000
Value Fund 170,000 733,000 352,000
Value 25 Fund (1,000) 16,000 3,000
Tax-Efficient Equity Fund 14,000 154,000 34,000
60/40 Portfolio (1,000) 91,000 57,000
70/30 Portfolio (2,000) 41,000 35,000
90/10 Portfolio (4,000) 49,000 30,000
</TABLE>
The allocation of such excess (on a pro rata basis) among the Funds and
Portfolios, calculated as a percentage of net assets of each Fund listed below
as of June 30, 1999, was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
- ----- -------- -------- --------
<S> <C> <C> <C>
Balanced Fund 0.46% 3.23% 0.45%
Capital Appreciation Fund 0.68 2.67 0.15
Emerging Markets Fund N/A N/A N/A
Equity Income Fund 0.67 2.66 0.45
Growth Fund 3.07 3.35 -0.23
Innovation Fund 0.23 2.26 0.31
International Developed Fund N/A N/A N/A
International Fund 3.40 3.88 1.52
Mid-Cap Growth Fund 1.00 2.91 0.30
Small-Cap Growth Fund N/A N/A N/A
Opportunity Fund 2.28 1.20 -1.81
Precious Metals Fund 1.25 8.49 1.62
Renaissance Fund 1.21 3.03 0.29
Small-Cap Value Fund 0.61 3.96 0.34
</TABLE>
-60-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Target Fund 1.79 3.29 0.67
Value Fund 0.76 2.02 0.44
Value 25 Fund -0.35 1.90 0.36
Tax-Efficient Equity Fund 0.21 2.42 0.32
60/40 Portfolio -0.05 2.49 0.58
70/30 Portfolio -0.49 2.36 0.70
90/10 Portfolio -0.62 2.55 0.38
</TABLE>
Distribution and Administrative Services Plans for Administrative Class Shares
The Trust has adopted an Administrative Services Plan with respect to the
Administrative Class shares of each Fund and Portfolio. The Trust also has
adopted an Administrative Distribution Plan (together with the Administrative
Services Plan, the "Administrative Plans") with respect to the Administrative
Class shares of each Fund and Portfolio except the Capital Appreciation and
Small-Cap Growth Funds, which are not subject to such Administrative
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 or Portfolio, 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 or Portfolios. Such services may include, but are not
limited to, the following: providing facilities to answer questions from
prospective investors about a Fund or Portfolio; 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 or Portfolio, 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. Fees paid pursuant to either
Plan may be paid for shareholder services and the maintenance of shareholder
accounts, and therefore may constitute "service fees" for purposes of applicable
rules of the National Association of Securities Dealers, Inc. Each Plan has
been adopted in accordance with the requirements of Rule 12b-1 under the 1940
Act and will be administered in accordance with the provisions of that rule,
except that shareholders will not have the voting rights set forth in Rule 12b-1
with respect to the Administrative Services Plan that they will have with
respect to the Administrative Distribution Plan.
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.
-61-
<PAGE>
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 Distribution
Plan further provides that it may not take effect unless approved by the vote of
a majority of the outstanding voting securities of the Administrative Class.
Each Administrative Plan provides that it shall continue in effect so long
as such continuance is specifically approved at least annually by the Trustees
and the disinterested Administrative Plan Trustees. Each Administrative Plan
provides that any person authorized to direct the disposition of monies paid or
payable by a class pursuant to the Plan or any related agreement shall provide
to the Trustees, and the Board shall review at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made.
Each Administrative Plan is a "reimbursement plan," which means that fees
are payable to the relevant financial intermediary only to the extent necessary
to reimburse expenses incurred pursuant to such plan. 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 some, 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.
Institutional and Administrative 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
other than service and/or distribution fees paid with respect to Administrative
Class shares. Service agents may impose additional or different conditions than
the Trust on the purchase, redemption or exchanges of Trust shares by their
customers. Service agents may also independently establish and charge their
customers transaction fees, account fees and other amounts in connection which
purchases, sales and redemption of Trust shares in addition to any fees charged
by the Trust. 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.
Payments Pursuant to the Administrative Plans
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997,
the Trust paid qualified service providers an aggregate of $1,120,693, $502,216
and $132,422, respectively, pursuant to the Administrative Services Plan and the
Administrative Distribution Plan.
Of these aggregate totals, $602,519, $362,416 and $128,406, respectively,
were paid pursuant to the Administrative Services Plan and/or the Administrative
Distribution Plan for the Funds and Portfolios listed below and were allocated
among the operational Funds and Portfolios as Follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
- ---- --------- --------- ---------
<S> <C> <C> <C>
Equity Income Fund $ 29,362 $ 25,885 $ 16,938
Value Fund 39,528 11,304 0
Small-Cap Value Fund 40,618 22,930 12,276
Core Equity Fund 176,827 211,557 79,366
Mid-Cap Equity Fund 7,757 1,846 0
Mid-Cap Growth Fund 234,913 64,116 4,723
Micro-Cap Growth Fund 7,665 8,918 1,898
Enhanced Equity Fund 41,681 9,207 0
</TABLE>
-62-
<PAGE>
<TABLE>
<S> <C> <C> <C>
International Developed Fund N/A 6,653 13,205
Renaissance Fund 507 N/A N/A
Growth Fund 1,939 N/A N/A
Target Fund 1,725 N/A N/A
Opportunity Fund 633 N/A N/A
International Fund 17,126 N/A N/A
Tax-Efficient Equity Fund 2,213 N/A N/A
60/40 Portfolio 9 N/A N/A
70/30 Portfolio 9 N/A N/A
90/10 Portfolio 9 N/A N/A
</TABLE>
The additional portions of the aggregate totals, $518,174, $139,800 and
$4,016, respectively, were paid pursuant to the Administrative Services
Plan only for the Capital Appreciation, Emerging Markets and Small-Cap
Growth Funds, and were allocated among these Funds as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
- ---- --------- --------- ---------
<S> <C> <C> <C>
Capital Appreciation Fund $ 514,736 $ 137,462 $ 3,297
Emerging Markets Fund N/A 1,802 582
Small-Cap Growth Fund 3,438 536 137
</TABLE>
The remaining Funds did not make payments under either Administrative Plan.
The Administrative Plans were not in effect in prior fiscal years.
Plan for Class D Shares
As described above under "Management of the Trust--Fund Administrator," the
Trust's 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 advisers ("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.
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<PAGE>
The Administrator has entered into an agreement with the Distributor under
which the Distributor is compensated for providing or procuring certain of the
Special Class D Services at the rate of 0.25% per annum of all assets
attributable to Class D shares sold through the Distributor.
The Trust and the Administrator understand that some or all of the Special
Class D Services provided pursuant to the Administration Agreement may be deemed
to represent services primarily intended to result in the sale of Class D
shares. The Administration Agreement includes the Class D Plan to account for
this possibility. The Administration Agreement provides that any portion of the
fees paid thereunder in respect of Class D shares representing reimbursement for
the Administrator's and the Distributor's expenditures and internally allocated
expenses in respect of Class D Services of any Fund shall not exceed the rate of
0.25% per annum of the average daily net assets of such Fund attributable to
Class D shares.
In accordance with Rule 12b-1 under the 1940 Act, the Class D Plan may not
be amended to increase materially the costs which Class D shareholders may bear
under the Plan without the approval of a majority of the outstanding Class D
shares, and by vote of a majority of both (i) the Trustees of the Trust and (ii)
those Trustees ("disinterested Class D Plan Trustees") who are not "interested
persons" of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to it, cast in person at a meeting called for the purpose of voting on
the Plan and any related amendments. The Class D Plan may not take effect until
approved by vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Class D Plan Trustees. In addition, the Class D Plan may not
take effect unless it is approved by the vote of a majority of the outstanding
Class D shares and it shall continue in effect only so long as such continuance
is specifically approved at least annually by the Trustees and the disinterested
Class D Plan Trustees.
With respect to the Class D Plan, the Administration Agreement requires the
Administrator to present reports as to out-of-pocket expenditures and internal
expense allocations of the Administrator and the Distributor at least quarterly
and in a manner that permits the disinterested Class D Plan Trustees to
determine that portion of the Class D administrative fees paid thereunder which
represents reimbursements in respect of Special Class D Services.
Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to the Class D Plan will qualify as "service
fees" and therefore will not be limited by NASD rules.
For the fiscal years ended June 30, 1999 and June 30, 1998, the Trust paid
qualified service providers an aggregate of $22,580 and $353, respectively,
pursuant to the Class D Plan. Such payments were allocated among the Funds as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund 6/30/99 6/30/98
- ---- -------- --------
<S> <C> <C>
Capital Appreciation Fund $ 581 $ 56
Mid-Cap Growth Fund 606 63
Equity Income Fund 325 56
Renaissance Fund 309 63
Value Fund 252 53
Tax-Efficient Equity Fund 1,843 N/A
Innovation Fund 18,664 61
</TABLE>
The Portfolios do not offer Class D shares.
Purchases, Exchanges and Redemptions
Purchases, exchanges and redemptions of the Trust's shares are discussed in
the Class A, B and C Prospectus, the Class D Prospectus and the Retail Portfolio
Prospectus under the headings "Investment Options --
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<PAGE>
Class A, B and C Shares" and "How to Buy and Sell Shares," and in the
Institutional Prospectus and the Institutional Portfolio Prospectus under the
headings ""Investment Options --Institutional Class and Administrative Class
Shares" and "Purchases, Redemptions & Exchanges."
Certain clients of the Adviser or a Sub-Adviser 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 and Portfolios may not be
qualified or registered for sale in all States. Prospective investors should
inquire as to whether shares of a particular Fund or Portfolio, or class of
shares thereof, are available for offer and sale in their State of domicile or
residence. Shares of a Fund or Portfolio 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, the Class D Prospectus and
the Retail Portfolio Prospectus under the caption "How to Buy and Sell Shares--
Exchanging Shares," and in the Institutional Prospectus and the Institutional
Portfolio Prospectus under the caption "Purchases, Redemptions and Exchanges--
Exchange Privilege," a shareholder may exchange shares of any Fund or Portfolio
for shares of the same class of any other Fund or Portfolio of the Trust that is
available for investment, or any series of PIMS, 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 or Portfolio. 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 and the Retail Portfolio 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 or Portfolio from which the exchange was made. For
federal income tax purposes, an exchange is treated as a sale of shares and
generally results in a capital gain or loss.
Orders for exchanges accepted prior to the close of regular trading on the
New York Stock Exchange on any day the Trust is open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after the close of regular
trading on the New York Stock Exchange on any business day will be executed at
the respective net asset values determined at the close of the next business
day.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to adopt a policy of terminating the exchange privilege of any
shareholder who makes more than a specified number of exchanges in a 12 month
period or in any calendar year. For example, the Trust currently limits the
number of "round trip" exchanges an investor may make. An investor makes a
"round trip" exchange when the investor purchases shares of a particular Fund or
Portfolio, subsequently exchanges those shares for shares of a different Fund or
Portfolio and then exchanges back into the originally purchased Fund or
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 Fund or Portfolio) more than six round trip exchanges in any twelve-
month period. Although the Trust has no current intention of terminating or
modifying the exchange privilege other than as set forth in the preceding
sentence, it reserves the right to do so as described in the Prospectuses.
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 or
Portfolio not reasonably practicable.
-65-
<PAGE>
The Trust is committed to paying in cash all requests for redemptions by
any shareholder of record of the Funds and Portfolios, 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
redeem amounts in excess of the lesser of (i) or (ii) above by payment in kind
of securities held by the particular Fund or Portfolio. When shares are
redeemed in kind, the redeeming shareholder should expect to incur transaction
costs upon the disposition of the securities received in the distribution.
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 and Portfolios may also charge periodic
account fees for accounts that fall below minimum balances as described in the
Prospectuses.
Fund Reimbursement Fees
Investors in Institutional Class and Administrative Class shares of the
Structured Emerging Markets and Tax-Efficient Structured Emerging Markets Funds
are subject to a fee (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 Sub-Adviser. Fund Reimbursement Fees are not
sales loads or contingent deferred sales charges. Reinvestment of dividends and
capital gains distributions paid to shareholders by the Funds are not subject to
Fund Reimbursement Fees, but redemptions of shares acquired by such
reinvestments are subject to Fund Reimbursement Fees.
The purpose of Fund Reimbursement Fees is to defray the costs associated
with investing the proceeds of the sale of shares to investors (in the case of
purchases) or the costs associated with the sale of portfolio securities to
satisfy redemption requests (in the case of redemptions), thus insulating
existing shareholders from such costs. The amount of a Fund Reimbursement Fee
represents the Sub-Adviser's estimate of the costs reasonably anticipated to be
incurred by the Funds in connection with the purchase or sale of portfolio
securities, including international stocks, associated with an investor's
purchase or redemption proceeds. These costs include brokerage costs, market
impact costs (i.e., the increase in market prices which may result when a Fund
purchases or sells thinly traded stocks), and the effect of "bid/asked"
spreads in international markets. Transaction costs incurred when purchasing or
selling stocks of companies in foreign countries, and particularly emerging
market countries, may be significantly higher than those in more developed
countries. This is due, in part, to less competition among brokers,
underutilization of technology on the part of foreign exchanges and brokers, the
lack of less expensive investment options (such as derivative instruments) and
lower levels of liquidity in foreign and underdeveloped markets.
On July 1, 1998, the Structured Emerging Markets and Tax-Efficient
Structured Emerging Markets Funds commenced investment operations immediately
following a transaction (the "Parametric Transaction") in which each Fund
issued Institutional Class shares to unit holders of the Parametric Portfolio
Associates Emerging Markets Trust, a separate account managed by Parametric (the
"EM Trust"), in exchange for the EM Trust's assets. The EM Trust's unit
holders were divided into two categories: participants who pay taxes ("Taxable
Participants") and participants that are non-taxable entities ("Non-Taxable
Participants" and, together with the Taxable Participants, the
"Participants"). Assets in the EM Trust equal in value to the value of the
Taxable Participants' participation in the EM Trust were transferred to the Tax-
Efficient Structured Emerging Markets Fund in exchange for Institutional Class
shares of that Fund. Assets in the EM Trust equal in value to the value of the
Non-Taxable Participants' participation in the EM Trust were transferred to the
Structured Emerging Markets Fund in exchange for Institutional Class
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<PAGE>
shares of that Fund. The Participants' interests in the EM Trust were then
terminated and Institutional Class shares of the Tax-Efficient Structured
Emerging Markets Fund were distributed to the Taxable Participants and
Institutional Class shares of the Structured Emerging Markets Fund were
distributed to the Non-Taxable Participants, in each case in proportion to each
Participant's interest in the EM Trust. After the completion of the Parametric
Transaction, the portfolio securities which were owned by the EM Trust became
portfolio securities of the Funds (allocated to the Funds on a substantially
pro-rata basis), to be held or sold as Parametric deems appropriate.
Portfolio securities transferred to the Funds pursuant to the Parametric
Transaction will have the same tax basis as they had when held by the EM Trust.
Such securities have "built-in" capital gains if their market value at the
time of the Parametric Transaction was greater than their tax basis (other
securities may have "built-in" capital losses for tax purposes if their market
value at the time of the Parametric Transaction was less than their tax basis).
Built-in capital gains realized upon the disposition of these securities will be
distributed to all Fund shareholders who are shareholders of record on the
record date for the distribution, even if such shareholders were not
Participants in the EM Trust prior to the Parametric Transaction. This means
that investors purchasing Fund shares after the date of this Prospectus may be
required to pay taxes on distributions that economically represent a return of a
portion of the amount invested. For further information, see "Taxation--
Distributions" below.
In connection with the Parametric Transaction, the Participants in the EM
Trust will not be subject to Fund Reimbursement Fees with respect to any shares
of these Funds they acquired through June 30, 1998, and will not be subject to
Fund Reimbursement Fees upon the subsequent redemption (including any redemption
in connection with an exchange) of any shares acquired by any such Participant
through June 30, 1998. Such Participants will be subject to such Fund
Reimbursement Fees to the same extent as any other shareholder on any shares of
either Fund acquired (whether by reinvestment of dividends or capital gain
distributions or otherwise) after June 30, 1998.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions and Portfolio Transactions
Investment decisions for the Trust and for the other investment advisory
clients of the Adviser and Sub-Advisers 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). Some securities considered for investment by the Funds
may also be appropriate for other clients served by the Adviser or a Sub-
Adviser. 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. If a purchase or sale of securities consistent with the investment
policies of a Fund and one or more of these clients is considered at or about
the same time, transactions in such securities will be allocated among the Fund
and clients in a manner deemed fair and reasonable by the Adviser or Sub-
Adviser. 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 the Adviser or a Sub-
Adviser pursuing a small capitalization investment strategy, which could
adversely affect performance. The Adviser or a Sub-Adviser 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. 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 Sub-
Adviser'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.
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<PAGE>
Brokerage and Research Services
There is generally no stated commission in the case of fixed-income
securities, which are traded in the over-the-counter markets, but the price paid
by the Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Trust of negotiated brokerage commissions. Such commissions vary among
different brokers. Also, a particular broker may charge different commissions
according to such factors as the difficulty and size of the transaction.
Transactions in foreign securities generally involve the payment of fixed
brokerage commissions, which are generally higher than those in the United
States.
The Adviser and/or each Sub-Adviser 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 Sub-Adviser 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 Sub-Adviser, 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. Because the Portfolios invest
exclusively in Institutional Class shares of Underlying PIMCO Funds, they
generally do not pay brokerage commissions and related costs, but do indirectly
bear a proportionate share of these costs incurred by the Underlying PIMCO Funds
in which they invest.
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997,
the following amounts of brokerage commissions were paid by the Funds and
Portfolios:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 6/30/99 6/30/98 6/30/97
- ----- -------- -------- ---------
<S> <C> <C> <C>
Equity Income Fund $ 370,906 $ 239,458 $ 161,012
Value Fund 590,816 437,002 203,403
Small-Cap Value Fund 973,236 810,211 146,551
Capital Appreciation Fund 2,099,694 1,384,393 889,931
Mid-Cap Growth Fund 1,648,830 1,115,609 634,436
Micro-Cap Growth Fund 381,825 237,969 315,009
Small-Cap Growth Fund 149,013 71,734 113,103
Enhanced Equity Fund 34,926 61,193 196,460
Emerging Markets Fund 94,539 238,241 591,312
International Developed Fund 266,609 326,193 498,041
Balanced Fund 108,337 91,788 197,598
Core Equity Fund 154,017 219,194 114,173
Mid-Cap Equity Fund 53,303 44,404 31,940
Renaissance Fund* 4,009,076 2,539,296 717,040
Growth Fund* 4,502,200 4,154,740 2,632,126
Target Fund* 3,661,375 5,577,623 2,584,198
Opportunity Fund* 1,778,867 1,345,809 1,187,818
Innovation Fund* 782,662 412,457 224,529
International Fund* 566,950 785,827 748,412
International Growth Fund** 77,095 26,179 N/A
Precious Metals Fund* 105,266 98,635 81,251
Tax Exempt Fund* N/A N/A 0
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Value 25 Fund 15,802 N/A N/A
Tax-Efficient Equity Fund 28,136 N/A N/A
Structured Emerging Markets Fund 85,087 N/A N/A
Tax-Efficient Structured Emerging Markets Fund 153,831 N/A N/A
60/40 Portfolio 1,646 N/A N/A
70/30 Portfolio 348 N/A N/A
90/10 Portfolio 65 N/A N/A
----------- ----------- -----------
TOTAL $22,684,457 $20,217,955 $12,268,343
</TABLE>
__________________
* Amounts for the year ending June 30, 1997 are for the period 1/18/97 through
6/30/97.
** Amounts for the year ended June 30, 1998 are for the period from 12/31/97
through 6/30/98.
For the fiscal period ended January 17, 1997 and the fiscal year ended
September 30, 1996, the following amounts of brokerage commissions were paid by
the predecessors of the Funds listed below (each of which was a series of PAF
during such periods and reorganized as a Fund of the Trust on January 17, 1997):
<TABLE>
10/1/96 Year
to Ended
Fund 1/17/97 9/30/96
- ----- ---------- --------
<S> <C> <C>
Renaissance Fund $ 363,501 $ 993,617
Growth Fund 1,064,573 2,985,777
Target Fund 1,375,601 3,080,238
Opportunity Fund 505,221 1,757,263
Innovation Fund 105,556 228,473
International Fund 393,808 1,530,476
Precious Metals Fund 53,096 79,838
Tax Exempt Fund 0 0
---------- -----------
TOTAL $3,861,356 $10,655,682
</TABLE>
The Adviser or, pursuant to the portfolio management agreements, a Sub-
Adviser, 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 Adviser and the Sub-Advisers will seek the best price and execution
of the Funds' orders. In doing so, a Fund may pay higher commission rates than
the lowest available when the Adviser or Sub-Adviser believes it is reasonable
to do so in light of the value of the brokerage and research services provided
by the broker effecting the transaction, as discussed below. The Adviser and
Sub-Advisers 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.
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 Sub-Advisers receive research services from many broker-dealers
with which the Adviser and Sub-Advisers 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 Sub-Advisers 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 Sub-Advisers receive such services.
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<PAGE>
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
Sub-Advisers 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 Sub-Advisers 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 Sub-Adviser 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 Sub-Adviser where, in the judgment of the Adviser or Sub-
Adviser, 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 Sub-Adviser may receive and retain compensation for effecting
portfolio transactions for a Fund on a national securities exchange of which the
broker-dealer is a member if the transaction is "executed" on the floor of the
exchange by another broker which is not an "associated person" of the affiliated
broker-dealer, and if there is in effect a written contract between the Adviser
or Sub-Adviser 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 Sub-Adviser 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
A change in the securities held by a Fund is known as "portfolio
turnover." With the exception of the Tax-Efficient Structured Emerging Markets
and Tax-Efficient Equity Funds (which may attempt to minimize portfolio turnover
as a tax-efficient management strategy), the Sub-Advisers 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. 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. High
portfolio turnover (e.g., greater than 100%) involves correspondingly greater
expenses to a Fund, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestments in other
securities. The higher the rate of portfolio turnover of a Fund, the higher
these transaction costs borne by the Fund generally will be. Such sales may
result in realization of taxable capital gains (including short-term capital
gains which are generally taxed to shareholders at ordinary income tax rates).
To the extent portfolio turnover results in the realization of net short-term
capital gains, such gains are generally taxed to shareholders at ordinary income
tax rates. See "Taxation."
The portfolio turnover rate of a Fund or Portfolio 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 or Portfolio 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.
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Because the Adviser does not expect to reallocate the Portfolio's 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 the portfolio turnover of the Underlying Funds, a number of
which have high (i.e., greater than 100%) portfolio turnover rates.
Portfolio turnover rates for each Fund for which financial highlights for
at least the past two fiscal years are available and are provided in the
Prospectuses under "Financial Highlights" in the applicable Prospectus. The
annual portfolio turnover rate for each of the Tax-Efficient Equity and Tax-
Efficient Structured Emerging Markets Funds is expected to be less than 40%. The
annual portfolio turnover rate for each of the Structured Emerging Markets and
International Growth Funds is expected to be less than 100% and for the Value 25
Fund is expected to be less than 150%. The annual portfolio turnover rate for
the Mega-Cap Fund is expected to be approximately 70%.
In connection with the change in Sub-Advisers of the Growth, Target,
Opportunity, Innovation, Renaissance Core Equity, Mid-Cap Equity, and
International Growth Funds, these Funds may experience increased turnover due to
the differences, if any, between the portfolio management strategies of Columbus
Circle and PIMCO Equity Advisors. See "Management of the Trust--Portfolio
Management Agreements."
NET ASSET VALUE
As indicated in the Prospectuses under the heading "How Fund Shares are
Priced," the net asset value ("NAV") of a class of a Fund's or Portfolio's
shares is determined by dividing the total value of a Fund's or Portfolio's
portfolio investments and other assets attributable to that class, less any
liabilities, by the total number of shares outstanding of that class.
For purposes of calculating the NAV, portfolio securities and other assets
for which market quotes are available are stated at market value. Market value
is generally determined on the basis of last reported sales prices, or if no
sales are reported, based on quotes obtained from a quotation reporting system,
established market makers, or pricing services. Certain securities or
investments for which daily market quotes are not readily available may be
valued, pursuant to guidelines established by the Board of Trustees, with
reference to other securities or indices. Short-term investments having a
maturity of 60 days or less are generally valued at amortized cost. Exchange
traded options, futures and options on futures are valued at the settlement
price determined by the exchange. Other securities for which market quotes are
not readily available are valued at fair value as determined in good faith by
the Board of Trustees or persons acting at their direction.
Investments initially valued in currencies other than the U.S. dollar are
converted to U.S. dollars using exchange rates obtained from pricing services.
As a result, the NAV of a Fund's shares may be affected by changes in the value
of currencies in relation to the U.S. dollar. The value of securities traded in
markets outside the United States or denominated in currencies other than the
U.S. dollar may be affected significantly on a day that the New York Stock
Exchange is closed and an investor is not able to purchase, redeem or exchange
shares. In particular, calculation of the NAV of the International Growth,
Structured Emerging Markets, Tax-Efficient Structured Emerging Markets, Precious
Metals and International Funds may not take place contemporaneously with the
determination of the prices of foreign securities used in NAV calculations.
Fund and Portfolio shares are valued at the close of regular trading
(normally 4:00 p.m., Eastern time) (the "NYSE Close") on each day that the New
York Stock Exchange is open. For purposes of calculating the NAV, the Funds
normally use pricing data for domestic equity securities received shortly after
the NYSE Close and do not normally take into account trading, clearances or
settlements that take place after the NYSE Close. Domestic fixed income and
foreign securities are normally priced using data reflecting the earlier closing
of the principal markets for those securities. Information that becomes known
to the Funds or their agents after the NAV has been calculated on a particular
day will not generally be used to retroactively adjust the price of the security
or the NAV determined earlier that day.
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In unusual circumstances, instead of valuing securities in the usual
manner, the Funds may value securities at fair value or estimate their value as
determined in good faith by the Board of Trustees, generally based upon
recommendations provided by PIMCO Advisors and/or the relevant Sub-Adviser.
Fair valuation may also be used by the Board of Trustees if extraordinary events
occur after the close of the relevant market but prior to the NYSE Close.
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 classes of shares of the Funds
and Portfolios with higher service and/or distribution fees applicable to such
shares may be lower than the per share net asset value of the classes of shares
with lower or no service and/or distribution fees as a result of the higher
daily expense accruals of the service and/or distribution fees applicable to
such classes. Generally, for Funds and 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 Fund's or Portfolio's
classes.
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.
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 or
Portfolio.
Each Fund and Portfolio 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 and Portfolio 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") and (b) 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 or Portfolio'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 or Portfolio'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 or Portfolio 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, each Fund and Portfolio must distribute each taxable year an amount
at least equal to the sum of (i) 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. For purposes of the Qualifying Income Test,
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 if such gains are not
directly related to investing in securities (or options and futures with respect
to stock or securities). To date, such regulations have not been issued.
In years when a Fund or Portfolio 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.
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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, each Fund and Portfolio generally will
not be subject to U.S. federal income tax on its investment company taxable
income and net capital gains (that is, 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 or Portfolio as capital gain dividends, if
any, that it distributes to shareholders on a timely basis. Each Fund and
Portfolio 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 or Portfolio on a timely
basis in accordance with a calendar year distribution requirement are subject to
a nondeductible 4% excise tax. To avoid the tax, each Fund and Portfolio must
distribute during each calendar year an amount at least equal to the sum of (1)
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) 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 or Portfolio in October, November or December of that year
to shareholders of record on a date in such a month and paid by the Fund or
Portfolio during January of the following year.
Shareholders subject to U.S. federal income tax will be subject to tax on
dividends received from a Fund or Portfolio, regardless of whether received in
cash or reinvested in additional shares. 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 and Portfolio intends to make its distributions in
accordance with the calendar year distribution requirement.
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, if any, 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, if
any, derived from interest on certain U.S. Government securities may be exempt
from state and local taxes, although interest on mortgage-backed U.S. Government
securities is generally not so exempt. While the Tax-Efficient Equity and Tax-
Efficient Structured Emerging Markets Funds seek to minimize taxable
distributions, the Funds may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time.
Dividends designated by a Fund as capital gain dividends derived from the
Fund's net capital gains are taxable to shareholders as long-term capital gains
(generally subject to a 20% tax rate for shareholders who are individuals)
except as provided by an applicable tax exemption. Any distributions that are
not from a Fund's net investment income or net capital gains may be
characterized as a return of capital to shareholders or, in some cases, as
capital gain. Each Fund will advise shareholders annually of the amount and
nature of the dividends paid to them.
The tax status of each Fund and Portfolio and the distributions which it
may make are summarized in the Prospectuses under the captions "Fund
Distributions" and "Tax Consequences." All dividends and distributions of a
Fund or Portfolio, whether received in shares or cash, are taxable and must be
reported on each shareholder's federal income tax return.
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).
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Dividends paid by the other Funds generally are not expected to qualify for the
deduction for dividends received by corporations.
Distributions of net capital gains, if any, designated as capital gain
dividends, are taxable as long-term capital gains (generally subject to a 20%
tax rate for shareholders who are individuals), regardless of how long the
shareholder has held a Fund's or Portfolio's shares and are not eligible for the
dividends received deduction. Any distributions that are not from a Fund's
investment company taxable income or net 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. A
Portfolio will not be able to offset gains realized by one Fund in which such
Portfolio invests against losses realized by another Fund in which such
Portfolio invests. A Portfolio's use of the fund-of-funds structure could
therefore affect the amount, timing and character of distributions to
shareholders. In addition, Funds that invest in other investment companies will
not be able to offset gains realized by one underlying investment company
against losses realized by another underlying investment company. A Fund's
investment in other investment companies could therefore affect the amount,
timing and character of distributions to shareholders of such Fund.
Taxable shareholders should note that the timing of their investment or
redemptions could have undesirable tax consequences. Dividends and
distributions on shares of a Fund or Portfolio are generally subject to federal
income tax as described herein to the extent they do not exceed the Fund's or
Portfolio's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when the net asset value of a Fund or Portfolio reflects
gains that are either unrealized, or realized but not distributed. Such
realized gains may be required to be distributed even when a Fund's or
Portfolio's net asset value also reflects unrealized losses.
Sales of Shares
Upon the disposition of shares of a Fund or Portfolio (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. Long-term capital gains
will generally be taxed at a federal income tax rate of 20% to shareholders who
are individuals. 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. Depending on a
Portfolio's percentage ownership in an Underlying PIMCO Fund both before and
after a redemption, a Portfolio's redemption of shares of such Fund may cause
the Portfolio to be treated as not receiving capital gain income on the amount
by which the distribution exceeds the Portfolio's tax basis in the shares of the
Underlying PIMCO Fund, but instead to be treated as receiving a dividend taxable
as ordinary income on the full amount of the distribution. This could cause
shareholders of a Portfolio to recognize higher amounts of ordinary income than
if the shareholders had held the shares of the Underlying PIMCO Funds directly.
Backup Withholding
A Fund or Portfolio may be required to withhold 31% of all taxable
distributions payable to shareholders who fail to provide the Fund or Portfolio
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.
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Options, Futures, Forward Contracts and Swap Agreements
To the extent such investments are permissible for a Fund, the Fund's
transactions in options, futures contracts, hedging transactions, forward
contracts, straddles and foreign currencies will be subject to special tax rules
(including mark-to-market, constructive sale, straddle, wash sale and short sale
rules), the effect of which may be to accelerate income to the Fund, defer
losses to the Fund, cause adjustments in the holding periods of the Fund's
securities, convert long-term capital gains into short-term capital gains and
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders, including the Portfolios.
Passive Foreign Investment Companies
Investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. federal income tax (including interest charges)
on distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to Fund shareholders. However, the Fund may elect to treat a
passive foreign investment company as a "qualified electing fund," in which case
the Fund will be required to include its share of the company's income and net
capital gains annually, regardless of whether it receives any distribution from
the company. The Fund also may make an election to mark the gains (and to a
limited extent losses) in such holdings "to the market" as though it had sold
and repurchased its holdings in those PFICs on the last day of the Fund's
taxable year. Such gains and losses are treated as ordinary income and loss.
The QEF and mark-to-market elections may have the effect of accelerating the
recognition of income (without the receipt of cash) and increase the amount
required to be distributed for the Fund to avoid taxation. Making either of
these elections therefore may require a Fund to liquidate other investments
(including when it is not advantageous to do so) to meet its distribution
requirement, which also may accelerate the recognition of gain and affect a
Fund's total return.
Foreign Currency Transactions
A Fund's transactions in foreign currencies, foreign currency-denominated
debt securities and certain foreign currency options, futures contracts and
forward contracts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value of
the foreign currency concerned.
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 Sub-Adviser 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
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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. Although a Portfolio may itself be entitled to a deduction for such
taxes paid by an Underlying PIMCO Fund in which the Portfolio invests, the
Portfolio will not be able to pass any such credit or deduction through to its
own shareholders. In addition, a Fund which invests in other investment
companies may not be able to pass any such credit or deduction for taxes paid by
the underlying investment company through to its own shareholders.
Original Issue Discount and Pay-In-Kind Securities
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.
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 (including certain pay-in-kind securities)
may be treated as a dividend for U.S. federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. A
Fund may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
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.
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
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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 and Portfolio will provide
information annually to shareholders indicating the amount and percentage of its
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 and Portfolio qualifies for the
federal income tax treatment described above, it is believed that neither the
Trust nor any Fund or Portfolio 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 or Portfolio.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under an Agreement
and Declaration of Trust as amended and restated on January 14, 1997. The
capitalization of the Trust consists solely of an unlimited number of shares of
beneficial interest. The Board of Trustees may establish additional series
(with different investment objectives and fundamental policies) at any time in
the future. Establishment and offering of additional series will not alter the
rights of the Trust's shareholders. When issued, shares are fully paid, non-
assessable, redeemable and freely transferable. Shares do not have preemptive
rights or subscription rights. In liquidation of a Fund or Portfolio, each
shareholder is entitled to receive his pro rata share of the net assets of that
Fund or Portfolio.
Shares begin earning dividends on Fund shares the day after the Trust
receives the shareholder's purchase payment. Net investment income from
interest and dividends, if any, will be declared and paid monthly to
shareholders of record by the 30/70 Portfolio. Net investment income from
interest and dividends, if any, will be declared and paid quarterly to
shareholders of record by the Equity Income, Value and Renaissance Funds and the
60/40 Portfolio. 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 and 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. Dividend and capital
gain distributions of a Fund or Portfolio will be reinvested in additional
shares of that Fund or Portfolio unless the shareholder elects to have them paid
in cash.
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 or
Portfolio's property for all loss and
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expense of any shareholder of that Fund or 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 Fund or Portfolio of which he or
she is or was a shareholder is unable to meet its obligations, and thus should
be considered remote.
Performance Information
From time to time the Trust may make available certain information about
the performance of some or all classes of shares of some or all of the Funds or
Portfolios. Information about a Fund's or Portfolio's performance is based on
that Fund's (or its predecessor's) or Portfolio's record to a recent date and is
not intended to indicate future performance.
The total return of the classes of shares of the Funds and Portfolios may
be included in advertisements or other written material. When a Fund's or
Portfolio's total return is advertised, it will be calculated for the past year,
the past five years, and the past ten years (or if the Fund or Portfolio 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) or Portfolio, as more fully described below. For
periods prior to the initial offering date of the advertised class of shares,
total return presentations for such class will be based on the historical
performance of an older class of the Fund (if any) restated, as necessary, to
reflect any different sales charges and/or operating expenses (such as different
administrative fees and/or 12b-1/servicing fee charges) associated with the
newer class. In certain cases, such a restatement will result in performance
which is higher than if the performance of the older class were not restated to
reflect the different operating expenses of the newer class. In such cases, the
Trust's advertisements will also, to the extent appropriate, show the lower
performance figure reflecting the actual operating expenses incurred by the
older class for periods prior to the initial offering date of the newer class.
Total return for each class is measured by comparing the value of an investment
in the Fund or Portfolio at the beginning of the relevant period to the
redemption value of the investment in the Fund or Portfolio 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.
The Funds and Portfolios 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 or
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. 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 or Portfolio has declared
and paid to shareholders as of the end of a specified period rather than the
Fund's or Portfolio's actual net investment income for that period.
Performance information is computed separately for each class of a Fund or
Portfolio. Each Fund and Portfolio may from time to time include the total
return of each class of its shares in advertisements or in information furnished
to present or prospective shareholders. The Equity Income, Value and
Renaissance Funds and the 60/40 and 30/70 Portfolios 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 and Portfolio may from time to time include in advertisements the
total return of each class (and yield of each class in the case of the Equity
Income, Value and Renaissance Funds and the 60/40 and 30/70 Portfolios) 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 or Portfolio's net asset values and public offering prices will
separately present each class of shares. The Funds and Portfolios 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.
-78-
<PAGE>
Investment results of the Funds and Portfolios will fluctuate over time,
and any representation of the Funds' or Portfolio's total return or yield for
any prior period should not be considered as a representation of what an
investor's total return or yield may be in any future period. The Trust's Annual
and Semi-Annual Reports contain additional performance information for the Funds
and Portfolios and are available upon request, without charge, by calling the
telephone numbers listed on the cover of this Statement of Additional
Information.
Calculation of Yield
Quotations of yield for certain of the Funds and Portfolios 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 September 30, 1999, the yields of the Equity
Income, Value and Renaissance Funds and the 60/40 and 30/70 Portfolios were as
follows (Class D shares were not offered during the period listed):
<TABLE>
<CAPTION>
Institutional Administrative
------------- --------------
Fund Class Class Class A Class B Class C Class D
- ----- -------------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
3.37% 3.12% 2.80% 2.19% 2.19% 2.96%
Equity Income Fund
Value Fund 2.37% 2.12% 1.87% 1.20% 1.20% 1.95%
Renaissance Fund 0.38% 0.11% -0.05% -0.84% -0.84% -0.06%
60/40 Portfolio 4.53% 4.28% 3.75% 3.20% 3.20% N/A
30/70 Portfolio 5.39% 5.14% 4.62% 4.08% 4.08% N/A
</TABLE>
The yield of a Fund or Portfolio will vary from time to time depending upon
market conditions, the composition of its portfolio and operating expenses of
the Trust allocated to the Fund or Portfolio or its classes of shares. These
factors, possible differences in the methods used in calculating yield should be
considered when comparing a Fund's or Portfolio'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 or Portfolio's various
classes of shares. These yields do not take into account any applicable
contingent deferred sales charges.
The Trust, in its advertisements, may refer to pending legislation from
time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time
in the future, yields and total return may be higher or lower than past yields
and there can be no assurance that any historical results will continue.
-79-
<PAGE>
Calculation of Total Return
Quotations of average annual total return for a Fund or Portfolio, or a
class of shares thereof, will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in the Fund, Portfolio or
class over periods of one, five, and ten years (up to the life of the Fund or
Portfolio), calculated pursuant to the following formula: P (1 + T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). Except as
noted below, all total return figures reflect the deduction of a proportionate
share of Fund, Portfolio 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 and Portfolios may also, with respect to certain periods of
less than one year, provide total return information for that period that is
unannualized. Under applicable regulations, any such information is required to
be accompanied by standardized total return information.
-80-
<PAGE>
The table below sets forth the average annual total return of certain
classes of shares of the following Funds for periods ended June 30, 1999. For
periods prior to the "Inception Date" of a particular class of a Fund's shares,
total return presentations for the class are based on the historical performance
of Institutional Class shares of the Fund (the oldest class) adjusted, as
necessary, to reflect any current sales charges (including any contingent
deferred sales charges) associated with the newer class and any different
operating expenses associated with the newer class, such as 12b-1 distribution
and servicing fees (which are not paid by the Institutional Class) and
administrative fee charges.
Average Annual Total Return for Periods Ended June 30, 1999*
<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 12.56% 21.02% 16.89% 03/08/91 03/08/91
Administrative 12.31% 20.72% 16.61% 11/30/94
Class A 6.08% 19.21% 15.66% 1/20/97
Class B 6.50% 19.48% 15.71% 1/20/97
Class C 10.31% 19.66% 15.58% 1/20/97
Class D 12.21% 20.56% 16.45% 4/8/98
- ---------------------------------------------------------------------------------------------------------
Value Institutional 12.30% 21.23% 17.09% 12/30/91 12/30/91
Administrative 11.91% 20.93% 16.79% 8/21/97
Class A 5.78% 19.40% 15.75% 1/13/97
Class B 6.17% 19.67% 15.83% 1/13/97
Class C 10.06% 19.87% 15.77% 1/13/97
Class D 12.00% 20.79% 16.65% 4/8/98
- ---------------------------------------------------------------------------------------------------------
Small-Cap Institutional -5.11% 15.78% 14.43% 10/1/91 10/1/91
Value Administrative -5.40% 15.48% 14.14% 11/1/95
Class A -10.70% 14.03% 13.15% 1/20/97
Class B -10.75% 14.24% 13.22% 1/20/97
Class C -7.12% 14.48% 13.14% 1/20/97
- ---------------------------------------------------------------------------------------------------------
Capital Institutional 10.57% 24.49% 19.51% 3/8/91 3/8/91
Appreciation Administrative 10.30% 24.18% 19.22% 7/31/96
Class A 4.08% 22.61% 18.23% 1/20/97
Class B 4.39% 22.94% 18.30% 1/20/97
Class C 8.34% 23.10% 18.17% 1/20/97
Class D 10.17% 24.00% 19.04% 4/8/98
- ---------------------------------------------------------------------------------------------------------
Mid-Cap Growth Institutional 0.33% 20.56% 16.91% 8/26/91 8/26/91
Administrative 0.31% 20.29% 16.63% 11/30/94
Class A -5.63% 18.73% 15.60% 1/13/97
Class B -5.58% 18.99% 15.67% 1/13/97
Class C -1.76% 19.20% 15.59% 1/13/97
Class D 0.25% 20.16% 16.49% 4/8/98
- ---------------------------------------------------------------------------------------------------------
Micro-Cap Institutional -12.66% 19.33% 17.61% 6/25/93 6/25/93
Growth Administrative -12.90% 19.03% 17.32% 4/1/96
- ---------------------------------------------------------------------------------------------------------
Small-Cap Institutional -14.99% 11.38% 16.99% 1/7/91 1/7/91
Growth Administrative -15.26% 11.21% 16.76% 9/27/95
- ---------------------------------------------------------------------------------------------------------
Enhanced Institutional 17.95% 25.44% 17.73% 2/11/91 2/11/91
Equity Administrative 17.63% 25.10% 17.42% 8/21/97
- ---------------------------------------------------------------------------------------------------------
International Institutional 28.62% N/A 44.97% 12/31/97 12/31/97
Growth
- ---------------------------------------------------------------------------------------------------------
</TABLE>
-81-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Core Equity Institutional 26.35% N/A 28.08% 12/28/94 12/28/94
Administrative 25.84% N/A 27.73% 5/31/95
- ---------------------------------------------------------------------------------------------------------
Mid-Cap Equity Institutional 23.18% N/A 24.24% 12/28/94 12/28/94
- ---------------------------------------------------------------------------------------------------------
Value 25 Institutional N/A N/A -9.48% 7/10/98 7/10/98
Class A N/A N/A -14.79% 7/10/98
Class B N/A N/A -14.93% 7/10/98
Class C N/A N/A -11.39% 7/10/98
- ---------------------------------------------------------------------------------------------------------
Structured Institutional 29.21% N/A 29.21% 6/30/98 6/30/98
Emerging
Markets
- ---------------------------------------------------------------------------------------------------------
Tax-Efficient Institutional 33.39% N/A 33.39% 6/30/98 6/30/98
Structured
Emerging
Markets
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of shares
assume payment of the current maximum sales charge (if any) applicable to that
class at the time of purchase and assume that the maximum CDSC (if any) for
Class A, Class B and Class C shares was deducted at the times, in the amounts,
and under the terms discussed in the Class A, B and C Prospectus.
** For all Funds listed above, Class A, Class B, Class C, Class D and
Administrative Class total return presentations for periods prior to the
Inception Date of a particular class reflect the prior performance of
Institutional Class shares of the Fund (the oldest class) adjusted to reflect
the actual sales charges (none in the case of Class D and the Administrative
Class) of the newer class. The adjusted performance also reflects the higher
Fund operating expenses applicable to Class A, Class B, Class C, Class D and
Administrative Class shares. These include (i) 12b-1 distribution and
servicing fees, which are not paid by the Institutional Class and are paid by
Class B and Class C (at a maximum rate of 1.00% per annum) and Class A and the
Administrative Class (at a maximum rate of .25% per annum), and may be paid by
Class D (at a maximum rate of .25% per annum) and (ii) administrative fee
charges associated with Class A, Class B and Class C shares (a maximum
differential of .15% per annum) and Class D shares (a maximum differential of
0.40% per annum).
The following table sets forth the average annual total return of certain
classes of shares of the following Funds (each of which, except for the Tax-
Efficient Equity Fund, was a series of PAF prior to its reorganization as a Fund
of the Trust on January 17, 1997) for periods ended June 30, 1999. Accordingly,
"Inception Date of Fund" for these Funds refers to the inception date of the PAF
predecessor series. Since Class C shares were offered since the inception of
each PAF series, total return presentations for periods prior to the Inception
Date of the other classes (with the exception of Class D, Institutional Class
and Administrative Class shares of the Innovation Fund, Institutional Class and
Administrative Class shares of the Target Fund and Administrative Class shares
of the Tax-Efficient Equity Fund) are based on the historical performance of
Class C shares, adjusted to reflect any current sales charges (including any
contingent deferred sales charges) associated with the newer class and any
different operating expenses associated with the newer class, such as 12b-1
distribution and servicing fees and administrative fee charges. As described
below, performance presentations for periods prior to the Inception Date of
Class D, Institutional Class and Administrative Class shares of the Innovation
Fund, Institutional Class and Administrative Class shares of the Target Fund and
Administrative Class Shares of the Tax-Efficient Equity Fund are based on the
historical performance of Class A shares.
-82-
<PAGE>
Average Annual Total Return for Periods Ended June 30, 1999*
<TABLE>
<CAPTION>
Since Inception Inception
Inception Date of Fund Date of Class
Fund Class*** 1 Year 5 Years 10 Years of Fund
(Annualized)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Renaissance** Class A 3.90% 21.45% 14.26%(#) 14.22%(#) 4/18/88 2/1/91
Class B 4.22% 21.71% 14.31% 14.26% 5/22/95
Class C 8.17% 21.91% 14.05% 13.94% 4/18/88
Class D 10.01% 22.84%(#) 14.91%(#) 14.80%(#) 4/8/98
Institutional 10.24%(#) 23.28%(#) 15.34%(#) 15.24%(#) 12/30/97
Administrative 9.91%(#) 22.96%(#) 15.05%(#) 14.94%(#) 8/31/98
- ----------------------------------------------------------------------------------------------------------------------------
Growth Class A 12.13% 22.65% 17.13%(#) 18.35%(#) 2/24/84 10/26/90
Class B 12.72% 22.93% 17.19% 18.39% 5/23/95
Class C 16.76% 23.11% 16.93% 17.91% 2/24/84
Class D 18.64%(#) 24.02%(#) 17.80%(#) 18.79%(#) 4/1/99
Institutional 19.11%(#) 24.51%(#) 18.27%(#) 19.26%(#) 4/1/99
Administrative 18.86% 17.98% 18.97%
- ----------------------------------------------------------------------------------------------------------------------------
Target Class A 9.33% 20.41% N/A 18.47% 12/17/92 12/17/92
Class B 9.93% 20.69% N/A 18.62% 5/22/95
Class C 13.86% 20.87% N/A 18.60% 12/17/92
Institutional 16.17%(#) 22.37%(#) N/A 20.06%(#) 4/1/99
Administrative 15.88%(#) 22.07%(#) N/A 19.77%(#) 4/1/99
- ----------------------------------------------------------------------------------------------------------------------------
Opportunity Class A -1.74% 14.50% 17.18%(#) 17.08%(#) 2/24/84 12/17/90
Class B -0.95% 14.72% 17.25% 17.11% 4/1/99
Class C 2.36% 14.94% 16.99% 16.65% 2/24/84
Institutional 4.42%(#) 16.27%(#) 18.33%(#) 17.99%(#) 4/1/99
Administrative 4.21%(#) 15.99%(#) 18.04%(#) 17.70%(#) 4/1/99
- ----------------------------------------------------------------------------------------------------------------------------
Innovation Class A 52.48% N/A N/A 36.53% 12/22/94 12/22/94
Class B 55.17% N/A N/A 37.07% 5/22/95
Class C 59.20% N/A N/A 37.21% 12/22/94
Class D 61.62% N/A N/A 38.30% 4/8/98
Institutional 61.96%(#) N/A N/A 38.79%(#) 3/5/99
Administrative 61.60%(#) N/A N/A 38.45%(#) Not yet
offered
- ----------------------------------------------------------------------------------------------------------------------------
International** Class A -9.57% 3.73% 6.00%(#) 6.86%(#) 8/25/86 2/1/91
Class B -9.42% 3.79% 6.06% 6.90% 5/22/95
Class C -6.01% 4.10% 5.80% 6.53% 8/25/86
Institutional -3.89%(#) 5.34%(#) 7.04%(#) 7.77%(#) 9/30/98
Administrative -4.43%(#) 5.01%(#) 6.74%(#) 7.48%(#) 9/30/98
- ----------------------------------------------------------------------------------------------------------------------------
Precious Class A -11.23% -16.83% -6.10%(#) -6.45%(#) 10/10/88 2/1/91
Metals** Class B -11.43% -16.95% -6.06% -6.42% 6/15/95
Class C -7.64% -16.63% -6.34% -6.72% 10/10/88
- ----------------------------------------------------------------------------------------------------------------------------
Tax-Efficient Class A N/A 9.55% 7/10/98 7/10/98
Equity Class B N/A 10.10% 7/10/98
Class C N/A 14.10% 7/10/98
Class D N/A 15.90% 7/10/98
Institutional N/A 16.35%(#) Not yet
Administrative N/A 16.10% offered
9/30/98
- ----------------------------------------------------------------------------------------------------------------------------
</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
-83-
<PAGE>
November 15, 1994. Performance information for prior periods does not
necessarily represent results that would have been obtained had the current
investment objective and policies been in effect for all periods.
*** Class A, Class B, Class D, Institutional Class and Administrative Class
total return presentations for the Funds listed for periods prior to the
Inception Date of the particular class of a Fund (with the exception of Class D,
Institutional Class and Administrative Class shares of the Innovation Fund,
Institutional Class and Administrative Class shares of the Target Fund and
Administrative Class shares of the Tax-Efficient Equity Fund) reflect the prior
performance of Class C shares of the Fund, adjusted to reflect the actual sales
charges (or no sales charges in the case of Class D, Institutional Class and
Administrative Class shares) of the newer class. The adjusted performance also
reflects any different operating expenses associated with the newer class.
These include (i) 12b-1 distribution and servicing fees, which are paid by Class
C and Class B (at a maximum rate of 1.00% per annum) and Class A and the
Administrative Class (at a maximum rate of .25% per annum), may be paid by Class
D (at a maximum rate of .25% per annum), and are not paid by the Institutional
Class and (ii) administrative fee charges, which are lower than Class C charges
for the Institutional and Administrative Classes (a maximum differential of .15%
per annum) and higher for Class D (a maximum differential of .25% per annum).
(Administrative fee charges are the same for Class A, B and C shares.)
Performance presentations for periods prior to the Inception Date of Class D,
Institutional Class and Administrative Class shares of the Innovation Fund,
Institutional Class and Administrative Class shares of the Target Fund and
Administrative Class Shares of the Tax-Efficient Equity Fund are based on the
historical performance of Class A shares (which were also offered since
inception of the 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 series were subject to a variable level of expenses for such
services as legal, audit, custody and transfer agency services. As described in
the Class A, B and C Prospectus, for periods subsequent to January 17, 1997,
Class A, Class B and Class C shares of the Trust are subject to a fee structure
which essentially fixes these expenses (along with other administrative
expenses) under a single administrative fee based on the average daily net
assets of a Fund attributable to Class A, Class B and Class C shares. Under the
current fee structure, the Growth Fund, Target Fund, Opportunity Fund and
International Fund are expected to have higher total Fund operating expenses
than their predecessors had under the fee structure for PAF (prior to January
17, 1997). All other things being equal, such higher expenses have an adverse
effect on total return performance for these Funds after January 17, 1997.
(#) Where noted, the method of adjustment used in the table above for periods
prior to the Inception Date of the noted classes of the noted Funds resulted in
performance for the period shown which is higher than if the historical Class C
or Class A share performance (i.e., the older class used for prior periods) were
not adjusted to reflect the lower operating expenses of the newer class. The
following table shows the lower performance figures that would be obtained if
the performance for newer classes with lower operating expenses were calculated
by essentially tacking to such classes' actual performance the actual
performance (with adjustment for actual sales charges) of the older Class of
shares, with their higher operating expenses, for periods prior to the initial
offering date of the newer class (i.e., the total return presentations below are
based, for periods prior to the Inception Date of the noted classes, on the
historical performance of the older class adjusted to reflect the current sales
charges (if any) associated with the newer class, but not reflecting lower
---
operating expenses associated with the newer class, such as lower administrative
fee charges and/or 12b-1 distribution and servicing fee charges).
-84-
<PAGE>
Total Return for Periods Ended June 30, 1999
(with no adjustment for operating expenses of the noted
classes for periods prior to their inception dates)
<TABLE>
<CAPTION>
Since Inception
of Fund
Fund Class 1 Year 5 Years 10 Years (Annualized)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Renaissance Class A -- -- 14.12% 14.01%
Class D -- 22.16% 14.16% 14.04%
Institutional 10.24% 22.30% 14.23% 14.10%
Administrative 9.72% 22.05% 14.11% 14.00%
- ---------------------------------------------------------------------------------------------------
Growth Class A -- -- 17.01% 17.97%
Institutional 18.10% 23.18% 16.96% 17.93%
Administrative 18.06% 23.17% 16.96% 17.93%
- ---------------------------------------------------------------------------------------------------
Target Institutional 15.82% 21.91% -- 19.61%
Administrative 15.75% 21.90% -- 19.60%
- ---------------------------------------------------------------------------------------------------
Opportunity Class A -- -- 17.06% 16.69%
Institutional 3.50% 15.01% 17.02% 16.67%
Administrative 3.50% 15.01% 17.02% 16.67%
- ---------------------------------------------------------------------------------------------------
Innovation Institutional 61.53% -- -- 38.28%
- ---------------------------------------------------------------------------------------------------
International Class A -- -- 5.87% 6.59%
Institutional -4.20% 4.31% 5.90% 6.61%
Administrative -4.66% 4.21% 5.85% 6.57%
- ---------------------------------------------------------------------------------------------------
Precious Metals Class A -- -- -6.21% -6.60%
- ---------------------------------------------------------------------------------------------------
Tax-Efficient Equity Institutional -- -- -- 15.90%
- ---------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the average annual total return of each
class of shares of the Portfolios for periods ended June 30, 1999. Total return
presentations for periods prior to the Inception Date of Institutional Class and
Administrative Class shares are based on the historical performance of Class A
shares (which were offered since the inception of the Portfolios), adjusted to
reflect that there are no sales charges associated with Institutional Class and
Administrative Class shares and any different operating expenses associated with
these newer classes, such as lower 12b-1 distribution and servicing fees and/or
administrative fee charges.
-85-
<PAGE>
Average Annual Total Return for Periods Ended June 30, 1999*
<TABLE>
<CAPTION>
Since Inception Inception Inception
of Portfolio Date of Date of
Portfolio Class** 1 Year (Annualized) Portfolio Class
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
90/10 Portfolio Class A N/A 16.91% 9/30/98 9/30/98
Class B N/A 18.03% 9/30/98
Class C N/A 22.03% 9/30/98
Institutional N/A 24.17%(#) 3/1/99
Administrative N/A 23.94%(#) 3/1/99
- ----------------------------------------------------------------------------------------------------
60/40 Portfolio Class A N/A 9.17% 9/30/98 9/30/98
Class B N/A 9.83% 9/30/98
Class C N/A 13.82% 9/30/98
Institutional N/A 15.95%(#) 3/1/99
Administrative N/A 15.74%(#) 3/1/99
- ----------------------------------------------------------------------------------------------------
30/70 Portfolio Class A N/A 2.11% 9/30/98 9/30/98
Class B N/A 1.29% 9/30/98
Class C N/A 5.27% 9/30/98
Institutional N/A 7.32%(#) 3/1/99
Administrative N/A 7.12%(#) 3/1/99
- ----------------------------------------------------------------------------------------------------
</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 Retail Portfolio Prospectus.
** Institutional Class and Administrative Class total return presentations for
the Portfolios for periods prior to the Inception Date of these classes reflect
the prior performance of Class A shares, adjusted to reflect that there are no
sales charges associated with Institutional Class and Administrative Class
shares. The adjusted performance also reflects any different operating expenses
associated with the newer classes. These include (i) 12b-1 distribution and
servicing fees, which are the same for Class A and the Administrative Class but
are not paid by the Institutional Class and (ii) administrative fee charges,
which are lower than Class A charges for the Institutional and Administrative
Classes (a differential of .30% per annum).
(#) Where noted, the method of adjustment used in the table above for periods
prior to the Inception Date of the noted classes of the Portfolios resulted in
performance for the period shown which is higher than if the historical Class A
share performance were not adjusted to reflect the lower operating expenses of
the newer class. The following table shows the lower performance figures that
would be obtained if the performance for the newer classes with lower operating
expenses were calculated by essentially tacking to such classes' actual
performance the actual performance (with adjustment for actual sales charges) of
Class A shares, with their higher operating expenses, for periods prior to the
initial offering date of the newer class (i.e., the total return presentations
below are based, for periods prior to the Inception Date of the noted classes,
on the historical performance of Class A shares adjusted to reflect the current
sales charges (if any) associated with the newer class, but not reflecting lower
---
operating expenses associated with the newer class, such as lower administrative
fee charges and/or 12b-1 distribution and servicing fee charges).
-86-
<PAGE>
Total Return for Periods Ended June 30, 1999
(with no adjustment for operating expenses of the noted
classes for periods prior to their inception dates)
<TABLE>
<CAPTION>
Since Inception
of Portfolio
Portfolio Class** 1 Year (Annualized)
- -------------------------------------------------------------
<S> <C> <C> <C>
90/10 Institutional N/A 23.89%
Portfolio Administrative N/A 23.79%
- -------------------------------------------------------------
60/40 Institutional N/A 15.11%
Portfolio Administrative N/A 15.08%
- -------------------------------------------------------------
30/70 Institutional N/A 7.08%
Portfolio Administrative N/A 6.99%
- -------------------------------------------------------------
</TABLE>
Performance information for a Fund or Portfolio 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,
Australia, 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 Sub-Advisers may
also report to shareholders or to the public in advertisements concerning the
performance of the Adviser and/or the Sub-Advisers as advisers to clients other
than the Trust, and on the comparative performance or standing of the Adviser
and/or the Sub-Advisers in relation to other money managers. Such comparative
information may be compiled or provided by independent ratings services or by
news organizations. Any performance information, whether related to the Funds
or Portfolios, the Adviser or the Sub-Advisers, should be considered in light of
the Funds' or Portfolios' investment objectives and policies, characteristics
and quality, and the market conditions during the time period indicated, and
should not be considered to be representative of what may be achieved in the
future.
The total return of each class (and yield of each class in the case of the
Renaissance Fund and the 30/70 Portfolio) may be used to compare the performance
of each class of a Fund's or Portfolio'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 380 industrial, 10 transportation, 39 utilities and 71
financial services concerns. The S&P 500 represents about 73% 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 February
26, 1999, approximately 25% of the 400 stocks were stocks listed on the National
Association of Securities Dealers Automated
-87-
<PAGE>
Quotations ("NASDAQ") system, 73% were stocks listed on the New York Stock
Exchange and 2% were stocks listed on the American Stock Exchange. The Standard
& Poor's Midcap 400 Index P/TR consists of 400 domestic stocks chosen for market
size (median market capitalization of $1.54 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,
1998, the U.S. equity market capitalization represented approximately 40% of the
equity market capitalization of all the world's markets. This compares with 52%
in 1980 and 70% in 1972.
From time to time, the Trust may use, in its advertisements and other
information relating to certain of the Funds and Portfolios, data concerning the
performance of stocks relative to that of fixed income investments and relative
to the cost of living over various periods of time. The table below sets forth
the annual returns for each calendar year from 1973 through 1998 (as well as a
cumulative return and average annual return for this 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.
-88-
<PAGE>
<TABLE>
<CAPTION>
Consumer Price
Period S&P 500 Treasury Bills Index
- ------ -------- --------------- ---------------
<S> <C> <C> <C>
1973 -14.7 6.9 8.8
1974 -26.5 8.0 12.2
1975 37.2 5.8 7.0
1976 23.8 5.0 4.8
1977 -7.2 5.1 6.8
1978 6.5 7.2 9.0
1979 18.4 10.4 13.3
1980 32.4 11.2 12.4
1981 -4.9 14.7 8.9
1982 21.4 10.5 3.8
1983 22.5 8.8 3.8
1984 6.3 9.9 3.9
1985 32.2 7.7 3.8
1986 18.5 6.1 1.1
1987 5.2 5.5 4.4
1988 16.8 6.3 4.4
1989 31.5 8.4 4.6
1990 -3.2 7.8 6.1
1991 30.5 5.6 3.1
1992 7.7 3.5 2.9
1993 10.1 2.9 2.7
1994 1.3 3.9 2.7
1995 37.4 5.6 2.7
1996 23.1 5.2 3.3
1997 33.4 5.3 1.7
1998 28.6 4.9 1.6
- -----------------------------------------------------------------------
Cumulative Return
1973-1998 2,667.2% 478.0% 285.6%
- -----------------------------------------------------------------------
Average Annual Return
1973-1998 13.6% 7.0% 5.3%
</TABLE>
The average returns for Treasury bills were computed using the following
method. For each month during a period, the Treasury bill having the shortest
remaining maturity (but not less than one month) was selected. (Only the
remaining maturity was considered; the bill's original maturity was not
considered). The return for the selected Treasury bill was computed based on
the price of the bill as of the last trading day of the previous month and the
price on the last trading day of the current month. The price of the bill (P)
at each time (t) is given by:
P//1// = | 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, 1998 (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).
-89-
<PAGE>
<TABLE>
<CAPTION>
Small Mid-Size Large
Period Companies Companies Companies
- ------ ---------- ---------- ----------
<S> <C> <C> <C>
1981 (2/28 -12/31) 1.8 10.6 -2.5
1982 25.0 22.7 21.4
1983 29.1 26.1 22.5
1984 -7.3 1.2 6.3
1985 31.1 36.0 32.2
1986 5.7 16.2 18.5
1987 -8.8 -2.0 5.2
1988 24.9 20.9 16.8
1989 16.2 35.6 31.5
1990 -19.5 -5.1 -3.2
1991 46.1 50.1 30.5
1992 18.4 11.9 7.7
1993 18.9 14.0 10.1
1994 -1.8 -3.6 1.3
1995 28.4 30.9 37.6
1996 16.5 19.2 22.9
1997 22.8 32.3 33.4
1998 -2.6 19.1 28.6
- ---------------------------------------------------------------
Cumulative Return
2/28/81-12/31/98 710.5% 1,784.5% 1,616.9%
- ---------------------------------------------------------------
Average Annual Return
2/28/81-12/31/98 12.4% 17.9% 17.3%
- ---------------------------------------------------------------
</TABLE>
From time to time, the Trust may use, in its advertisements and other
information relating to the Precious Metals Fund, data concerning the relevant
performance and volatility of portfolios consisting of all stocks, portfolios
consisting of all bonds and portfolios consisting of stocks and bonds blended
with stocks of companies engaged in the extraction, processing, distribution or
marketing of gold and other precious metals. The following table shows the
annual returns for each calendar year from 1988 through 1998 (as well as
cumulative return and average annual return for this period) for an all-stock
portfolio (using the S&P 500), an all-bond portfolio (using the Ibbotson's 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 Ibbotson's
Long-Term Corporate Bond Index and 10% in stocks comprising the Philadelphia
Gold & Silver Index.
-90-
<PAGE>
Return and Cumulative Values of Stocks, Bonds, Savings Rates
vs. Balanced Portfolio (Assuming Rebalancing at Year-Ends)
----------------------------------------------------------
ANNUAL RETURNS
--------------
<TABLE>
<CAPTION>
Small Co. S&P 500 LT. Corp.
Stocks Stocks Bonds T-Bills Gold Index Balanced*
---------- -------- --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1988 22.87% 16.81% 10.70% 6.35% -20.70% 9.03%
1989 10.18% 31.49% 16.23% 8.37% 37.83% 26.43%
1990 -21.56% -3.17% 6.78% 7.83% -19.09% -0.97%
1991 44.63% 30.55% 19.89% 5.59% -16.75% 21.71%
1992 23.35% 7.67% 9.39% 3.51% -11.75% 5.07%
1993 20.98% 9.99% 13.17% 2.89% 85.01% 23.46%
1994 3.11% 1.31% -5.76% 3.90% -17.12% -3.12%
1995 34.46% 37.43% 27.20% 5.60% 10.14% 29.01%
1996 17.62% 23.07% 1.40% 5.21% -3.05% 10.46%
1997 22.78% 33.36% 12.95% 5.26% -36.45% 17.19%
1998 -7.31% 28.58% 10.76% 4.86% -12.43% 16.46%
Standard
Deviation 17.80% 13.34% 8.37% 1.60% 32.69% 10.35%
88-98
Cumulative
88-98 325.3% 575.6% 210.2% 78.0% -40.8% 349.5%
Annualized
88-98 19.0% 17.8% 10.8% 5.4% -4.7% 12.4%
</TABLE>
_________________________________
<TABLE>
<CAPTION>
*Balanced:
<S> <C>
Stocks 45%
Bonds 45%
Gold 10%
Small Co. 0%
T-Bills 0%
</TABLE>
From time to time, the Trust may use, in its advertisements and other
information, data concerning the average price-to-earnings ("P/E") ratios of
"Value Stocks" and "Growth Stocks." For these purposes, the P/E ratios of Value
Stocks are measured by the P/E ratios of the stocks comprising the Russell 1000
Value Index, and the P/E ratios of Growth Stocks are measured by the P/E ratios
of the stocks comprising the Russell 1000 Growth Index. Both the Russell 1000
Value Index and Russell 1000 Growth Index are unmanaged indexes, and it is not
possible to invest directly in either index. The table below sets forth the
average P/E ratio of Value Stocks and the Average P/E ratio of Growth Stocks for
the period beginning December 31, 1992 and ending March 31, 1999.
-91-
<PAGE>
<TABLE>
<CAPTION>
Average P/E ratio
--------------------
Period
Ending Growth Stocks Value Stocks
- ------ ------------- ------------
<S> <C> <C>
12/31/92 21.76 21.40
3/31/93 21.59 22.36
6/30/93 20.86 21.41
9/30/93 20.25 21.05
12/31/93 18.33 17.84
3/31/94 18.07 17.69
6/30/94 16.70 16.31
9/30/94 15.98 15.28
12/31/94 15.98 14.97
3/31/95 15.80 14.62
6/30/95 16.50 14.87
9/30/95 17.85 16.17
12/31/95 17.91 15.82
3/31/96 18.24 16.07
6/30/96 18.57 15.93
9/30/96` 18.88 15.80
12/31/96 20.45 17.03
3/31/97 20.28 16.78
6/30/97 22.85 18.44
9/30/97 23.80 19.60
12/31/97 22.93 19.06
3/31/98 26.46 21.32
6/30/98 26.55 20.69
9/30/98 25.77 19.31
12/31/98 31.31 22.92
3/31/99 39.46 24.33
</TABLE>
Advertisements and information relating to the Growth Fund may use data
comparing the performance of a hypothetical investment in Growth Stocks, Value
Stocks, "Bonds" and "Savings Accounts." For these purposes, the performance of
an investment in "Bonds" is measured by the Lehman Aggregate Bond Index, an
unmanaged index representative of the U.S. taxable fixed income universe. It is
not possible to invest in this index. The performance of an investment in
"Savings Accounts" is measured by the return on 3-month U.S. Treasury bills.
Similarly, advertisements and information relating to the Renaissance Fund may
use data comparing the performance of a hypothetical investment in "Stocks,"
Bonds and Savings Accounts. For these purposes, the performance of the
investment in "Stocks" is measured by the S&P 500, while the performance of
Bonds and Savings Accounts is measured as discussed above. The table below sets
forth the value at March 31, 1999 of a hypothetical $10,000 investment in
Stocks, Growth Stocks, Value Stocks, Bonds and Savings Accounts made at March
31, 1979.
<TABLE>
<CAPTION>
Asset Category March 31, 1999 Value of $10,000 Investment made at March 31, 1979
- ------------------- -----------------------------------------------------------------
<S> <C>
Growth Stocks $247,076
Value Stocks $231,697
Stocks $126,624
Bonds $ 67,584
Savings Accounts $ 39,985
</TABLE>
Advertisements and information may compare the average annual total return
of the Growth, Renaissance and Innovation Funds with that of the Lipper Growth
Fund Average, Lipper Equity Income Fund Average and Lipper
-92-
<PAGE>
Science & Technology Fund Average, respectively. The Innovation Fund may also be
compared to the S&P 500. The Lipper Growth Fund Average is a total-return
performance average of funds that are tracked by Lipper, Inc. and have an
investment objective of long-term growth. The Lipper Equity Income Fund Average
is a total-return performance average of funds tracked by Lipper that have an
investment objective of income and growth through investment in stocks. The
Lipper Science and Technology Fund Average is a total-return performance average
of funds tracked by Lipper with an investment objective of capital appreciation
through investment in technology-oriented companies. None of the averages take
into account sales charges. It is not possible to invest directly in the
averages. The average annual total return of the Growth Fund, the Renaissance
Fund, the Innovation Fund, the Lipper Growth Fund Average, the Lipper Equity
Income Fund Average and the Lipper Science and Technology Fund Average are set
forth below. The inception date of the Growth and Opportunity Funds is February
24, 1984. The inception date of the Innovation Fund is December 27, 1994. The
inception date of the Mid-Cap Growth Fund is August 26, 1991.
<TABLE>
<CAPTION>
Average Annual Total Return
(for periods ending 3/31/99)
------------------------------------------------------
Fund
1 Year 3 Years 5 Years 10 Years Inception
------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Growth Fund 29.0% 27.4% 23.6% 19.4% 19.1%
Lipper Growth Fund Average 13.6% 21.7% 20.4% 16.3% 15.6%
Renaissance Fund 5.5% 23.9% 20.7% 15.0% --
Lipper Equity Income Fund Average 0.7% 16.9% 17.2% 13.6% --
Innovation Fund 68.7% 39.0% -- -- 38.3%
Lipper Science and Technology 52.3% 27.3% -- -- 27.4%
Fund Average
S&P 500 18.5% 28.1% -- -- 30.0%
Opportunity Fund -- -- -- 17.6% 16.9%
Lipper Capital Appreciation -- -- -- 13.6% 12.8%
Fund Average
Target Fund 12.6% 17.5% 19.0% -- 18.8%
Lipper Mid-Cap Fund 0.2% 14.0% 15.8% -- 14.0%
Average
Capital Appreciation Fund -- 23.2% `22.0% -- 18.9%
Lipper Capital Appreciation -- 15.1% 16.5% -- 14.4%
Fund Average
Mid-Cap Growth Fund -- 14.9% 16.8% -- 15.7%
Lipper Capital Appreciation -- 14.0% 15.8% -- 14.2%
Fund Average
</TABLE>
From time to time, the Trust may use, in its advertisements and other
information, data comparing the average annual total return of "Small-Caps,"
which are stocks represented by the Ibbotson's Small Company Stock Total Return
Index, and "Large-Caps," which are stocks represented by the Ibbotson's Large
Company Stock Total Return Index. Both indexes are unmanaged indexes, and it is
not possible to invest directly in either index. For example, for the period
from December 31, 1925 through December 31, 1998, the average annual total
return of Small-Caps was 12.4%, and for Large-Caps was 11.2%.
Advertisements and other information and other information relating to the
Funds may list the annual total returns of certain asset classes during
specified years. In such advertisements, the return of "Small Company Stocks"
-93-
<PAGE>
will be measured by the Russell 2000 Index of small company stocks, the returns
of "Large Company Stocks" will be measured by the S&P 500, and the return of
"Intermediate-Term Government Bonds" will be measured by a one-bond portfolio
with a 5-year maturity as measured by Ibbotson Associates. The following table
sets for the average return of these asset classes for the specified years.
<TABLE>
<CAPTION>
Domestic Asset Class Annual Total Return
--------------------- -------------------
<S> <C> <C>
1990 Intermediate-Term Government Bonds +9.7%
1991 Small Company Stocks +22.9%
1992 Small Company Stocks +31.5%
1993 Small Company Stocks +21.0%
1994 U.S. Treasury Bills +3.9%
1995 Large Company Stocks +37.4%
1996 Large Company Stocks +23.0%
1997 Large Company Stocks +33.4%
1998 Large Company Stocks +28.6%
</TABLE>
Advertisements and other information relating to the Innovation Fund may
include information pertaining to the number of home internet subscriptions and
cellular phone users and sales of personal computers.
The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
1997/1998 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.
<TABLE>
<CAPTION>
Potential College Cost Table
Start Public Private Start Public Private
Year College College Year College College
- --------------- ------------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
1997 $13,015 $57,165 2005 $16,487 $72,415
1998 $13,406 $58,880 2006 $16,982 $74,587
1999 $13,808 $60,646 2007 $17,491 $76,825
2000 $14,222 $62,466 2008 $18,016 $79,130
2001 $14,649 $64,340 2009 $18,557 $81,504
2002 $15,088 $66,270 2010 $19,113 $83,949
2003 $15,541 $68,258 2011 $19,687 $86,467
2004 $16,007 $70,306 2012 $20,278 $89,061
</TABLE>
Costs assume a steady increase in the annual cost of college of 3% per year from
a 1996-97 base year amount. Actual rates of increase may be more or less than
3% and may vary.
-94-
<PAGE>
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 category* during the period from 1974 through 1998 was:
Stocks: 14.9%
Bonds: 9.9%
T-Bills: 7.0%
Inflation: 5.2%
* Returns of unmanaged indexes do not reflect past or future performance of
any of the Funds or Portfolios of PIMCO Funds: Multi-Manager Series.
Stocks are represented by Ibbotson's Large Company 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 1999 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 20 years
from 1979 through 1998, the average annual return of stocks comprising the
Ibbotson's Large Company Stock Total Return Index ranged from -4.91% 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 -1.00% to 28.19% over the same period.
The average annual returns of each investment category* for each of the years
from 1979 through 1998 is set forth in the following table.
<TABLE>
<CAPTION>
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- ------- ------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1979 18.44% -4.18% 10.38% 13.31% 7.78%
1980 32.42% 2.61% 11.24% 12.40% 14.17%
1981 -4.91% -0.96% 14.71% 8.94% 0.59%
1982 21.41% 43.79% 10.54% 3.87% 28.19%
1983 22.51% 4.70% 8.80% 3.80% 12.64%
1984 6.27% 16.39% 9.85% 3.95% 11.03%
1985 32.16% 30.90% 7.72% 3.77% 26.77%
1986 18.47% 19.85% 6.16% 1.13% 16.56%
1987 5.23% -0.27% 5.46% 4.41% 3.08%
1988 16.81% 10.70% 6.35% 4.42% 12.28%
1989 31.49% 16.23% 8.37% 4.65% 20.76%
1990 -3.17% 6.87% 7.52% 6.11% 2.98%
1991 30.55% 19.79% 5.88% 3.06% 21.31%
1992 7.67% 9.39% 3.51% 2.90% 7.53%
1993 10.06% 13.17% 2.89% 2.75% 9.84%
1994 1.31% -5.76% 3.90% 2.67% -1.00%
1995 37.40% 27.20% 5.60% 2.70% 26.90%
1996 23.10% 1.40% 5.20% 3.30% 10.84%
1997 33.40% 12.90% 7.10% 1.70% 19.94%
1998 28.58% 10.76% 4.86% 1.61% 16.70%
</TABLE>
-95-
<PAGE>
* Returns of unmanaged indexes do not reflect past or future performance
of any of the Funds or Portfolios of PIMCO Funds: Multi-Manager Series.
Stocks are represented by Ibbotson's Large Company Stock Total Return
Index. Bonds are represented by Ibbotson's Long-term Corporate Bond
Index. Treasury bills are represented by Ibbotson's Treasury Bill Index
and Inflation is represented by the Cost of Living Index. Treasury bills
are all unmanaged indexes, which can not be invested in directly. While
Treasury bills are insured and offer a fixed rate of return, both the
principal and yield of investment securities will fluctuate with changes
in market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989, updated in
Stocks, Bonds, Bills and Inflation 1999 Yearbook, Ibbotson Associates,
Chicago. All rights reserved.
The Trust may use in its advertisements and other materials examples
designed to demonstrate the effect of compounding when an investment is
maintained over several or many years. For example, the following table shows
the annual and total contributions necessary to accumulate $200,000 of savings
(assuming a fixed rate of return) over various periods of time:
<TABLE>
<CAPTION>
Investment Annual Total Total
Period Contribution Contribution Saved
- ----------------- ------------ ------------ --------
<S> <C> <C> <C>
30 Years $ 1,979 $ 59,370 $200,000
25 Years $ 2,955 $ 73,875 $200,000
20 Years $ 4,559 $ 91,180 $200,000
15 Years $ 7,438 $111,570 $200,000
10 Years $13,529 $135,290 $200,000
</TABLE>
This hypothetical example assumes a fixed 7% return compounded annually
and a guaranteed return of principal. The example is intended to show the
benefits of a long-term, regular investment program, and is in no way
representative of any past or future performance of a Fund or Portfolio 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 or Portfolio of PIMCO
Funds: Multi-Manager Series should be aware that certain of the Funds and
Portfolios of PIMCO Funds: Multi-Manager Series have experienced and may
experience in the future periods of negative growth.
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 1998:
<TABLE>
<CAPTION>
% of Income for Individuals
Aged 65 Years and Older in 1997*
-------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
<S> <C> <C>
1997 43% 57%
</TABLE>
* For individuals with an annual income of at least $51,000. Other includes
personal savings, earnings and other undisclosed sources of income. Source:
Social Security Administration.
-96-
<PAGE>
Articles or reports which include information relating to performance,
rankings and other characteristics of the Funds and Portfolios 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 Sub-Advisers,
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 Sub-Advisers 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 and
Portfolios.
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 or Portfolios over a specified period of time and may
use charts and graphs to display that growth.
From time to time, the Trust may set forth in its advertisements and other
materials the names of and additional information regarding investment analysts
employed by the Sub-Advisers who assist with portfolio management and research
activities on behalf of the Funds.
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 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 Sub-Advisers nor
Ibbotson represent or guarantee that investors who allocate their assets
according to Ibbotson's models will achieve their desired investment results.
Year 2000 Readiness Disclosure
Many of the world's computer systems may be unable to correctly recognize,
interpret or use dates beyond the year 1999 (the "Year 2000 Problem"). This
inability might lead to significant business disruptions. PIMCO Advisors and
Pacific Investment Management, which serves as sub-administrator to the Funds
and Portfolios, are taking steps to ensure that their computer systems will
function properly. PIMCO Advisors has designated a team of information and
business professionals (the "Year 2000 Team") to address the Year 2000 Problem
and has developed a written "Year 2000 Plan."
The Year 2000 Plan consists of five general phases: Awareness, Assessment,
Remediation, Testing and Implementation. The Year 2000 Plan and budget were
prepared and approved by PIMCO Advisors' Management Board on July 21, 1998.
During the Awareness phase, the Year 2000 Team informed the employees of the
Adviser and its subsidiaries, including their highest levels of management,
about the Year 2000 Problem. During the Assessment phase, the Year 2000 Team
prepared an inventory of information technology ("IT") and non-IT systems used
by the Adviser, its subsidiaries and Pacific Investment Management. Systems
were classified as software, hardware or embedded chips. Separately, systems
were also classified as mission critical or non-mission critical. As the
inventory was compiled and verified, each system was preliminarily assessed for
Year 2000 compliance. This preliminary assessment was made by obtaining
manufacturers' representations that a given product is Year 2000 compliant or
other evidence of compliance. Systems for which no such evidence can be
obtained were identified as candidates for correction or replacement
("Remediation"). During the Remediation phase, software, hardware and embedded
chips identified during the Assessment phase to be non-Year 2000 compliant are
corrected or replaced. Necessarily, further corrections and replacements may
need to be made after the Remediation phase has been
-97-
<PAGE>
completed as a result of problems identified during the Testing phase or
otherwise. During the Testing phase, the Adviser performs internal testing,
point-to-point testing and industry testing programs. Testing generally will be
performed in order of criticality, with mission-critical systems receiving the
highest priority. PIMCO Advisors does not plan to test non-mission critical
systems that are not used in its business (e.g., software applications
incidently installed on PCs). Several subsidiaries of the Adviser plan on
participating in the Securities Industry Association industry-wide testing
forum. During the Implementation phase, systems that have been tested and
identified as being Year 2000 compliant are put into normal business operation
and contingency plans are finalized.
As with all investment advisers, the business operations of the Adviser,
its investment advisory subsidiaries and Pacific Investment Management are
heavily dependent upon a complete worldwide network of financial systems that
utilize date fields. The ability of the Adviser, its investment advisory
subsidiaries and Pacific Investment Management to endure any adverse effects of
the transition to the Year 2000 are highly dependent upon the efforts of third
parties, particularly issuers, brokers, dealers and custodians. The failure of
third party organizations to resolve their own processing issues with respect to
the Year 2000 Problem in a timely manner could have a material adverse effect on
the Adviser's business. As of the date of this Statement of Additional
Information, the management of each of the Adviser, its investment advisory
subsidiaries and Pacific Investment Management believes that the transition to
the Year 2000 will not have a material adverse effect on its business or
operations. However, complications as yet unidentified may arise in internal or
external systems or with data providers, other securities firms or institutions,
issuers, counterparties or other entities or even with general economic
conditions related to the Year 2000 Problem. The Year 2000 problem may be
particularly acute with respect to foreign markets and securities of foreign
issuers in which the Funds invest due to a potential lack of Year 2000
compliance efforts in foreign markets or by foreign companies. Although the
Adviser's efforts and expenditures in connection with the Year 2000 Problem are
substantial, there can be no assurances that shareholders of the Funds and
Portfolios will not suffer from disruptions or adverse results arising as a
consequence of the Year 2000 Problem.
Compliance Efforts Related to the Euro
Another potential computer system problem may arise in conjunction with the
recent introduction of the euro. Whether introducing the euro to financial
companies' systems will be problematic is not fully known; however, the cost
associated with making systems recognize the euro is not currently expected to
be material.
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.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). All classes of shares of the Funds and
Portfolios 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. Each class of shares has exclusive voting rights with respect
to matters pertaining to any distribution or servicing plan or agreement
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 and 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 Funds and
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<PAGE>
Portfolios, then only shareholders of the Fund(s) or Portfolio(s) affected shall
be entitled to vote on the matter. All classes of shares of a Fund or Portfolio
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.
To avoid potential conflicts of interest, the 90/10 Portfolio, 60/40
Portfolio and 30/70 Portfolio will vote shares of each Underlying PIMCO Fund
which they own in proportion to the votes of all other shareholders in the
Underlying PIMCO Fund.
Certain Ownership of Trust Shares
As of October 5, 1999, 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 Portfolio and of the Trust as a whole. As of October 5, 1999, the following
persons owned of record or beneficially 5% or more of the noted class of shares
of the following Funds:
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
PIMCO Equity Income Fund
Institutional
Bank of New York Western Trust Co. 1,457,566.558 18.71%
as Trustee for
Pacific Life Insurance Company R.I.S.P.
700 S. Flower Street, 2nd Floor
Los Angeles, California 90017
AM Castle & Co Employees Pension Plan 1,135,389.199 14.57%
Equity Segment A/C #22-39912
P.O. Box 92956
Chicago, Illinois 60675-2956
Miter & Co. 831,019.074 10.67%
C/O Marshall & Ilsley Trust Co. (Plymouth Tube)
P.O. Box 2977
Milwaukee, Wisconsin 53201
Northern Trust Company as Trustee for 723,582.289 9.29%
Brush Wellman Inc.
P.O. Box 92956
Chicago, Illinois 60675-0001
</TABLE>
-99-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
Bank of America NT&SA as Trustee for 636,321.301 8.17%
Mazda Motor of America
P.O. Box 3577, Terminal Annex
Los Angeles, California 90051-1577
Administrative
First Union National Bank ** 630,912.392 68.25%
401 S. Tyon Street, FRB-3
CMG Fiduciary Operations Funds Group
Mail Code CMG-2-1151
Charlotte, North Carolina 28288-1151
Invesco Trust Co. TTEE 150,895.226 16.32%
Pasco Acquisition Inc. & Affiliates 401k Plan
P.O. Box 77405
Atlanta, Georgia 30357
Invesco Trust Co. TTEE FBO 106,755.707 11.55%
Lykes Retirement Savings Plan
P.O. Box 77405
Atlanta, Georgia 30357
Class A
Carn & Co. ** 223,467.457 19.74%
USI Insurance Services Corporation
401(k) Plan
P.O. Box 96211
Washington, D.C. 20090-6211
Merrill Lynch Pierce Fenner & Smith Inc. ** 103,035.833 9.10%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Khosrow B. Semnani 82,009.123 7.24%
P.O. Box 3508
Salt Lake City, Utah 84110-3508
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 179,934.176 12.52%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-100-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 152,969.095 9.50%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc. - Reinvest ** 7,956.746 100.00%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Value Fund
Institutional
Pacific Life Insurance Company 2,265,813.598 47.56%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
CMTA-GMPP & Allied Workers Pension Trust 632,170.416 13.27%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
BAC Local #19 Pension Trust 399,441.558 8.39%
Attn: Allied Administrators Inc.
777 Davis Street
San Francisco, California 94126-2500
Pacific Life Foundation 295,793.030 6.21%
Attn: Michele Myszka
700 Newport Center Drive
Newport Beach, California 92660-6307
California Race Track Association 287,616.098 6.04%
P.O. Box 60014
Arcadia, California 91006-6014
Class A
Teamsters Union Loc. No. 52 Pension Fund 276,817.492 18.80%
Attn: Dennis Vadini
3150 Chester Avenue
Cleveland, Ohio 44114
</TABLE>
-101-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith Inc. ** 122,410.254 8.31%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 469,808.558 19.93%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 429,817.969 8.26%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
PIMCO Advisors L.P. 715.391 65.20%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc. - Reinvest ** 381.798 34.80%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Value 25 Fund
Institutional
First Presbyterian Church of Dallas 25,510.204 100.00%
408 Park Avenue
Dallas, Texas 75201
Class A
Merrill Lynch Pierce Fenner & Smith Inc. ** 119,109.691 80.02%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Donaldson Lufkin Jenrette 10,712.440 7.20%
Securities Corporation Inc.**
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 15,830.188 12.66%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Bear Stearns Securities Corp. 6,401.256 5.13%
FBO 486-96987-14
1 MetroTech Center North
Brooklyn, New York 11201
Bear Stearns Securities Corp. 6,329.114 5.06%
FBO 486-21237-10
1 MetroTech Center North
Brooklyn, New York 11201
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 37,450.990 31.30%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
First Clearing Corporation 9,000.000 7.52%
A/C 7174-2814
Seymour Shlomchik MD IRA
WFS as Custodian
729 Canterbury Lane
Villanova, Pennsylvania 19085
John A. Rundall Trustee 7,092.199 5.93%
John A. Rundall Living Trust
U/A Dated 04/11/90
FBO John A. Rundall
2654 Hollyridge Drive
Los Angeles, California 90068
BSDT CUST IRA For the Benefit of 6,318.344 5.28%
Howard G. Wold
1002 City Park Blvd.
Alexandria, Louisiana 71301-5113
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
PIMCO Small Cap Value Fund
Institutional
Pacific Mutual Life Insurance Company 393,532.642 12.40%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Little Company Of Mary Hospital 309,478.597 9.75%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, Pennsylvania 15230
Lucile Packard Foundation for Children 230,162.916 7.25%
725 Welch Road
Palo Alto, California 94304
Charles Schwab & Co., Inc. Rein** 202,674.771 6.39%
Attn: Mutual Funds Dept
101 Montgomery Street
San Francisco, California 94104-4122
Administrative
National Financial Services Corporation for the 619,964.737 45.33%
Exclusive Benefit of Our Customers**
1 World Trade Center
200 Liberty Street
New York, New York 10281
First Union National Bank ** 307,642.600 22.49%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
Wells Fargo Bank TTEE FBO 73,618.333 5.38%
Choicemaster (First Interstate)
P. O. Box 9800 Mutual Funds
Calabasas, California 91302-9800
Class A
Merrill Lynch Pierce Fenner & Smith Inc. ** 2,226,975.286 27.96%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
Norwest Bank MN NA 828,431.091 10.40%
Dain Rauscher Retirement Plan
#13281312 DTD 1/97
Attn: EBS MS 0035
510 Marquette, Suite 500
Minneapolis, Minnesota 55479-0035
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,410,256.142 24.12%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,447,431.158 20.97%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
FTC & Co. #022 440,409.270 6.38%
Attn: DATAlynx
P.O. Box 173736
Denver, Colorado 80217
PIMCO Capital Appreciation Fund
Institutional
Donaldson Lufkin & Jenrette** 3,816,884.574 18.22%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Charles Schwab & Co., Inc. - Reinvest ** 2,380,327.597 11.36%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Administrative
Invesco Trust Company FBO 2,131,382.888 25.84%
Reynolds & Reynolds 401k Plan
P. O. Box 77405
Atlanta, Georgia 30357
</TABLE>
-105-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
Certain Employee (Fidelity) ** 2,017,015.430 24.45%
100 Magetian KWIC
Covington, Kentucky 41015
New York Life Trust Company ** 1,608,830.688 19.50%
51 Madison Avenue, Room 117A
New York, New York 10010
First Union National Bank ** 1,055,508.220 12.79%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
National Financial Services Corporation for ** 603,438.540 7.31%
the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
Class A
Merrill Lynch Pierce Fenner & Smith Inc. ** 687,938.566 20.85%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Carn & Co. 02087501 508,542.530 15.41%
American Yazaki Employee Savings
and Retirement Plan
Attn: Mutual Funds - Star
P. O. Box 96211
Washington, D.C. 20090-6211
Wachovia Bank FBO VIT Pension Plan 210,473.762 6.38%
Attn: Mutual Fund Department, 5th Floor
P. O. Box 27602
Richmond, Virginia 23261-7602
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 350,674.791 17.20%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-106-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 369,895.046 12.76%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc. - Reinvest.** 12,890.273 95.77%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Mid Cap Growth Fund
Institutional
Charles Schwab & Co., Inc. - Reinvest ** 6,396,732.633 24.07%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Norwest Bank Minnesota NA Custodian FBO 1,621,589.932 6.10%
Parkview Memorial Hospital
c/o Mutual Fund Processing
733 Marquette Avenue MS 0036
Minneapolis, Minnesota 55479-0036
Administrative
Certain Employee (Fidelity) ** 2,064,711.424 42.45%
100 Magellan KW1C
Covington, Kentucky 41015
University of South Dakota Foundation 453,060.408 9.32%
P.O. Box 5555
Vermillion, South Dakota 57069-5555
UMB TTEE FBO Andrew Profit Sharing Trust 400,329.702 8.23%
JP Morgan/American Century
P.O. Box 419784
Kansas City, Missouri 64141
First Union National Bank ** 260,053.425 5.35%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
New York Life Trust Company 257,952.033 5.30%
51 Madison Avenue
Room 117A
New York, New York 10010
Class A
Merrill Lynch Pierce Fenner & Smith Inc. ** 2,633,051.976 47.70%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 679,591.939 19.19%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 657,998.399 15.06%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc. - Reinvest.** 19,384.108 99.28%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Micro Cap Growth Fund
Institutional
Charles Schwab & Co., Inc. - Reinvest.** 2,513,470.436 22.60%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Bost & Co. A/C DOMF 8526562 1,572,192.506 14.13%
Dominion Resources
Attn: Mutual Fund Operations
P. O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
University of Southern California 1,054,372.511 9.78%
Treasurer's Office
University Park, BKS 402
Los Angeles, California 90089-2541
Mac & Co. A/C OBRF 3331012 FBO 984,714.133 8.85%
Oberlin College
Attn: Mutual Fund Operations
P. O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Donald Lufkin & Jenrette** 917,973.955 8.25%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303
Mac & Co. A/C PNMF0550382 883,353.905 7.94%
Mellon Bank N.A.
Public Service of New Mexico
P. O. Box 3198
Mutual Funds Operations
Pittsburgh, Pennsylvania 15230-3198
First Bank N.A., Custodian 626,017.360 5.63%
Community Investment Group
St. Paul Foundation
Mutual Funds #10146497
P.O. Box 64010
St. Paul, Minnesota 55164
Administrative
Northern Trust as Trustee for 80,488.203 55.47%
Sunday School Board
dba LifeWay Christian Resources
P.O. Box 92956
Chicago, Illinois 60675
New York Life Trust Company ** 58,331.052 40.20%
51 Madison Avenue, Room 117A
New York, New York 10010
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
PIMCO Small Cap Growth Fund
Institutional
The Jewish Federation of 1,279,573.170 20.62%
Metropolitan Chicago
One South Franklin Street, Room 625
Chicago, Illinois 60606-4609
DMNH Foundation 779,461.357 12.56%
2001 Colorado Blvd.
City Park
Denver, Colorado 00008-0205
Berklee College of Music, Inc. 595,741.955 9.60%
1140 Boylston Street
Boston, Massachusetts 02215-3693
Pacific Mutual Life Insurance Company 565,810.463 9.12%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
ESOR & Co. A/C 1-429-144-9 473,581.005 7.63%
Associated Bank Green Bay
Trust Operations Dept.
P. O. Box 19006
Green Bay, Wisconsin 54307-9006
Employees Retirement System of Jersey City 450,434.028 7.26%
325 Palisade Avenue
Jersey City, New Jersey 07307-1714
Northern Trust TTEE FBO 335,793.358 5.41%
Consolidated Cigar Inc.
Master Pension Trust 22-02096
P.O. Box 92956
Chicago, Illinois 60675
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
PIMCO Core Equity Fund
Institutional
PIMCO Advisors L.P. 40,225.261 74.66% *
800 Newport Center Dr., 6th Floor
Attn: Jesse Jue
Newport Beach, California 92660
National Financial Services Corp. for 9,149.532 16.98%
Exclusive Benefit of their Customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
Donaldson Lufkin & Jenrette 3,255.072 6.04%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303
Administrative
PIMCO Advisors L.P. 461.894 60.73%
800 Newport Center Dr., 6th Floor
Attn: Jesse Jue
Newport Beach, California 92660
National Financial Services Corp. 189.331 24.89%
for Exclusive Benefit of our Customers**
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
Norwest Bank MN NA 107.073 14.08%
FBO Hanna & Morton LLP Emp. 401K
2700 Snelling Avenue, Suite 300
Minneapolis, Minnesota 55479
PIMCO Mid Cap Equity Fund
Institutional
Pacific Mutual Life Insurance Company 171,501.575 50.83% *
700 Newport Center Drive
Newport Beach, California 92660
</TABLE>
-111-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
IFTC as Custodian for 85,615.824 25.38% *
John W. Barnum
5175 Tilden Street, N.W.
Washington, D.C. 20016-1961
PIMCO Advisors L.P. 63,451.777 18.81%
800 Newport Center Dr., 6th Floor
Attn: Jesse Jue
Newport Beach, California 92660
PIMCO Enhanced Equity Fund
Institutional
Pacific Mutual Life Insurance Company 1,590,812.141 48.40% *
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
CMTA-GMPP & Allied Workers Pension 444,286.138 13.52%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
BAC Local #19 Pension Trust 280,723.478 8.54%
Attn: Allied Administrators Inc.
777 Davis Street
San Francisco, California 94126-2500
Pacific Life Foundation 207,951.688 6.33%
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 202,206.751 6.15%
P.O. Box 60014
Arcadia, California 91006-6014
PIMCO Target Fund
Institutional Class
90/10 Portfolio 39,643.576 47.53%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
</TABLE>
-112-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
60/40 Portfolio 35,683.436 42.78%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
30/70 Portfolio 8,062.113 9.67%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 1,354,497.730 15.12%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 1,603,363.967 33.50%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 13,286,953.110 24.74%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Precious Metals Fund
Class A
USA Petroleum Assurance Corp. 368,947.990 26.08%
30101 Agoura Ct., Suite 200
Agoura Hills, California 91301
Woodland Investments Limited 324,415.205 22.93%
C/O Lyle Schlyer
30101 Agoura Ct., Suite 212
Agoura Hills, California 91301
Raymond James & Associates Inc. CSDN 89,928.058 6.36%
T. L. Cloar, Jr. IRA
3502 Grand Rock Circle
Birmingham, Alabama 35223
</TABLE>
-113-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 282,022.869 12.06%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Bexhill Limited 147,474.898 6.30%
P.O. Box 2097 GT
Cayman Islands, BWI
</TABLE>
-114-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
PIMCO Renaissance Fund
Institutional Class
National Investor Services Corp. 7,373.786 99.05%
for the Exclusive Benefit of our Customers**
55 Water Street, 32nd Floor
New York, New York 10041
Administrative
Chase Manhattan Bank TTEE FBO 35,635.064 100.00%
MetLife Defined Contribution Group
770 Broadway, 10th Floor
New York, New York 10003
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 671,345.308 14.20%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 1,389,423.969 19.83%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 3,387,002.663 14.15%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
National Investor Services Corp. 1,777.541 54.75%
for the Exclusive Benefit of our Customers
55 Water Street, 32nd Floor
New York, New York 10041
Charles Schwab & Co., Inc. - Reinvest.** 873.795 26.91%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
-115-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Oustanding Shares of
Ownership Class Owned
-------------------------------------------
<S> <C> <C>
PIMCO Advisors L.P. 595.238 18.33%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
PIMCO Growth Fund
Institutional Class
90/10 Portfolio 16,584.986 47.34%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
60/40 Portfolio 14,735.848 42.06%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
30/70 Portfolio 3,326.395 9.50%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Administrative Class
Chase Bank of Texas, N.A. Trustee 232,277.948 58.83%
1111 Fannin, 10th Floor
Houston, Texas 77002
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 427,637.524 6.86%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 1,126,295.317 26.02%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-116-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 7,927,734.101 12.45%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Opportunity Fund
Institutional Class 151,577.183 88.55%
LaSalle Bank, N.A., Custodian
AMFAC - 408039428
P.O. Box 1443
Chicago, Illinois 60690
90/10 Portfolio 9,317.505 5.44%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Administrative Class
Chase Bank of Texas, N.A., Trustee 175,152.501 69.76%
1111 Fannin, 10th Floor
Houston, Texas 77002
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 601,463.726 15.70%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
American Express Trust Company 375,129.190 9.79%
FBO WESCO Distribution Inc.
Retirement Savings Plan
733 Marquette Avenue
Minneapolis, Minnesota 55402-2309
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 2,651,692.429 22.08%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-117-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
PIMCO Innovation Fund
Institutional Class
Alpine Trust & Asset Management 19,249.701 48.38%
225 North 5th Street
Grand Junction, Colorado 81501
IFTC Custodian 6,461.305 16.24%
Jay R. Jackson (IRA)
1540 Kentwood Lane
York, Pennsylvania 17403
Kuntala Sinha
10 Colonial Drive 3,672.889 9.23%
Upper Brookville, New York 11545
Friedmar & Co. 3,055.301 7.68%
C/O The Mechanics Bank
Trust Operations Department
3170 Hilltop Mall Road
Richmond, California 94806
Robert L. Hamilton TTEE 2,477.246 6.23%
Under Intervivos Trust
DTD 11/14/68
800 15th Street
Bellingham, Washington 98225
IFTC Custodian 2,226.575 5.60%
IRA R/O Robert L. Hamilton
800 15th Street
Bellingham, Washington 98225
Hamilton Limited Partnership 2,149.264 5.40%
800 15th Street
Bellingham, Washington 98225
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 1,582,075.367 16.68%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-118-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 2,110,260.132 18.23%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 2,722,148.797 15.35%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc. - Reinvest.** 474,836.781 93.45%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO International Fund
Institutional
90/10 Portfolio 171,402.367 47.72%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
60/40 Portfolio 153,234.890 42.66%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
30/70 Portfolio 34,563.901 9.62%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 77,519.917 5.68%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-119-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 91,880.510 11.71%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 931,493.098 10.94%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO International Growth Fund
Institutional
PIMCO Advisors L.P. 284,252.416 50.69% *
Attn: Jesse Jue
800 Newport Center Drive, 6th Floor
Newport Beach, CA 92660
Pacific Asset Management LLC 154,920.333 27.62% *
700 Newport Center Drive
Newport Beach, California 92660-6307
Charles Schwab & Co., Inc. - Reinvest.** 116,206.550 20.72%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Structured Emerging Markets Fund
Institutional
Rhode Island Foundation 895,124.811 23.83%
Attn: Michael Jenkenson
70 Elm Street
Providence, Rhode Island 02903
Berklee College of Music, Inc. 526,744.087 14.02%
1140 Boylston Street
Boston, Massachusetts 02215-3693
Hartford Foundation 335,941.996 8.94%
159 E. Main Street
Rochester, New York 14638
</TABLE>
-120-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
Munsen-Williams-Proctor Institute 297,905.432 7.93%
Attn: Anthony Spiridigloizzi
310 Genesee Street
Utica, New York 13502
The Reeves Foundation 268,739.950 7.15%
115 Summit Avenue
Summit, New Jersey 07901
Deseret Mutual Retiree Med. & Life Pl. Tr. 247,821.868 6.60%
c/o Doug Burton
60 East South Temple Street
Salt Lake City, Utah 84147
Brockton Health Corp. Endowment 208,235.989 5.54%
Attn: Steven Connolly
680 Centre Street
Brockton, Massachusetts 02402-3395
PIMCO Tax-Efficient Equity Fund
Administrative
Centurion Trust Company 1,204,669.332 76.78% *
FBO Omnibus/Centurion Capital Management
2425 EB Camelback Road, Suite 530
Phoenix, Arizona 85016
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 69,116.411 11.01%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
NFSC FEBO #0C8-332321 49,164.208 7.83%
The Robb Charitable Trust
Richard A. Robb
U/A 09/04/1990
56 Pilgrim Road
Marblehead, Massachusetts 01945-1750
</TABLE>
-121-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
LEWCO Securities Corp. 42,824.236 6.82%
FBO A/C #H10-690959-1-01
34 Exchange Place, 4th Floor
Jersey City, New Jersey 07311
Dain Rauscher Inc. FBO 36,701.381 5.85%
Michael G. King and Elizabeth W. King
Long Term Account JT TEN/WROS
14800 164th Place N.E.
Seattle, WA 98101
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 151,550.195 20.68%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 295,454.421 25.45%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
PIMCO Advisors L.P. 932.836 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
PIMCO Tax-Efficient Structured Emerging Markets Fund
Institutional
Alscott Investments, LLC 994,743.878 16.81%
501 Baybrook Court
Boise, Idaho 83706
Rede & Company (Weyerhaeuser) 810,937.720 13.71%
4380 S.W. Macadam, Suite 450
Portland, Oregon 97201
Waycrosse, Inc./International Equity Fund II 624,830.101 10.56%
P. O. Box 9300, MS 28
Minneapolis, Minnesota 55440-9300
</TABLE>
-122-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
Ruby Trust 588,903.067 9.95%
499 Park Avenue
New York, New York 10022
Charles Schwab & Co., Inc. - Reinvest.** 539,775.231 9.12%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Alscott Investments, LLC 479,994.043 8.11%
501 Baybrook Court
Boise, Idaho 83706
Topaz Trust 348,346.312 5.89%
499 Park Avenue
New York, New York 10022
30/70 Portfolio
Institutional
PIMCO Advisors L.P. 1,016.305 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
Class A
Stuart B. Crawford & Virginia Crawford 7,327.728 14.09%
JT TEN WROS NOT TC
4929 Whitcomb Drive
Madison, Wisconsin 53711
Donaldson Lufkin Jenrette 6,843.885 13.16%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303
Donaldson Lufkin Jenrette 5,429.257 10.44%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303
</TABLE>
-123-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
Mei W. Quinn 4,432.415 8.52%
TOD Howard Wong and Tom E. McGrath
Subject to FDISG TOD Rules
2425 W. New Street
Blue Island, Illinois 60406
Prudential Securities Inc. FBO 3,199.285 6.15%
Mrs. Eunice F. Iverson TREE
Eunice Iverson REV LIV TR
UA DTD 10/13/92
850 Novelly Drive
Reno, Nevada 89503
Charles Baumstark and Daniel Baumstark TTEES 2,918.589 5.61%
Hermann Lumber Company Pension Plan DTD 1/1/99
603 Market Street, P.O. Box 500
Hermann, Missouri 65041
Class B
BSDT CUST IRA 23,212.938 13.29%
FBO Miriam P. Squillace
1941 E. River Road
Livingston, Montana 59047-9146
Merrill Lynch Pierce Fenner & Smith Inc. ** 23,102.853 13.23%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
A. G. Edwards & Sons, Inc. C/F 19,294.837 11.05%
Dr. James R. Drake
IRA Account
3004 Brownwood Drive
Chattanooga, Tennessee 37404-6309
Janney Montgomery Scott, Inc. 13,925.510 7.98%
A/C 1021-6717
Joseph L. Abriola & Gloria C. Abriola JT TEN
1801 Market Street
Philadelphia, Pennsylvania 19103-1675
</TABLE>
-124-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
N. F. Verratti, Inc. 9,897.955 5.67%
Profit Sharing Plan DTD 1-1-1983
Nicholas F. Verratti, Jr. TTEE
450 Knowlton Road
Media, Pennsylvania 19063
Joseph L. Abriola (IRA) 8,951.303 5.13%
JMS Inc. CUST FBO
A/C 1021-6665
2 Steeplechase Lane
Blue Bell, Pennsylvania 19422-2460
Class C
John P. Bohlman TTEE 44,655.717 8.63%
U/A DTD Feb. 24, 1973
Bohlman Drug Store Inc. PSP
1028 Wisconsin Ave.
Boscobel, Wisconsin 53805
First Clearing Corporation 31,705.579 6.13%
A/C 3766-7636
Louis D. Gura IRA
WFS As Custodian
85 Dogwood Terrace
Ramsey, New Jersey 07446
90/10 Portfolio
Institutional
PIMCO Advisors L.P. 916.590 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
Class A
Charles Baumstark and Daniel Baumstark TTEES 16,469.254 24.72%
Herman Lumber Company Pension Plan DTD 1/1/99
603 Market Street, P.O. Box 500
Hermann, Missouri 65041
</TABLE>
-125-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
Class B
Donaldson Lufkin Jenrette 8,883.347 5.68%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303
60/40 Portfolio
Institutional
PIMCO Advisors L.P. 963.806 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
Class A
Charles Baumstark and Daniel Baumstark TTEES 66,763.874 30.73%
Herman Lumber Company Pension Plan DTD 1/1/99
603 Market Street, P.O. Box 500
Hermann, Missouri 65041
BSDT CUST Rollover IRA FBO 37,996.882 17.49%
Edmund A. Louie
1165 Corvallis Drive
San Jose, California 95120
Christine A. Dudenhoeffer & 14,031.800 6.46%
David C. Klos TTEE
Owensville Lumber Co., Inc. 401K Plan
FBO Plan Participants
1010 Hwy 28 West, P.O. Box 530
Owensville, Missouri 65066
Donaldson Lufkin Jenrette 11,430.398 5.26%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 20,201.388 5.96%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-126-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
-----------------------------------------------
<S> <C> <C>
PaineWebber For the Benefit of 18,601.996 5.48%
PaineWebber FBO
Elizabeth B. Stoeffler
P.O. Box 3321
Weehawken, New Jersey 07087-8154
Class C
John H. & Susan Hutchison TTEES 90,291.419 9.43%
Jack & Susan Hutchison Living TR
DTD 10/30/1985
2441 Bayshore Drive
Newport Beach, California 92663
Jeffrey L. E. B. Morse 48,758.189 5.09%
P.O. Box 127
Sextonville, Wisconsin 53584
</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 and Portfolios.
Pursuant to a separate sub-custody agreement between IFTC and State Street Bank
and Trust Company ("State Street"), State Street serves as subcustodian of the
Trust for the custody of the foreign securities acquired by those Funds that
invest in foreign securities. Under the agreement, State Street may hold
foreign securities at its principal offices and its 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
-127-
<PAGE>
stability of the country in which the institution is located; and further risks
of potential nationalization or expropriation of Trust assets, although the
Trustees reserve the right to delegate their selection responsibilities in light
of recent amendments to Rule 17f-5 under the 1940 Act, in which case the factors
for consideration would differ from those referenced above. Currently, the Board
of Trustees reviews annually the continuance of foreign custodial arrangements
for the Trust, but reserves the right to discontinue this practice as permitted
by the recent amendments to Rule 17f-5. No assurance can be given that the
Trustees' appraisal of the risks in connection with foreign custodial
arrangements will always be correct or that expropriation, nationalization,
freezes, or confiscation of assets that would impact assets of the Funds will
not occur, and shareholders bear the risk of losses arising from these or other
events.
Independent Accountants
PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, Missouri 64105,
serves as the independent public accountants for the Funds and Portfolios.
PricewaterhouseCoopers LLP provides audit services, accounting assistance, and
consultation in connection with SEC filings.
Transfer and Shareholder Servicing Agents
First Data Investor Services Group, Inc., P.O. Box 9688, Providence, Rhode
Island 02940, serves as the Transfer and Shareholder Servicing Agent for the
Trust's Class A, Class B, Class C and Class D shares. National Financial Data
Services, 330 West 9th Street, 4th Floor, Kansas City, Missouri 64105, serves
as the Transfer Agent for the Trust's Institutional and Administrative Class
shares.
Legal Counsel
Ropes & Gray, One International Place, Boston, Massachusetts 02110 serves
as legal counsel to the Trust.
Registration Statement
This Statement of Additional Information and the Prospectuses do not
contain all of the information included in the Trust's registration statements
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statements, including the exhibits
filed therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectuses as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the relevant registration statement, each such
statement being qualified in all respects by such reference.
Financial Statements
Audited financial statements for the Funds to be provided in a subsequent
post-effective amendment to be filed prior to the effective date of this
Amendment.
Audited financial statements for the Funds, as of June 30, 1999, for the
fiscal year then ended, including notes thereto, and the reports of
PricewaterhouseCoopers LLP thereon, each dated August 13, 1999, are incorporated
by reference from the Trust's five June 30, 1999 Annual Reports. One Annual
Report (the "Retail Annual Report") corresponds to the Class A, B and C
Prospectus, another (the "Institutional Annual Report") corresponds to the
Institutional Prospectus, another (the "Class D Annual Report") corresponds to
the Class D Prospectus, another (the "Retail Portfolio Annual Report")
corresponds to the Retail Portfolio Prospectus and the fifth (the "Institutional
Portfolio Annual Report") corresponds to the Institutional Portfolio Prospectus.
The Trust's June 30, 1999 Annual Reports were filed electronically with the SEC
on September 9, 1999 (Accession No. 0001017062-99-001593).
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<PAGE>
Unaudited financial statements for the Funds and Portfolios, as of December
31, 1998, for the semi-annual period then ended, including notes thereto, are
incorporated by reference from the Trust's four December 31, 1998 Semi-Annual
Reports. One Semi-Annual Report (the "Retail Semi-Annual Report") corresponds
to the Class A, B And C Prospectus, another (the "Institutional Semi-Annual
Report") corresponds to the Institutional Prospectus, another (the "Class D
Semi-Annual Report") corresponds to the Class D Prospectus and the fourth (the
"Retail Portfolio Semi-Annual Report") corresponds to the Retail Portfolio
Prospectus. The Trust's December 31, 1998 Semi-Annual Reports are on file
electronically with the SEC (Retail Semi-Annual Report - filed on March 9, 1999,
Accession No. 0001017062-99-000418; Institutional Semi-Annual Report - filed on
March 9, 1999, Accession No. 0001017062-99-000419; Class D Semi-Annual Report -
filed on March 9, 1999, Accession No. 0001017062-99-000423; Retail Portfolio
Semi-Annual Report - filed on March 9, 1999, Accession No. 0001017062-99-
000421). The Portfolios did not offer Institutional Class or Administrative
Class shares during the reporting period ended December 31, 1998.
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<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 Sub-Adviser's view of their comparability to rated securities. A
Fund's use of average quality criteria is intended to be a guide for those
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 Sub-Adviser to be of comparable
quality). The percentage of a Fund's assets invested in securities in a
particular rating category will vary. Following is a description of Moody's and
S&P's ratings applicable to fixed income securities.
Moody's Investors Service, Inc.'
Corporate and Municipal Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present that make the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
A-1
<PAGE>
C: Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classified from Aa through B in its corporate bond rating system. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Corporate Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as letters
of credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and well-
established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Standard & Poor's Ratings Services
'
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-2
<PAGE>
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood
A-3
<PAGE>
of, or the risk of default upon failure of, such completion. The investor
should exercise his own judgment with respect to such likelihood and risk.
r: The "r" is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and interest only and
principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Commercial Paper Rating Definitions
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from A for the
highest quality obligations to D for the lowest. These categories are as
follows:
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B: Issues rated B are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to Standard & Poor's by the issuer or obtained from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
A-4
<PAGE>
Rule 497(c)
33-36528
811-6161
PIMCO Funds Shareholders' Guide
for Class A, B and C Shares
November 1, 1999
This Guide relates to the mutual funds (each, a "Fund") that are series of PIMCO
Funds: Multi-Manager Series (the "MMS Trust") and PIMCO Funds: Pacific
Investment Management Series (the "PIMS Trust" and, together with the MMS Trust,
the "Trusts"). Unless otherwise indicated, references to the Funds include the
PIMCO Funds Asset Allocation Series portfolios (the "Portfolios"). The
Portfolios are so called "funds of funds" which are series of the MMS Trust.
Class A, B and C shares of the MMS Trust, the PIMS Trust and the Portfolios are
offered through four separate prospectuses (each, a "Retail Prospectus").
This Guide contains detailed information about Fund purchase, redemption and
exchange options and procedures and other information about the Funds. This
Guide is not a prospectus, and should be used in conjunction with the applicable
Retail Prospectus. This Guide, and the information disclosed herein, is
incorporated by reference in, and considered part of, the Statement of
Additional Information corresponding to each Retail Prospectus.
PIMCO Funds Distributors LLC distributes the Funds' shares. You can call PIMCO
Funds Distributors LLC at 1-800-426-0107 to find out more about the Funds and
other funds in the PIMCO Funds family. You can also visit our Web site at
www.pimcofunds.com.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
How to Buy Shares................................................... SG-3
Alternative Purchase Arrangements................................... SG-8
Exchange Privilege.................................................. SG-22
How to Redeem....................................................... SG-23
</TABLE>
SG-2
<PAGE>
How to Buy Shares
Class A, Class B and Class C shares of each Fund are continuously offered
through the Trusts' 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"). The
Distributor is a wholly owned subsidiary of PIMCO Advisors L.P. ("PIMCO
Advisors"), the investment adviser to the Funds that are series of the MMS
Trust, and an affiliate of Pacific Investment Management Company ("Pacific
Investment Management"), the investment adviser to the Funds that are series of
the PIMS Trust. PIMCO Advisors and Pacific Investment Management are each
referred to herein as an "Adviser."
There are two ways to purchase Class A, Class B or Class C shares: either
(i) through your dealer or broker which has a dealer agreement with the
Distributor or (ii) 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). Class A, Class B and Class C
shares of the Short Duration Municipal Income Fund and Class B and Class C
shares of the California Intermediate Municipal Bond and New York Intermediate
Municipal Bond Funds are not offered as of the date of this Guide; however,
investment opportunities in these Funds may be available in the future.
Shares may be purchased at a price equal to their net asset value per share
next determined after receipt of an order, plus a sales charge which, at the
election of the purchaser, may be imposed either (i) at the time of the purchase
in the case of Class A shares (the "initial sales charge alternative"), (ii)
on a contingent deferred basis in the case of Class B shares (the "deferred
sales charge alternative") or (iii) by the deduction of an ongoing asset based
sales charge in the case of Class C shares (the "asset based sales charge
alternative"). In certain circumstances, Class A and Class C shares are also
subject to a Contingent Deferred Sales Charge ("CDSC"). See "Alternative
Purchase Arrangements." Purchase payments for Class B and Class C shares are
fully invested at the net asset value next determined after acceptance of the
trade. Purchase payments for Class A shares, less the applicable sales charge,
are invested at the net asset value next determined after acceptance of the
trade.
All purchase orders received by the Distributor prior to the close of
regular trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange 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 Fund shares. The sale of shares will be suspended during
any period in which the New York Stock Exchange is closed for other than
weekends or holidays, or, if permitted by the rules of the Securities and
Exchange Commission, when trading on the New York Stock
SG-3
<PAGE>
Exchange is restricted or during an emergency which makes it impracticable for
the Funds to dispose of their securities or to determine fairly the value of
their net assets, or during any other period 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 "Alternative Purchase Arrangements--Sales at Net Asset
Value," the minimum initial investment in Class A, Class B or Class C shares of
any Fund is $2,500, and the minimum additional investment is $100 per Fund. For
information about dealer commissions, see "Alternative Purchase Arrangements"
below. Persons selling Fund shares may receive different compensation for
selling Class A, Class B or Class C shares. Normally, Fund 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 a
Fund 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 Fund
shares, including the total number of Fund 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" in the applicable Retail Prospectus. Information regarding
direct investment or any other features or plans offered by the Trusts may be
obtained by calling the Distributor at 1-800-426-0107 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 9688
Providence, RI 02940-0926
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.
SG-4
<PAGE>
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 Fund. All payments should be made
payable to PIMCO Funds Distributors LLC and should clearly indicate the
shareholder's account number. Checks should be mailed to the address above under
"Purchase by Mail."
Tax-Qualified Retirement Plans
The Distributor makes available retirement plan services and documents for
Individual Retirement Accounts (IRAs), including Roth IRAs, for which Boston
Safe Deposit & Trust Company serves as trustee and for IRA Accounts established
with Form 5305-SIMPLE under the Internal Revenue Code of 1986, as amended (the
"Code"). These accounts include Simplified Employee Pension Plan (SEP) and
Salary Reduction Simplified Employee Pension Plan (SAR/SEP) IRA and SIMPLE IRA
accounts and prototype documents. In addition, prototype documents are available
for establishing 403(b)(7) custodial accounts with Boston Safe Deposit & Trust
Company 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.
These prototype plans require certain minimum per participant account sizes and
certain minimum aggregate investments in the Trust, and are subject to the small
account fees described below that will apply to other plans. Investors should
call the Distributor at 1-800-426-0107 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 Fund and the minimum subsequent investment is $100. The minimum
initial investment for employer-sponsored plans, SIMPLE IRAs, SEPs and SAR/SEPs
and the minimum subsequent investment per Fund for all such plans is $50.
PIMCO Funds 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 Fund.
Investments may be made monthly or quarterly, and may be in any amount subject
to a minimum of $50 per month for each Fund in which shares are purchased
through the plan. Further information regarding the PIMCO Funds Auto-Invest plan
is available from the Distributor or participating brokers. You may enroll by
SG-5
<PAGE>
completing the appropriate section on the account application, or you may obtain
an Auto-Invest application by calling the Distributor or your broker.
PIMCO Funds Auto-Exchange
The PIMCO Funds Auto-Exchange plan establishes regular, periodic exchanges
from one Fund account to another Fund account. The plan provides for regular
investments into a shareholder's account in a specific Fund by means of
automatic exchanges of a designated amount from another Fund account of the same
class of shares and with identical account registration.
Exchanges may be made monthly or quarterly, and may be in any amount
subject to a minimum of $1,000 to open a new Fund account and of $50 for any
existing Fund account for which shares are purchased through the plan.
Further information regarding the PIMCO Funds Auto-Exchange plan is
available from the Distributor at 1-800-426-0107 or participating brokers. You
may enroll by completing an application which may be obtained from the
Distributor or by telephone request at 1-800-426-0107. For more information on
exchanges, see "Exchange Privilege."
PIMCO Funds Fund Link
PIMCO Funds Fund Link ("Fund Link") connects your Fund account(s) 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 1-800-
426-0107. All such calls will be recorded. Fund Link is normally established
within 45 days of receipt of a Fund Link application by First Data Investor
Services Group, Inc. (the "Transfer Agent"), the Funds' transfer agent for
Class A, B and C shares. The minimum investment by Fund Link is $50 per Fund.
Shares will be purchased on the regular business day the Distributor receives
the funds through the ACH system, provided the funds are received before the
close of regular trading on the New York Stock Exchange. If the funds are
received after the close of regular trading, the shares will be purchased on the
next regular business day.
Fund Link privileges must be requested on the account application. To
establish Fund Link on an existing account, complete a Fund Link application,
which is available from the Distributor or your broker, with signatures
guaranteed from all shareholders of record for the account. See "Signature
Guarantee" 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 Fund may rely on any telephone
instructions believed to be genuine and will not be responsible to shareholders
for any damage, loss or expenses arising out of such instructions. The Fund
SG-6
<PAGE>
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 Funds 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 Retail Prospectus.
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 9688
Providence, RI 02940-0926
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 the applicable Fund's
administrator) will automatically be deducted from direct Fund accounts with
balances falling below a minimum level. The valuation of Fund 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 Fund
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 also
applies to employer-sponsored retirement plan accounts, Money Purchase and/or
Profit Sharing plans, 401(k) plans, 403(b)(7) custodial accounts, SIMPLE IRAs,
SEPs and SAR/SEPs. (A separate custodial fee may apply to IRAs, Roth IRAs and
other retirement accounts.) No fee will be charged on any Fund account of a
shareholder if the aggregate value of all of the shareholder's Fund 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.
SG-7
<PAGE>
Minimum Account Size
Due to the relatively high cost to the Funds of maintaining small accounts,
you are asked to maintain an account balance in each Fund in which you invest of
at least the amount necessary to open the type of account involved. If your
balance for any Fund is below such minimum for three months or longer, the
applicable Fund's administrator shall have the right (except in the case of
employer-sponsored retirement accounts) to close that Fund account after giving
you 60 days in which to increase your balance. Your Fund account will not be
liquidated if the reduction in size is due solely to market decline in the value
of your Fund shares or if the aggregate value of all your accounts in PIMCO
Funds exceeds $50,000.
Alternative Purchase Arrangements
The Funds offer investors Class A, Class B and Class C shares in the
applicable Retail Prospectus. Class A, B and C shares bear sales charges in
different forms and amounts and bear different levels of expenses, as described
below. Through separate prospectuses, certain of the Funds currently offer up to
three additional classes of shares in the United States: Class D, Institutional
Class and Administrative Class shares. Class D shares are offered through
financial intermediaries. Institutional Class and Administrative Class shares
are offered to pension and profit sharing plans, employee benefit trusts,
endowments, foundations, corporations and other high net worth individuals.
Class D, 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, Class D,
Institutional Class and Administrative Class shares are generally expected to
achieve higher investment returns than Class A, Class B or Class C shares.
Certain Funds also offer up to two additional classes of shares that are offered
only to non-U.S. investors outside the United States: Class J and Class K
shares. To obtain more information about the other classes of shares, please
call the applicable Trust at 1-800-927-4648 (for Institutional and
Administrative Class shares) or the Distributor at 1-888-87-PIMCO (for Class D
shares).
The alternative purchase arrangements described in this Guide are designed
to enable a retail investor to choose the method of purchasing Fund shares that
is most beneficial to the investor based on all factors to be considered,
including the amount and intended length of the investment, the particular Fund
and whether the investor intends to exchange shares for shares of other Funds.
Generally, when making an investment decision, investors should consider the
anticipated life of an intended investment in the Funds, the accumulated
distribution and servicing fees plus CDSCs on Class B or Class C shares, the
initial sales charge plus accumulated servicing fees on Class A shares (plus a
CDSC in certain circumstances), the possibility that the 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
SG-8
<PAGE>
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 Funds for longer periods and who do not intend to purchase shares of
sufficient aggregate value to qualify for sales charge reductions applicable to
Class A shares. Both Class B and Class C shares can be purchased at net asset
value without an initial sales charge. However, unlike Class C shares, Class B
shares convert into Class A shares after the shares have been held for seven
years. After the conversion takes place, the shares will no longer be subject to
a 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 Funds for long periods. See "Asset Based
Sales Charge Alternative--Class C Shares" below.
In determining which class of shares to purchase, an investor should always
consider whether any waiver or reduction of a sales charge or a CDSC is
available. See generally "Initial Sales Charge Alternative--Class A Shares"
and "Waiver of Contingent Deferred Sales Charges" below.
The maximum single purchase of Class B shares of a Fund is $249,999. The
maximum single purchase of Class C shares of a Fund is $999,999. The Funds may
refuse any order to purchase shares.
For a description of the Distribution and Servicing Plans and distribution
and servicing fees payable thereunder with respect to Class A, Class B and Class
C shares, see "Distributor and Distribution and Servicing Plans" below.
SG-9
<PAGE>
Waiver of Contingent Deferred Sales Charges The CDSC applicable to Class A and
Class C shares is currently waived for (i) any partial or complete redemption in
connection with (a) required minimum distributions to IRA account owners or
beneficiaries who are age 70 1/2 or older or (b) distributions to participants
in employer-sponsored retirement plans upon attaining age 59 1/2 or on account
of death or disability; (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
Internal Revenue 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
a Fund 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 either Trust, and by directors, officers and
employees of the Distributor, PIMCO Advisors or Pacific Investment Management;
(viii) redemptions effected pursuant to a Fund's right to involuntarily redeem a
shareholder's Fund account if the aggregate net asset value of shares held in
such shareholder's account is less than a minimum account size specified in such
Fund's prospectus; (ix) involuntary redemptions caused by operation of law; (x)
redemption of shares of any Fund that is combined with another Fund, investment
company, or personal holding company by virtue of a merger, acquisition or other
similar reorganization transaction; (xi) redemptions by a shareholder who is a
participant making periodic purchases of not less than $50 through certain
employer sponsored savings plans that are clients of a broker-dealer with which
the Distributor has an agreement with respect to such purchases; (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 adviser for which has an agreement with
the Distributor with respect to such purchases; (xiii) redemptions in connection
with IRA accounts established with Form 5305-SIMPLE under the Code for which the
Trust is the designated financial institution; (xiv) a redemption by a holder of
Class A shares who purchased $1,000,000 or more of Class A shares (and therefore
did not pay a sales charge) where the participating broker or dealer involved in
the sale of such shares waived the commission it would normally receive from the
Distributor pursuant to an agreement with the Distributor; or (xv) a redemption
by a holder of Class A shares where the participating broker or dealer involved
in the purchase of such shares waived the commission it normally would receive
from the Distributor in connection with such purchase pursuant to an agreement
with the Distributor.
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
required minimum distributions to IRA account owners or to plan participants or
beneficiaries who are age 70 1/2 or older; (b) involuntary redemptions caused by
operation of law; (c) redemption of shares of any Fund that is combined with
another Fund, investment company, or personal holding company by virtue of a
merger, acquisition or other similar reorganization transaction;
SG-10
<PAGE>
(d) 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 (e) up to 10% per year of the value of a Fund account which (i)
has a value of at least $10,000 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.
Initial Sales Charge Alternative--Class A Shares
Class A shares are sold at a public offering price equal to their net asset
value per share plus a sales charge, as set forth below. As indicated below
under "Class A Deferred Sales Charge," certain investors that purchase
$1,000,000 or more of any Fund's Class A shares (and thus pay no initial sales
charge) may be subject to a 1% CDSC if they redeem such shares during the first
18 months after their purchase.
SG-11
<PAGE>
Initial Sales Charge -- Class A Shares
PIMCO Growth, Target, Opportunity, Capital Appreciation, Mid-Cap Growth, Small-
Cap Growth, Equity Income, Renaissance, Value, Value 25, Small-Cap Value, Tax-
Efficient Equity, International, Innovation and Precious Metals Funds, and PIMCO
Funds Asset Allocation Series -- 90/10 and 40/60 Portfolios
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of 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>
PIMCO Funds Asset Allocation Series -- 30/70 Portfolio
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of 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>
SG-12
<PAGE>
PIMCO Total Return, High Yield, Long-Term U.S. Government, Global Bond II,
Foreign Bond, Emerging Markets Bond, Strategic Balanced and Convertible Bond
Funds
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of 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%/(3)/
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PIMCO Low Duration, Real Return Bond, Municipal Bond and StocksPLUS Funds
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of Public Offering
Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 3.09% 3.00% 2.50%
- --------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 2.56% 2.50% 2.00%
- --------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 2.04% 2.00% 1.75%
- --------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 1.52% 1.50% 1.25%
- --------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 1.27% 1.25% 1.00%
- --------------------------------------------------------------------------------------------------------------------
$1,000,000+ 0.00%/(1)/ 0.00%/(1)/ 0.50%/(3)/
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SG-13
<PAGE>
PIMCO Short-Term Fund
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of Public Offering
Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 2.04% 2.00% 1.75%
- --------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 1.78% 1.75% 1.50%
- --------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 1.52% 1.50% 1.25%
- --------------------------------------------------------------------------------------------------------------------
$250,000+ 0.00%/(1)/ 0.00%/(1)/ 0.25%/(3)/
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PIMCO California and New York Intermediate Bond Funds
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of Public Offering
Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 3.09% 3.00% 2.75%
- --------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 2.04% 2.00% 1.75%
- --------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 2.01% 1.00% 0.90%
- --------------------------------------------------------------------------------------------------------------------
$250,000+ 0.00%/(1)/ 0.00%/(1)/ 0.25%/(4)/
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1. As shown, investors that purchase more than $1,000,000 of any Fund's Class
A shares ($250,000 in the case of the PIMCO Short-Term Fund) will not pay
any initial sales charge on such purchase. However, except with regard to
purchases of Class A shares of the PIMCO Money Market, California
Intermediate Bond and New York Intermediate Bond Funds, purchasers of
$1,000,000 or more ($250,000 in the case of the PIMCO Short-Term Fund) of
Class A shares (other than those purchasers described below under "Sales
at Net Asset Value" where no commission is paid) will be subject to a CDSC
of 1% if such shares are redeemed during the first 18 months after such
shares are purchased unless such purchaser is eligible for a waiver of the
CDSC as described under "Waiver of Contingent Deferred Sales Charges"
above. See "Class A Deferred Sales Charge" below.
2. The Distributor will pay a commission to dealers who sell amounts of
$1,000,000 or more of Class A shares (or who sell Class A shares at net
asset value to certain employer-sponsored plans as outlined in "Sales at
Net Asset Value" below) of each of these Funds and the Portfolios (except
for the 30/70 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.
3. The Distributor will pay a commission to dealers who sell amounts of
$1,000,000 ($250,000 in the case of the PIMCO Short-Term Fund) 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") of each
of these Funds except for the PIMCO Money Market Fund (for which no payment
is made) and the PIMCO Short-Term and Short Duration Municipal Income
Funds, according to the following schedule: 0.50% of the first $2,000,000
and 0.25% of amounts over $2,000,000; and 0.25% of sales of Class A shares
of the PIMCO Short-Term and Short Duration Municipal Income Funds in excess
of $250,000.
4. The Distributor will pay a commission to dealers who sell $250,000 or more
of Class A shares of the PIMCO California Intermediate Bond and New York
Intermediate Bond Funds at an annual rate of 0.25%, to be paid in quarterly
installments.
SG-14
<PAGE>
Each Fund receives the entire net asset value of its Class A shares
purchased by investors. The Distributor receives the sales charge shown above
less any applicable discount or commission "reallowed" to participating
brokers in the amounts indicated in the table above. The Distributor may,
however, elect to reallow the entire sales charge to participating brokers for
all sales with respect to which orders are placed with the Distributor for any
particular Fund during a particular period. During such periods as may from time
to time be designated by the Distributor, the Distributor will pay an additional
amount of up to 0.50% of the purchase price on sales of Class A shares of all or
selected Funds purchased to each participating broker which obtains purchase
orders in amounts exceeding thresholds established from time to time by the
Distributor. 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 Funds 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) 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 1-800-426-0107 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
SG-15
<PAGE>
(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 PIMCO Equity Income Fund
worth $25,000 at the current maximum offering price and wished to purchase
Class A shares of the PIMCO Growth Fund worth an additional $30,000, the
sales charge for the $30,000 purchase would be at the 4.50% rate applicable
to a single $55,000 purchase of shares of the PIMCO Growth Fund, rather
than the 5.50% rate.
Letter of Intent An investor may also obtain a reduced sales charge by means of
a written Letter of Intent, which expresses an intention to invest not less than
$50,000 within a period of 13 months in Class A shares of any eligible PIMCO
Fund(s) other than the PIMCO Money Market Fund. Each purchase of shares under a
Letter of Intent will be made at the public offering price or prices applicable
at the time of such purchase to a single transaction of the dollar amount
indicated in the Letter. At the investor's option, a Letter of Intent may
include purchases of Class A shares of any eligible PIMCO Fund (other than the
PIMCO Money Market Fund) made not more than 90 days prior to the date the Letter
of Intent is signed; however, the 13-month period during which the Letter is in
effect will begin on the date of the earliest purchase to be included and the
sales charge on any purchases prior to the Letter will not be adjusted.
Investors qualifying for the Combined Purchase Privilege described above
may purchase shares of the eligible PIMCO Funds under a single Letter of Intent.
For example, if at the time you sign a Letter of Intent to invest at least
$100,000 in Class A shares of any Fund (other than the PIMCO Money Market Fund),
you and your spouse each purchase Class A shares of the PIMCO Growth Fund worth
$30,000 (for a total of $60,000), it will only be necessary to invest a total of
$40,000 during the following 13 months in Class A shares of any of the Funds
(other than the PIMCO Money Market Fund) to qualify for the 3.50% sales charge
on the total amount being invested (the sales charge applicable to an investment
of $100,000 in any of the Funds other than the PIMCO Money Market, Short-Term,
Low Duration, Real Return Bond, Short Duration Municipal Income, Municipal Bond
and StocksPLUS Funds).
A Letter of Intent is not a binding obligation to purchase the full amount
indicated. The minimum initial investment under a Letter of Intent is 5% of such
amount. Shares purchased with the first 5% of such amount will be held in escrow
(while remaining registered in your name) to secure payment of the higher sales
charge applicable to the shares actually purchased in the event the full
intended amount is not purchased. If the full amount indicated is not purchased,
a sufficient amount of such escrowed shares will be involuntarily redeemed to
pay the additional sales charge applicable to the amount actually purchased, if
necessary. Dividends on escrowed shares, whether paid in cash or reinvested in
additional eligible PIMCO Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released.
If you wish to enter into a Letter of Intent in conjunction with your
initial investment in Class A shares of a Fund, you should complete the
appropriate portion of the account application. If you are a current Class A
shareholder desiring to do so you may obtain a form of Letter of Intent by
contacting the Distributor at 1-800-426-0107 or any broker participating in this
program.
SG-16
<PAGE>
Reinstatement Privilege A Class A shareholder who has caused any or all of his
shares (other than PIMCO Money Market Fund shares that were not acquired by
exchanging Class A shares of another Fund) to be redeemed may reinvest all or
any portion of the redemption proceeds in Class A shares of any 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" in the applicable Retail
Prospectus. A reinstatement pursuant to this privilege will not cancel the
redemption transaction and, consequently, any gain or loss so realized may be
recognized for federal tax purposes except that no loss may be recognized to the
extent that the proceeds are reinvested in shares of the same Fund within 30
days. The reinstatement privilege may be utilized by a shareholder only once,
irrespective of the number of shares redeemed, except that the privilege may be
utilized without limit in connection with transactions whose sole purpose is to
transfer a shareholder's interest in a Fund to his Individual Retirement Account
or other qualified retirement plan account. An investor may exercise the
reinstatement privilege by written request sent to the Distributor or to the
investor's broker.
Sales at Net Asset Value Each Fund may sell its Class A shares at net asset
value without a sales charge to (a) current or retired officers, trustees,
directors or employees of either Trust, PIMCO Advisors, Pacific Investment
Management or the Distributor, affiliates of PIMCO Advisors, Pacific Investment
Management 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 registered
representatives and other full-time employees of participating brokers or such
persons' spouses or for trust or custodial accounts for their minor children,
(c) trustees or other fiduciaries purchasing shares for certain plans sponsored
by employers, professional organizations or associations or charitable
organizations, the trustee, administrator, fiduciary, broker, trust company or
registered investment adviser for which has an agreement with the Distributor
with respect to such purchases (including provisions related to minimum levels
of investment in the Trust), and to participants in such plans and their spouses
purchasing for their account(s) or IRAs (with the exception of Roth IRAs), (d)
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, (e) client accounts of broker-dealers or registered investment
advisers affiliated with such broker-dealers with which the Distributor has an
agreement for the use of a Fund in particular investment products or programs,
(f) accounts for which a trust company affiliated with the Trust or the Fund's
Adviser serves as trustee or custodian, and (g) former Class A, Class B and
Class C shareholders of the former PIMCO Emerging Markets Fund and PIMCO
International Developed Fund (the "Former Funds") who had all of their shares in
such Former Fund redeemed in connection with reorganization transactions (the
"April Transactions") involving these Funds on April 30, 1999; provided,
however, that this waiver applies only until the close of business on December
31, 1999 and, for each such former shareholder, only with respect to a single
purchase transaction involving the investment in one or more Funds of some or
all of the redemption proceeds received by the shareholder in connection with
the April Transactions. 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 (c)
in this paragraph.
SG-17
<PAGE>
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 Funds, except the PIMCO Money Market,
California Intermediate Municipal Bond and New York Intermediate Municipal Bond
Funds, investors who purchase $1,000,000 ($250,000 in the case of the PIMCO
Short-Term Fund) 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 ($250,000 in the
case of the PIMCO Short-Term and Short Duration Municipal Income Funds) or more
of any Fund's Class A shares if such investors are otherwise eligible to
purchase Class A shares without any sales charge because they are described
under "Sales at Net Asset Value" above.
For purchases subject to the Class A CDSC, a 1% CDSC will apply for any
redemption of such Class A shares that occurs within 18 months of their
purchase. No CDSC will be imposed if the shares redeemed have been acquired
through the reinvestment of dividends or capital gains distributions or if the
amount redeemed is derived from increases in the value of the account above the
amount of purchase payments subject to the CDSC. In determining whether a CDSC
is payable, it is assumed that Class A shares acquired through the reinvestment
of dividends and distributions are redeemed first, and thereafter that Class A
shares that have been held by an investor for the longest period of time are
redeemed first.
The Class A CDSC does not apply to Class A shares of the PIMCO Money
Market, California Intermediate Municipal Bond and New York Intermediate
Municipal Bond Funds but, if Class A shares of these Funds are purchased in a
transaction that, for any other Fund, would be subject to the CDSC (i.e., a
purchase of $1,000,000 ($250,000 in the case of the PIMCO Short-Term and Short
Duration Municipal Income Funds) or more) and are subsequently exchanged for
Class A shares of any other Fund, a Class A CDSC will apply to the shares of the
Fund(s) acquired by exchange for a period of 18 months from the date of the
exchange.
The Class A CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements--Waiver of
Contingent Deferred Sales Charges." For more information about the Class A
CDSC, call the Distributor at 1-800-426-0107.
Participating Brokers Investment dealers and other financial intermediaries
provide varying arrangements for their clients to purchase and redeem Fund
shares. Some may establish higher minimum investment requirements than set forth
above. Firms may arrange with their clients for other investment or
administrative services and may independently establish and charge transaction
fees and/or other additional amounts to their clients for such services, which
charges would reduce clients' return. Firms also may hold Fund shares in nominee
or street name as agent for and on behalf of their customers. In such instances,
the Trust's transfer agent will have no information with respect to or control
over accounts of specific
SG-18
<PAGE>
shareholders. Such shareholders may obtain access to their accounts and
information about their accounts only from their broker. In addition, certain
privileges with respect to the purchase and redemption of shares or the
reinvestment of dividends may not be available through such firms. Some firms
may participate in a program allowing them access to their clients' accounts for
servicing including, without limitation, transfers of registration and dividend
payee changes; and may perform functions such as generation of confirmation
statements and disbursement of cash dividends. This Guide and the Retail
Prospectuses should be read in connection with such firms' material regarding
their fees and services.
Deferred Sales Charge Alternative--Class B Shares
Class B shares are sold at their current net asset value without any
initial sales charge. The full amount of an investor's purchase payment will be
invested in shares of the Fund(s) selected. A CDSC will be imposed on Class B
shares if an investor redeems an amount which causes the current value of the
investor's account for a Fund to fall below the total dollar amount of purchase
payments subject to the CDSC, except that no CDSC is imposed if the shares
redeemed have been acquired through the reinvestment of dividends or capital
gains distributions or if the amount redeemed is derived from increases in the
value of the account above the amount of purchase payments subject to the CDSC.
Class B shares of the PIMCO Short-Term Fund and the PIMCO Money Market Fund
are not offered for initial purchase but may be obtained through exchanges of
Class B shares of other Funds. See "Exchange Privilege" below. Class B shares
are not available for purchase by employer sponsored retirement plans.
Whether a CDSC is imposed and the amount of the CDSC will depend on the
number of years since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the CDSC according to the following
schedule:
<TABLE>
<CAPTION>
Years 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.
SG-19
<PAGE>
The following example will illustrate the operation of the Class B CDSC:
Assume that an individual opens a Fund account and makes a purchase payment
of $10,000 for Class B shares of a Fund and that six months later the value of
the investor's account for that Fund has grown through investment performance
and reinvestment of distributions to $11,000. The investor then may redeem up to
$1,000 from that Fund account ($11,000 minus $10,000) without incurring a CDSC.
If the investor should redeem $3,000 from that Fund account, a CDSC would be
imposed on $2,000 of the redemption (the amount by which the investor's account
for the Fund was reduced below the amount of the purchase payment). At the rate
of 5%, the Class B CDSC would be $100.
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class B shares in the
shareholder's account for the particular Fund are aggregated, and the current
value of all such shares is aggregated. Any CDSC imposed on a redemption of
Class B shares is paid to the Distributor.
Class B shares are subject to higher distribution fees than Class A shares
for a fixed period after their purchase, after which they automatically convert
to Class A shares and are no longer subject to such higher distribution fees.
Class B shares of each Fund automatically convert into Class A shares after they
have been held for seven years.
For sales of Class B shares made and services rendered to Class B
shareholders, the Distributor intends to make payments to participating brokers,
at the time a shareholder purchases Class B shares, of 4.00% of the purchase
amount for each of the Funds. During such periods as may from time to time be
designated by the Distributor, the Distributor will pay selected participating
brokers an additional amount of up to .50% of the purchase price on sales of
Class B shares of all or selected Funds purchased to each 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 1-800-426-0107.
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 Fund to
fall below the total dollar amount of purchase payments subject to the CDSC,
except that no CDSC is imposed if the shares redeemed have been acquired through
the reinvestment of dividends or capital gains distributions or if the amount
redeemed is derived from increases in the value of the account above the amount
of purchase payments subject to the CDSC. All of an investor's purchase payments
are invested in shares of the Fund(s) selected.
SG-20
<PAGE>
Whether a CDSC is imposed and the amount of the CDSC will depend on the
number of years since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the CDSC according to the following
schedule:
<TABLE>
<CAPTION>
Years 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 a Fund account and makes a purchase payment
of $10,000 for Class C shares of a Fund and that six months later the value of
the investor's account for that Fund has grown through investment performance
and reinvestment of distributions to $11,000. The investor then may redeem up to
$1,000 from that Fund account ($11,000 minus $10,000) without incurring a CDSC.
If the investor should redeem $3,000 from that Fund account, a CDSC would be
imposed on $2,000 of the redemption (the amount by which the investor's account
for the Fund was reduced below the amount of the purchase payment). At the rate
of 1%, the Class C CDSC would be $20.
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class C shares in the
shareholder's account for the particular Fund are aggregated, and the current
value of all such shares is aggregated. Any CDSC imposed on a redemption of
Class C shares is paid to the Distributor. Unlike Class B shares, Class C shares
do not automatically convert to any other class of shares of the Funds.
Except as described below, for sales of Class C shares made and services
rendered to Class C shareholders, the Distributor expects to make payments to
participating brokers, at the time the shareholder purchases Class C shares, of
1.00% (representing .75% distribution fees and .25% servicing fees) of the
purchase amount for all Funds, except the Money Market, Short-Term Duration,
Real Return Bond, Municipal Bond and StocksPLUS Funds. For the PIMCO Low
Duration, Real Return Bond, Municipal Bond and StocksPLUS Funds, the Distributor
expects to make payments of .75% (representing .50% distribution fees and .25%
service fees); for the PIMCO Short-Term Fund, the Distributor expects to make
payments of .55% (representing .30% distribution fees and .25% service fees);
and for the PIMCO Money Market Fund, the Distributor expects to make no payment.
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
SG-21
<PAGE>
all or selected Funds purchased to each participating broker which obtains
purchase orders in amounts exceeding thresholds established from time to time by
the Distributor.
The Class C CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements--Waiver of
Contingent Deferred Sales Charges." For more information about the Class C
CDSC, contact the Distributor at 1-800-426-0107.
Exchange Privilege
Except with respect to exchanges for shares of Funds for which sales may be
suspended to new investors, a shareholder may exchange Class A, Class B and
Class C shares of any Fund for the same Class of shares of any other Fund in an
account with identical registration on the basis of their respective net asset
values (except that a sales charge will apply on exchanges of Class A shares of
the PIMCO Money Market Fund on which no sales charge was paid at the time of
purchase.) Class A shares of the PIMCO Money Market Fund may be exchanged for
Class A shares of any other Fund, but the usual sales charges applicable to
investments in such other Fund apply on shares for which no sales charge was
paid at the time of purchase. There are currently no exchange fees or charges.
All exchanges are subject to the $2,500 minimum initial purchase requirement for
each Fund, except with respect to tax-qualified programs and exchanges effected
through the PIMCO Funds Auto-Exchange plan. 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 9688, Providence, RI 02940-0926 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
Distributor at 1-800-426-0107. Each 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. Each 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 1-800-426-
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, First Data Investor
Services Group, Inc., P.O. Box 9688, Providence, RI 02940-0926, 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 New York Stock Exchange on any day the
Exchange is open (generally weekdays other than normal holidays). The Trusts
reserve the right to refuse exchange purchases if, in the judgment of the Fund's
Adviser, the purchase would adversely affect the Fund and its shareholders. In
particular, a pattern of exchanges characteristic of "market-timing"
strategies may be deemed by an Adviser to be detrimental to a Trust or a
particular Fund.
SG-22
<PAGE>
Currently, each Trust limits the number of "round trip" exchanges an
investor may make. An investor makes a "round trip" exchange when the investor
purchases shares of a particular Fund, subsequently exchanges those shares for
shares of a different PIMCO Fund, and then exchanges back into the originally
purchased Fund. The Trusts have the right to refuse any exchange for any
investor who completes (by making the exchange back into the shares of the
originally purchased Fund) more than six round trip exchanges in any twelve-
month period. Although the Trusts have no current intention of terminating or
modifying the exchange privilege other than as set forth in the preceding
sentence, each reserves the right to do so at any time. Except as otherwise
permitted by the Securities and Exchange Commission, each 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 Distributor at 1-800-426-0107.
With respect to Class B and Class C shares, or Class A shares subject to a
CDSC, if less than all of an investment is exchanged out of a Fund, any portion
of the investment attributable to capital appreciation and/or reinvested
dividends or capital gains distributions will be exchanged first, and thereafter
any portions exchanged will be from the earliest investment made in the Fund
from which the exchange was made. Shareholders should take into account the
effect of any exchange on the applicability of any CDSC that may be imposed upon
any subsequent redemption.
Investors may also select the PIMCO Funds Auto-Exchange plan which
establishes automatic periodic exchanges. For further 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 redemption request has been received as
described below, 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 (which may vary). 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 New York Stock 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 at
the closing of the Exchange on that day, less any applicable CDSC.
SG-23
<PAGE>
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 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, First Data
Investor Services Group, Inc., P.O. Box 9688, Providence, RI 02940-0926.
(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 a redemption requested by and payable to all
shareholders of record for the account that is 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 the Distributor at 1-800-426-0107 before
SG-24
<PAGE>
submitting a request. Redemption or transfer requests will not be honored until
all required documents have been completed by the shareholder and received by
the Transfer Agent. This redemption option does not apply to shares held in
broker "street name" accounts. Shareholders whose shares are held in broker
"street name" accounts must redeem through their broker.
If the proceeds of the redemption (i) are to be paid to a person other than
the record owner, (ii) are to be sent to an address other than the address of
the account on the Transfer Agent's records or (iii) 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
Each Trust accepts telephone requests for redemption of uncertificated
shares, 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. Shareholders whose shares are held in broker "street name" accounts
must redeem through their broker.
By completing an account application, an investor agrees that the
applicable Trust, the Distributor and the Transfer Agent shall not be liable for
any loss incurred by the investor by reason of the Trust accepting unauthorized
telephone redemption requests for his account if the Trust reasonably believes
the instructions to be genuine. Thus, shareholders risk possible losses in the
event of a telephone redemption not authorized by them. Each 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. Each 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. Each 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 Distributor at
1-800-426-0107 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 New York Stock Exchange that day. If the redemption request is
received after the close of the New
SG-25
<PAGE>
York Stock 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. Each 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 Distributor at 1-800-426-0107. Subject to the
limitations set forth above under "Telephone Redemptions," the Distributor, a
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 New York Stock 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 New York Stock
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. Either Trust may terminate the Fund Link program at any time
without notice to its shareholders. This redemption option does not apply to
shares held in broker "street name" accounts. Shareholders whose shares are
held in broker "street name" accounts must redeem through their broker.
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 Fund accounts after you obtain a Personal Identification Number
(PIN) by calling the special ATS number: 1-800-223-2413.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by
telephone by calling 1-800-223-2413. You must have established ATS privileges to
link your bank account with the Fund to pay for these purchases.
SG-26
<PAGE>
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 Fund will send the proceeds directly to your Fund 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 a Trust prior to
the close of the New York Stock Exchange will result in shares being redeemed
that day at the next determined net asset value (less any CDSC). Normally the
proceeds will be 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 applicable Trust for
up to 7 days if the Distributor deems it appropriate under then current market
conditions. Once authorization is on file with a Trust, such Trust will honor
requests by any person identifying himself as the owner of an account or the
owner's broker by telephone at 1-800-426-0107 or by written instructions. A
Trust cannot be responsible for the efficiency of the Federal Reserve wire
system or the shareholder's bank. Neither Trust currently charges 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. Each 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 9688,
Providence, RI 02940-0926. See "How to Buy Shares--Signature Guarantee." This
redemption option does not apply to shares held in broker "street name"
accounts. Shareholders whose shares are held in broker "street name" accounts
must redeem through their broker.
Certificated Shares
To redeem shares for which certificates have been issued, the certificates
must be mailed to or deposited with the applicable 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.
SG-27
<PAGE>
Automatic Withdrawal Plan
An investor who owns or buys shares of a Fund having a net asset value of
$10,000 or more may open an Automatic Withdrawal Plan and have a designated sum
of money (not less than $100 per Fund) paid monthly (or quarterly) to the
investor or another person. Such a plan may be established by completing the
appropriate section of the account application or by obtaining an Automatic
Withdrawal Plan application from the Distributor or your broker. If an Automatic
Withdrawal Plan is set up after the account is established providing for payment
to a person other than the record shareholder or to an address other than the
address of record, a signature guarantee is required. See "How to Buy Shares--
Signature Guarantee." Class A, Class B and Class C shares of any Fund are
deposited in a plan account and all distributions are reinvested in additional
shares of the particular class of the Fund at net asset value. Shares in a plan
account are then redeemed at net 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 Fund would be disadvantageous to the
investor because of the CDSC that may become payable on such withdrawals in the
case of Class A, Class B or Class C shares and because of the initial sales
charge in the case of Class A shares. For this reason, the minimum investment
accepted for a Fund while an Automatic Withdrawal Plan is in effect for that
Fund is $1,000, and an investor may not maintain a plan for the accumulation of
shares of the Fund (other than through reinvestment of distributions) and an
Automatic Withdrawal Plan at the same time. The Trust or the Distributor may
terminate or change the terms of the Automatic Withdrawal Plan at any time.
Because the Automatic Withdrawal Plan may involve invasion of capital,
investors should consider carefully with their own financial advisers whether
the plan and the specified amounts to be withdrawn are appropriate in their
circumstances. The Trust and the Distributor make no recommendations or
representations in this regard.
SG-28
<PAGE>
Redemptions In Kind
Each Trust agrees to redeem shares of its Funds 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, each Trust reserves the right to pay any redemption proceeds
exceeding this amount in whole or in part by a distribution in kind of
securities held by a Fund in lieu of cash. Except for Funds with a tax-efficient
management strategy, it is highly unlikely that shares would ever be redeemed in
kind. When shares are redeemed in kind, the redeeming shareholder should expect
to incur transaction costs upon the disposition of the securities received in
the distribution.
SG-29
