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PIMCO FUNDS:
MULTI-MANAGER SERIES
STATEMENT OF ADDITIONAL INFORMATION
APRIL 1, 1999
PIMCO Funds: Multi-Manager Series (the "Trust"), formerly PIMCO Funds:
Equity Advisors Series, PIMCO Advisors Institutional Funds, PFAMCo Funds, and
PFAMCo Fund, is an open-end management investment company ("mutual fund")
currently consisting of twenty-eight separate diversified investment series.
The following twenty-five series (the "Funds") invest directly in equity and/or
fixed income securities and other 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 Capital Appreciation Fund,
the Mid-Cap Growth Fund, the Core Equity Fund, the Mid-Cap Equity Fund, the
Target Fund, the Small-Cap Value Fund, the Small-Cap Growth Fund, the
Opportunity Fund, the Micro-Cap Growth Fund, the Innovation Fund, the
International Fund, the International Developed Fund, the International Growth
Fund, the Emerging Markets Fund, the Tax-Efficient Structured Emerging Markets
Fund, the Structured Emerging Markets Fund, the Precious Metals Fund and the
Balanced Fund. 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 Tax Exempt Fund, formerly a series of the Trust, was merged with and
into the Municipal Bond Fund of PIMCO Funds in a transaction which took place on
June 26, 1998 and was liquidated in connection with the transaction.
The Trust's investment adviser is PIMCO Advisors L.P. ("PIMCO Advisors" or the
"Adviser"), 800 Newport Center Drive, Newport Beach, California 92660.
This Statement of Additional Information is not a Prospectus, and should be
used in conjunction with the Prospectuses for the Trust, as supplemented from
time to time. Through five Prospectuses, the Trust offers up to six classes of
shares of each of the Funds and five classes of shares of each of the
Portfolios. Class A, Class B and Class C shares of certain Funds are offered
through the "Class A, B and C Prospectus," dated April 1, 1999, Class D shares
of certain Funds are offered through the "Class D Prospectus" dated April 1,
1999, and Institutional and Administrative Class shares of certain Funds are
offered through the "Institutional Prospectus," dated April 1, 1999. Class A,
Class B and Class C shares of the Portfolios are offered through the "Retail
Portfolio Prospectus," dated April 1, 1999, and Institutional and Administrative
Class Shares of the Portfolios are offered through the "Institutional Portfolio
Prospectus," dated April 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." A copy of the applicable Prospectus may be obtained free of
charge at the address and telephone number(s) listed below.
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Institutional and Institutional Class A, B and C; Class D;
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Portfolio Prospectuses: and Retail Portfolio Prospectuses:
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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 Infolink Audio Retail Portfolio - 1-800-426-0107
Response Network)
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TABLE OF CONTENTS
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INVESTMENT OBJECTIVES AND POLICIES............................................................................. 1
U.S. Government Securities............................................................................ 1
Inflation-Indexed Bonds............................................................................... 1
Borrowing............................................................................................. 2
Preferred Stock....................................................................................... 3
Corporate Debt Securities............................................................................. 3
High Yield Securities ("Junk Bonds").................................................................. 4
Loan Participations and Assignments................................................................... 5
Delayed Funding Loans and Revolving Credit Facilities................................................. 6
Hybrid Instruments.................................................................................... 6
Catastrophe Bonds..................................................................................... 6
Participation on Creditors Committees................................................................. 7
Variable and Floating Rate Securities................................................................. 7
Mortgage-Related and Asset-Backed Securities.......................................................... 7
Foreign Securities.................................................................................... 12
Foreign Currencies.................................................................................... 14
Bank Obligations...................................................................................... 15
Commercial Paper...................................................................................... 16
Derivative Instruments................................................................................ 16
When-Issued, Delayed Delivery and Forward Commitment Transactions..................................... 22
Warrants to Purchase Securities....................................................................... 23
Metal-Indexed Notes and Precious Metals............................................................... 23
Repurchase Agreements................................................................................. 24
Securities Loans...................................................................................... 24
Investment Strategies of the Portfolios - Incorporation by Reference.................................. 25
INVESTMENT RESTRICTIONS........................................................................................ 25
Fundamental Investment Restrictions................................................................... 25
Non-Fundamental Investment Restrictions............................................................... 28
MANAGEMENT OF THE TRUST........................................................................................ 30
Trustees.............................................................................................. 30
Officers.............................................................................................. 32
Trustees' Compensation................................................................................ 34
Investment Adviser.................................................................................... 35
Portfolio Management Agreements....................................................................... 38
Fund Administrator.................................................................................... 43
DISTRIBUTION OF TRUST SHARES................................................................................... 47
Distributor and Multi-Class Plan...................................................................... 47
Contingent Deferred Sales Charge and Initial Sales Charge............................................. 48
Distribution and Servicing Plans for Class A, Class B and Class C Shares.............................. 48
Payments Pursuant to Class A Plans.................................................................... 50
Payments Pursuant to Class B Plans.................................................................... 51
Payments Pursuant to Class C Plans.................................................................... 53
Distribution and Administrative Services Plans for Administrative Class Shares........................ 56
Payments Pursuant to the Administrative Plan.......................................................... 57
Plan for Class D Shares............................................................................... 57
Purchases, Exchanges and Redemptions.................................................................. 59
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PORTFOLIO TRANSACTIONS AND BROKERAGE........................................................................... 60
Investment Decisions.................................................................................. 60
Brokerage and Research Services....................................................................... 60
Portfolio Turnover.................................................................................... 63
NET ASSET VALUE................................................................................................ 63
TAXATION....................................................................................................... 63
Distributions......................................................................................... 64
Sales of Shares....................................................................................... 65
Backup Withholding.................................................................................... 66
Options, Futures, Forward Contracts and Swap Agreements............................................... 66
Passive Foreign Investment Companies.................................................................. 66
Foreign Currency Transactions......................................................................... 66
Foreign Taxation...................................................................................... 67
Original Issue Discount............................................................................... 67
Other Taxation........................................................................................ 68
OTHER INFORMATION.............................................................................................. 68
Capitalization........................................................................................ 68
Performance Information............................................................................... 69
Calculation of Yield.................................................................................. 69
Year 2000 and Other Compliance Efforts of the Adviser................................................. 83
Voting Rights ........................................................................................ 84
Certain Ownership of Trust Shares..................................................................... 85
Custodian............................................................................................. 116
Independent Accountants............................................................................... 117
Registration Statement................................................................................ 118
Financial Statements.................................................................................. 118
APPENDIX....................................................................................................... A-1
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INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of each Fund
and each Portfolio are described in the applicable Prospectus(es). Additional
information concerning the characteristics of certain of the Funds' investments
is set forth 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.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the
U.S. Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury securities
(e.g., STRIPs and CUBEs) are direct obligations of the U.S. Government.
INFLATION-INDEXED BONDS
The Balanced Fund may invest in inflation-indexed bonds, which are
fixed income securities whose 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 the
Balanced 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
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times 1.5%). 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. The 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.
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
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connection with such borrowing or to pay a commitment or other fee to maintain a
line of credit; either of these requirements would increase the cost of
borrowing over the stated interest rate.
In addition to borrowing for temporary purposes, a Fund may enter into
reverse repurchase agreements if permitted to do so under its investment
restrictions. A reverse repurchase agreement involves the sale of a
portfolio-eligible security by a Fund, coupled with its agreement to repurchase
the instrument at a specified time and price. The Fund will segregate assets
determined to be liquid by the Adviser or the Fund's sub-adviser. (The Funds'
sub-advisers are referred to herein 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.") in
accordance with procedures established by the Board of Trustees and equal (on a
daily mark-to-market basis) to its obligations under reverse repurchase
agreements with broker-dealers (but not banks). However, reverse repurchase
agreements involve the risk that the market value of securities retained by the
Fund may decline below the repurchase price of the securities sold by the Fund
which it is obligated to repurchase. Reverse repurchase agreements will be
subject to the Funds' limitations on borrowings as specified under "Investment
Restrictions" below.
PREFERRED STOCK
All Funds may invest in preferred stock. Preferred stock is a form of
equity ownership in a corporation. The dividend on a preferred stock is a fixed
payment which the corporation is not legally bound to pay. Certain classes of
preferred stock are convertible, meaning the preferred stock is convertible into
shares of common stock of the issuer. By holding convertible preferred stock, a
Fund can receive a steady stream of dividends and still have the option to
convert the preferred stock to common stock.
CORPORATE DEBT SECURITIES
All Funds may invest in corporate debt securities. The Equity Income,
Value, Tax-Efficient Equity, Value 25, Capital Appreciation, Mid-Cap Growth,
Micro-Cap Growth, Small-Cap Value, Small-Cap Growth, Core Equity, Mid-Cap
Equity, Enhanced Equity, Emerging Markets, Structured Emerging Markets,
Tax-Efficient Structured Emerging Markets and International Developed Funds'
investments in corporate debt securities are limited to short-term corporate
debt securities, except that the Structured Emerging Markets and Tax-Efficient
Structured Emerging Markets Funds may invest up to 5% of their respective net
assets in debt securities of emerging markets issuers. 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.
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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.
The Renaissance, Growth and Balanced Funds may invest a portion of
their assets in fixed income securities rated lower than Baa by Moody's or lower
than BBB by S&P but rated at least B by Moody's or S&P or, if not rated,
determined by the Sub-Adviser to be of comparable quality. In addition, the
Renaissance Fund may invest in convertible securities rated below B by Moody's
or S&P (or, if unrated, considered by the Sub-Adviser to be of comparable
quality). Securities rated lower than Baa by Moody's or lower than BBB by S&P
are sometimes referred to as "high yield" or "junk" bonds. Investors should
consider the risks associated with high yield securities before investing in
these Funds. Although each of the Renaissance and Growth Funds reserves the
right to do so at any time, as of the date of this Statement of Additional
Information, neither Fund invests 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
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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 Renaissance, Growth and Balanced
Funds. While lower rated securities typically are less sensitive to interest
rate changes than higher rated securities, the market prices of high yield/high
risk securities structured as "zero coupon" or "pay-in-kind" securities may be
affected to a greater extent by interest rate changes. See Appendix A to this
Statement of Additional Information for further information regarding high
yield/high risk securities. For instance, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly traded
market. When secondary markets for high yield securities are less liquid than
the market for higher grade securities, it may be more difficult to value the
securities because such valuation may require more research, and elements of
judgment may play a greater role in the valuation because there is less
reliable, objective data available.
Debt securities are purchased and sold principally in response to
current assessments of future changes in business conditions and the levels of
interest rates on debt/fixed income securities of varying maturities, the
availability of new investment opportunities at higher relative yields, and
current evaluations of an issuer's continuing ability to meet its obligations in
the future. The average maturity or duration of the debt/fixed income securities
in a Fund's portfolio may vary in response to anticipated changes in interest
rates and to other economic factors. Securities may be bought and sold in
anticipation of a decline or a rise in market interest rates. In addition, a
Fund may sell a security and purchase another of comparable quality and maturity
(usually, but not always, of a different issuer) at approximately the same time
to take advantage of what are believed to be short-term differentials in values
or yields.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Balanced Fund 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, the 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. The 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 limited marketability
and the risks of being a lender. See "Characteristics and Risks of Securities
and Investment Techniques--Illiquid Securities" in the Class A, B and C and
Institutional Prospectuses for a discussion of the limits on the Balanced Fund's
investments in loan participations and assignments with limited marketability.
If the 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, the Fund's rights against the borrower may be more
limited than those held by the original lender.
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DELAYED FUNDING LOANS AND REVOLVING CREDIT FACILITIES
The Balanced Fund 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 the 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 Balanced Fund 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 the Fund to make a pro rata share of all loans extended to
the borrower and entitles the 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 the 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.
HYBRID INSTRUMENTS
The Balanced Fund 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 the Fund to the credit risk of the issuer of the hybrids. These risks
may cause significant fluctuations in the net asset value of the Fund.
Accordingly, the Fund will not 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,
the 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.
CATASTROPHE BONDS
The Balanced Fund 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
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recover its principal plus interest. For some catastrophe bonds, the trigger
event or losses may be based on companywide 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 the 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 and Institutional Prospectuses. Lack of a
liquid market may impose the risk of higher transaction costs and the
possibility that the Balanced 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.
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 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
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
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private organizations. See "Mortgage Pass-Through Securities" below. Certain
debt securities are also secured with collateral consisting of mortgage-related
securities. See "Collateralized Mortgage Obligations" below.
MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-
related securities differ from other forms of debt securities, which normally
provide for periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these securities provide
a monthly payment which consists of both interest and principal payments. In
effect, these payments are a "pass-through" of the monthly payments made by the
individual borrowers on their residential or commercial mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional payments
are caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
GNMA) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether or not
the mortgagor actually makes the payment.
The rate of prepayments on underlying mortgages will affect the price
and volatility of a mortgage-related security, and may have the effect of
shortening or extending the effective maturity of the security beyond what was
anticipated at the time of purchase. To the extent that unanticipated rates of
prepayment on underlying mortgages increase the effective maturity of a
mortgage-related security, the volatility of such security can be expected to
increase.
The principal governmental guarantor of mortgage-related securities is
the GNMA. GNMA is a wholly owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
(the "FHA"), or guaranteed by the Department of Veterans Affairs (the "VA").
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the FNMA and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA is a government-sponsored corporation
owned entirely by private stockholders. It is subject to general regulation by
the Secretary of Housing and Urban Development. FNMA purchases conventional
(i.e., not insured or guaranteed by any government agency) residential mortgages
from a list of approved seller/services which include state and federally
chartered savings and loan associations, mutual savings banks, commercial banks,
and credit unions and mortgage bankers. Pass-through securities issued by FNMA
are guaranteed as to timely payment of principal and interest by FNMA but are
not backed by the full faith and credit of the United States Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or services of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
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
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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-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.
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
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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. 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.
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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 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
Receivables(SM) ("CARS(SM)"). CARS(SM) represent undivided fractional interests
in a trust whose assets consist of a pool of motor vehicle retail installment
sales contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARS(SM) are passed through monthly to
certificate holders, and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the trust. An investor's return on CARS(SM)
may be affected by early prepayment of principal on the underlying vehicle sales
contracts. If the letter of credit is exhausted, the trust may be prevented from
realizing the full amount due on a sales contract because of state law
requirements and restrictions relating to foreclosure sales of vehicles and the
obtaining of deficiency judgments following such sales or because of
depreciation, damage or loss of a vehicle, the application of federal and state
bankruptcy and insolvency laws, or other factors. As a result, certificate
holders may experience delays in payments or losses if the letter of credit is
exhausted.
Consistent with a Fund's investment objectives and policies, the
Adviser and Sub-Adviser also may invest in other types of asset-backed
securities.
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FOREIGN SECURITIES
The Emerging Markets, Structured Emerging Markets, Tax-Efficient
Structured Emerging Markets, International Developed, International Growth and
International Funds may invest in U.S. dollar or foreign currency-denominated
corporate debt securities of foreign issuers; preferred securities of foreign
issuers; certain foreign bank obligations; and U.S. dollar- or foreign
currency-denominated obligations of foreign governments or their subdivisions,
agencies and instrumentalities, international agencies and supranational
entities. The Emerging Markets, Structured Emerging Markets, Tax-Efficient
Structured Emerging Markets, International Developed, International Growth,
International and Precious Metals Funds may also invest in common stocks issued
by foreign companies. The Precious Metals Fund may invest primarily in
securities of foreign issuers, securities denominated in foreign currencies,
securities principally traded on securities markets outside of the United States
and in securities of foreign issuers that are traded on U.S. securities markets.
The Renaissance, Core Equity, Mid-Cap Equity, Growth, Target, Opportunity and
Innovation Funds each may invest up to 15% of their respective net assets in
securities which are traded principally in securities markets outside the United
States (Eurodollar certificates of deposit are excluded for purposes of these
limitations), and (except for the Core Equity and Mid-Cap Equity Funds) may
invest without limit in securities of foreign issuers that are traded in U.S.
securities markets. The Enhanced Equity Fund may invest in common stock of
foreign issuers if it is included in the index from which stocks are selected.
The Balanced Fund may invest up to 20% of its assets allocated for investment in
fixed income securities in securities denominated in foreign currencies, and may
invest beyond this limit in U.S. dollar-denominated securities of foreign
issuers.
Each of the Funds may invest in American Depository Receipts ("ADRs").
The Renaissance, Growth, Target, Core Equity, Mid-Cap Equity, Opportunity,
Innovation, Emerging Markets, Structured Emerging Markets, Tax-Efficient
Structured Emerging Markets, International Developed, 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; higher rates of inflation; less government
supervision and regulation of the securities markets and participants in those
markets; controls on foreign investment and limitations on repatriation of
invested capital and on the Fund's ability to exchange local currencies for U.S.
dollars; unavailability of currency hedging techniques in certain emerging
market countries; the fact that companies in emerging market countries may be
smaller, less seasoned and newly organized companies; the difference in, or lack
of, auditing and financial reporting standards, which may result in
unavailability of material information about issuers; the risk that it may be
more difficult to obtain and/or enforce a judgment in a court outside the United
States; and greater price volatility, substantially less liquidity and
significantly smaller market capitalization of securities markets.
SPECIAL RISKS OF INVESTING IN RUSSIAN AND OTHER EASTERN EUROPEAN
SECURITIES. The International, International Growth, Emerging Markets,
Tax-Efficient Structured Emerging Markets and Structured Emerging Markets Funds
may invest a portion of their assets in securities of issuers located in Russia
and in other Eastern European countries. The political, legal and operational
risks of investing in the securities of Russian and other Eastern European
issuers, and of having assets custodied within these countries, may be
particularly acute. Investments in Eastern European countries may involve acute
risks of nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. Also, certain Eastern European countries, which do not have market
economies, are characterized by an absence of developed legal structures
governing private and foreign investments and private property.
In addition, governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
a Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the 1940 Act
to act as foreign custodians of the Fund's cash and securities, the Fund's
investment in such countries may be limited or may be required to be effected
through intermediaries. The risk of loss through governmental confiscation may
be increased in such circumstances.
Investments in securities of Russian issuers may involve a particularly
high degree of risk and special considerations not typically associated with
investing in U.S. and other more developed markets, many of which stem from
Russia's continuing political and economic instability and the slow-paced
development of its market economy. Investments in Russian securities should be
considered highly speculative. Such risks and special considerations include:
(a) delays in settling portfolio transactions and the risk of loss arising out
of Russia's system of share registration and custody (see below); (b)
pervasiveness of corruption, insider trading, and crime in the Russian economic
system; (c) difficulties associated in obtaining accurate market valuations of
many Russian securities, based partly on the limited amount of publicly
available information; (d) the general financial condition of Russian companies,
which may involve particularly large amounts of inter-company debt; and (e) the
risk that the Russian tax system will not be reformed to prevent inconsistent,
retroactive and/or exorbitant taxation or, in the alternative, the risk that a
reformed tax system may result in the inconsistent and unpredictable enforcement
of the new tax laws. Also, there is the risk that the government of Russia or
other executive or legislative bodies may decide not to continue to support the
economic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries at the expense of other sectors or investors, a
return to the centrally planned economy that existed prior to the dissolution of
the Soviet Union, or the nationalization of privatized enterprises.
A risk of particular note with respect to direct investment in Russian
securities is the way in which ownership of shares of companies is normally
recorded. Ownership of shares (except where shares are held through depositories
that meet the requirements of the 1940 Act) is defined according to entries in
the company's share register and normally evidenced by extracts from the
register or, in certain limited circumstances, by formal share certificates.
However, there is no central registration system for shareholders and these
services are carried out by the companies themselves or by registrars located
throughout Russia. These registrars are not necessarily subject to
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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 Developed, International
Growth, Emerging Markets, Structured Emerging Markets, Tax-Efficient Structured
Emerging Markets, Precious Metals and Balanced Funds may enter into forward
foreign currency exchange contracts to reduce the risks of adverse changes in
foreign exchange rates. In addition, the Emerging Markets, Structured Emerging
Markets, Tax-Efficient Structured Emerging Markets, International, International
Developed, International Growth, Balanced and Precious Metals Funds may buy and
sell foreign currency futures contracts and options on foreign currencies and
foreign currency futures.
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.
The International, International Developed, International Growth,
Emerging Markets, Structured Emerging Markets and Tax-Efficient Structured
Emerging Markets Funds may also enter into forward foreign currency exchange
contracts for purposes of increasing exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one currency to another. To the
extent that they do so, the International, International Developed, Emerging
Markets, Structured Emerging Markets and Tax-Efficient Structured Emerging
Markets Funds will be subject to the additional risk that the relative value of
currencies will be different than anticipated by the particular Fund's
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
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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 recent
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 be ready by the scheduled launch
date, the creation of suitable clearing and settlement payment systems for the
new currency, the valuation and legal treatment of outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro and 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, Emerging Markets, Structured Emerging
Markets, Tax-Efficient Structured Emerging Markets, International Developed,
International Growth, Precious Metals and Balanced Funds limit their investments
in foreign bank obligations to obligations of foreign banks (including United
States branches of foreign banks) which at the time of investment (i) have more
than $10 billion, or the equivalent in other currencies, in total assets; (ii)
are among the 75 largest foreign banks in the world in terms of total assets;
(iii) have branches or agencies (limited purpose offices which do not offer all
banking services) in the United States; and (iv) in the opinion of the relevant
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.
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Obligations of foreign banks involve certain risks associated with
investing in foreign securities described under "Foreign Securities" above,
including the possibilities that their liquidity could be impaired because of
future political and economic developments, that their obligations may be less
marketable than comparable obligations of United States banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
United States banks. Foreign banks are not generally subject to examination by
any U.S. Government agency or instrumentality.
COMMERCIAL PAPER
All Funds may invest in commercial paper. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations and finance companies. The commercial paper
purchased by the Funds consists of U.S. dollar-denominated obligations of
domestic issuers, or, additionally for the Renaissance, Growth, Target, Core
Equity, Mid-Cap Equity, Opportunity, Innovation, Emerging Markets, Structured
Emerging Markets, Tax-Efficient Structured Emerging Markets, International,
International Developed and International Growth, Precious Metals and Balanced
Funds, foreign currency-denominated obligations of domestic or foreign issuers
which, at the time of investment, are (i) rated "P-1" or "P-2" by Moody's or
"A-1" or "A-2" or better by S&P, (ii) issued or guaranteed as to principal and
interest by issuers or guarantors having an existing debt security rating of "A"
or better by Moody's or "A" or better by S&P, or (iii) securities which, if not
rated, are, in the opinion of the 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.
DERIVATIVE INSTRUMENTS
The following describes certain derivative instruments and products in
which the Funds may invest (to the extent described in the Prospectuses and
under "Investment Restrictions" below) and risks associated therewith.
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. A Fund may, to the extent specified
for the Fund in the Prospectuses and under "Investment Restrictions" below,
purchase and sell both put and call options on fixed income or other securities
or indexes in standardized contracts traded on foreign or domestic securities
exchanges, boards of trade, or similar entities, or quoted on National
Association of Securities Dealers Automated Quotations ("NASDAQ") or on a
regulated foreign over-the-counter market, and agreements, sometimes called cash
puts, which may accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the holder
of the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect features of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.)
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<PAGE>
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). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when the
Fund desires.
A Fund will realize a capital gain from a closing purchase transaction
if the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or
index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an
asset of the Fund. The premium received for an option written by a Fund is
recorded as a deferred credit. The value of an option purchased or written is
marked to market daily and is valued at the closing price on the exchange on
which it is traded or, if not traded on an exchange or no closing price is
available, at the mean between the last bid and asked prices.
OTC OPTIONS. The Renaissance, Growth, Target, Opportunity, Innovation,
International, International Growth and Precious Metals 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. The Funds will treat the
amount by which such formula price exceeds the intrinsic value of the option
(i.e., the amount, if any, by which the market price of the underlying security
exceeds the exercise price of the option) as an illiquid investment.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDEXES. There are
several risks associated with transactions in options on securities and on
indexes. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
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<PAGE>
There can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. If a Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option may expire worthless. If a Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise. As the writer of a covered call option, a Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased by a Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased. Except
to the extent that a call option on an index written by the Fund is covered by
an option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
FOREIGN CURRENCY OPTIONS. Each of the Funds that may buy or sell
foreign currencies may buy or sell put and call options on foreign currencies
either on exchanges or in the over-the-counter market. A put option on a foreign
currency gives the purchaser of the option the right to sell a foreign currency
at the exercise price until the option expires. A call option on a foreign
currency gives the purchaser of the option the right to purchase the currency at
the exercise price until the option expires. Currency options traded on U.S. or
other exchanges may be subject to position limits which may limit the ability of
a Fund to reduce foreign currency risk using such options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Fund may use
interest rate, foreign currency or index futures contracts, as specified in the
Prospectuses. An interest rate, foreign currency or index futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument, foreign currency or the cash value
of an index at a specified price and time.
For instance, futures contract on a securities index (an "Index
Future") is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to the difference between the value of a
securities index ("Index") at the close of the last trading day of the contract
and the price at which the index contract was originally written. Although the
value of an Index might be a function of the value of certain specified
securities, no physical delivery of these securities is made. A unit is the
value of the relevant Index from time to time. Entering into a contract to buy
units is commonly referred to as buying or purchasing a contract or holding a
long position in an Index. Index Futures contracts can be traded through all
major commodity brokers. A Fund's purchase and sale of Index Futures is limited
to contracts and exchanges which have been approved by the CFTC. A Fund will
ordinarily be able to close open positions on the futures exchange on which
Index Futures are then traded at any time up to and including the expiration
day. As described below, a Fund will be required to 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 the price of the relevant Index has risen, that position will have
increased in value and the Fund will receive from the broker a variation margin
payment equal to that increase in value. Conversely, when a Fund has purchased
an Index Future and the price of the relevant Index has declined, the position
would be less valuable and the Fund would be required to make a variation margin
payment to the broker.
The following example illustrates generally the manner in which Index
Futures operate. The Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock Exchange.
The S&P 100 Index assigns relative weightings to the common stocks included in
the Index, and the Index fluctuates with changes in the market values of those
common stocks. In the case of the S&P 100 Index, contracts are to buy or sell
100 units. Thus, if the value of the S&P 100 Index were $180, one contract would
be worth $18,000 (100 units x $180). The Index Future specifies that no delivery
of the actual stocks making up the Index will take place. Instead, settlement in
cash must occur upon the termination of the contract, with the settlement being
the difference between the contract price and the actual level of the Index at
the expiration of the contract. For example, if a Fund enters into a futures
contract to buy 100 units of the S&P 100 Index at a specified
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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, assuming all
contractual obligations have been satisfied. Each Fund expects to earn interest
income on its initial margin deposits. A futures contract held by a Fund is
valued daily at the official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called "variation margin,"
equal to the daily change in value of the futures contract. This process is
known as "marking to market." Variation margin does not represent a borrowing or
loan by a Fund but is instead a settlement between the Fund and the broker of
the amount one would owe the other if the futures contract expired.
In computing daily net asset value, each Fund will mark to market its open
futures positions.
A Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (i.e.,
with the same exchange, underlying security or index, and delivery month). If an
offsetting purchase price is less than the original sale price, the Fund
realizes a capital gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund realizes a capital gain, or if it is less, the Fund realizes a
capital loss. Any transaction costs must also be included in these calculations.
LIMITATIONS ON USE OF FUTURES AND FUTURES OPTIONS. The Funds may enter
into positions in futures contracts and related options for "bona fide hedging"
purposes. In addition, certain Funds may utilize futures
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contracts for investment purposes. For instance, the Emerging Markets,
International Developed, International, International Growth, Structured
Emerging Markets and Tax-Efficient Structured Emerging Markets Funds may invest
to a significant degree in Index Futures on stock indexes and related options
(including those which may trade outside of the United States) as an alternative
to purchasing individual stocks in order to adjust their exposure to a
particular market. With respect to positions in futures and related options that
do not constitute bona fide hedging positions, a Fund will not enter into a
futures contract or futures option contract if, immediately thereafter, the
aggregate initial margin deposits relating to such positions plus premiums paid
by it for open futures option positions, less the amount by which any such
options are "in-the-money," would exceed 5% of the Fund's net assets. A call
option is "in-the-money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in-the-money"
if the exercise price exceeds the value of the futures contract that is the
subject of the option.
When purchasing a futures contract, a Fund will 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 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. 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
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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.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a futures or a futures option position, and that
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
ADDITIONAL RISKS OF OPTIONS ON SECURITIES, FUTURES CONTRACTS, OPTIONS
ON FUTURES CONTRACTS AND FORWARD CURRENCY EXCHANGE CONTRACTS AND OPTIONS
THEREON. Options on securities, futures contracts, options on futures contracts,
and options on currencies may be traded on foreign exchanges. Such transactions
may not be regulated as effectively as similar transactions in the United
States; may not involve a clearing mechanism and related guarantees; and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities. Some foreign exchanges may be principal markets so that
no common clearing facility exists and a trader may look only to the broker for
performance of the contract. The value of such positions also could be adversely
affected by (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Trust's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) lesser
trading volume. In addition, unless a Fund hedges against fluctuations in the
exchange rate between the U.S. dollar and the currencies in which trading is
done on foreign exchanges, any profits that a Fund might realize in trading
could be eliminated by adverse changes in the exchange rate, or the Fund could
incur losses as a result of those changes.
SWAP AGREEMENTS. The Tax-Efficient Equity, Emerging Markets, Structured
Emerging Markets, Tax-Efficient Structured Emerging Markets and International
Developed Funds may enter into equity index swap agreements for purposes of
attempting to gain exposure to the stocks making up an index of securities in a
market without actually purchasing those stocks. The Balanced Fund may enter
into swap agreements to hedge against changes in interest rates, foreign
currency exchange rates or securities prices. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or "swapped" between the parties are calculated
with respect to a "notional amount," i.e., the return on or increase in value of
a particular dollar amount invested in a "basket" of securities representing a
particular index.
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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 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
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of the security to be purchased declines prior to the settlement date, which
risk is in addition to the risk of decline in value of the Fund's other assets.
A Fund may dispose of a commitment prior to settlement and may realize short-
term profits or losses upon such disposition.
WARRANTS TO PURCHASE SECURITIES
Certain Funds may invest in warrants to purchase equity or fixed income
securities. Bonds with warrants attached to purchase equity securities have many
characteristics of convertible bonds and their prices may, to some degree,
reflect the performance of the underlying stock. Bonds also may be issued with
warrants attached to purchase additional fixed income securities at the same
coupon rate. A decline in interest rates would permit a Fund to buy additional
bonds at the favorable rate or to sell the warrants at a profit. If interest
rates rise, the warrants would generally expire with no value.
METAL-INDEXED NOTES AND PRECIOUS METALS
The Precious Metals Fund may invest in notes, the principal amount or
redemption price of which is indexed to, and thus varies directly with, changes
in the market price of gold bullion or other precious metals ("Metal-Indexed
Notes"). It is expected that the value of Metal-Indexed Notes will be as
volatile as the price of the underlying metal.
The Precious Metals Fund will only purchase Metal-Indexed Notes which
are rated investment grade or are issued by issuers that have outstanding debt
obligations rated investment grade or commercial paper rated in the top rating
category by any NRSRO, or Metal-Indexed Notes issued by issuers that the
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.
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Any Metal-Indexed Notes which the Precious Metals Fund might purchase
generally will have maturities of one year or less. Such notes, however, will be
subject to being called for redemption by the issuer on relatively short notice.
In addition, it is expected that the Metal-Indexed Notes will be subject to
being put by the Precious Metals Fund to the issuer or to a stand-by broker
meeting the credit standards set forth above, with payments being received by
the Precious Metals Fund on no more than seven days' notice. A stand-by broker
might be a securities broker-dealer, in which case the Precious Metals Fund's
investment will be limited by applicable regulations of the Securities and
Exchange Commission (the "SEC"). The put feature of the Metal-Indexed Notes will
ensure liquidity even in the absence of a secondary trading market. The
securities will be repurchased upon exercise of the holder's put at the
specified exercise price, less repurchase fees, if any, which are not expected
to exceed 1% of the redemption or repurchase proceeds. Depending upon the terms
of particular Metal-Indexed Notes, there might be a period as long as five days
between the date upon which the Precious Metals Fund notifies the issuer of the
exercise of the put and determination of the sale price.
It is expected that any Metal-Indexed Notes which the Precious Metals
Fund might purchase will bear interest or pay preferred dividends at relatively
nominal rates under 2% per annum. The Precious Metals Fund's holdings of such
senior securities therefore would not generate appreciable current income, and
the return from such senior securities would be primarily from any profit on the
sale or maturity thereof at a time when the price of the relevant precious metal
is higher than it was when the senior securities were purchased.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements with domestic
commercial banks or registered broker/dealers. A repurchase agreement is a
contract under which a Fund would acquire a security for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). In the case of repurchase
agreements with broker-dealers, the value of the underlying securities (or
collateral) will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. The Fund bears a risk of
loss in the event that the other party to a repurchase agreement defaults on its
obligations and the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities. The Adviser and the Sub-Advisers, as
appropriate, will monitor the creditworthiness of the counter parties.
SECURITIES LOANS
Subject to certain conditions described in the Prospectuses, each of
the Equity Income, Value, Tax-Efficient Equity, Enhanced Equity, Value 25,
Capital Appreciation, Mid-Cap Growth, Small-Cap Value, Small-Cap Growth, Core
Equity, Mid-Cap Equity, Target, Micro-Cap Growth, International Developed,
Emerging Markets, Structured Emerging Markets, Tax-Efficient Structured Emerging
Markets and Balanced Funds may make secured loans of its portfolio securities
amounting to no more than 33a% 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 at least equal at all times to the market
value of the securities lent. The borrower pays to the lending Fund an amount
equal to any dividends or interest received on the securities lent. The Fund may
invest only the cash collateral received in interest-bearing, short-term
securities or receive a fee from the borrower. In the case of cash collateral,
the Fund typically pays a rebate to the lender. Although voting rights or rights
to consent with respect to the loaned securities pass to the borrower, the Fund
retains the right to call the loans at any time on reasonable notice, and it
will do so in order that the securities may be voted by the Fund if the holders
of such securities are asked to vote upon or consent to matters materially
affecting the investment. The Fund may also call such loans in order to sell the
securities involved.
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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
(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
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than 25% of its assets in companies which use innovative technologies to gain a
strategic, competitive advantage in their industry as well as companies that
provide and service those technologies.
The investment objective of each of the above-referenced Funds and the
Tax-Efficient Equity, Value 25 and Tax-Efficient Structured Emerging Markets
Funds is non-fundamental and may be changed with respect to each such Fund by
the Trustees without shareholder approval.
The investment restrictions set forth below are fundamental policies of
each of the Equity Income, Value, Tax-Efficient Equity, Enhanced Equity, Value
25, Capital Appreciation, Mid-Cap Growth, Small-Cap Value, Small-Cap Growth,
Core Equity, Mid-Cap Equity, Micro-Cap Growth, International Developed, Emerging
Markets, Tax-Efficient Structured Emerging Markets, Structured Emerging Markets
and Balanced Funds, and may not be changed with respect to any such Fund without
shareholder approval by vote of a majority of the outstanding shares of that
Fund. The investment objective of each of these Funds (with the exception of the
Tax-Efficient Equity, Value 25 and Tax-Efficient Structured Emerging Markets
Funds) is also fundamental and may not be changed without such shareholder
approval. Under the following restrictions, none of the above-mentioned Funds
may:
(1) invest in a security if, as a result of such investment, more than
25% of its total assets (taken at market value at the time of such investment)
would be invested in the securities of issuers in any particular industry,
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities (or repurchase
agreements with respect thereto);
(2) with respect to 75% of its assets, invest in a security if, as a
result of such investment, more than 5% of its total assets (taken at market
value at the time of such investment) would be invested in the securities of any
one issuer, except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities;
(3) with respect to 75% of its assets, invest in a security if, as a
result of such investment, it would hold more than 10% (taken at the time of
such investment) of the outstanding voting securities of any one issuer, except
that this restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities;
(4) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
in the real estate industry or which invest in real estate or interests therein;
(5) purchase or sell commodities or commodities contracts (which, for
the purpose of this restriction, shall not include foreign currency or forward
foreign currency contracts or swap agreements), except that any such Fund may
engage in interest rate futures contracts, stock index futures contracts,
futures contracts based on other financial instruments or one or more groups of
instruments, and on options on such futures contracts;
(6) purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but it
may make margin deposits in connection with transactions in options, futures,
and options on futures, and except that effecting short sales will be deemed not
to constitute a margin purchase for purposes of this restriction;
(7) borrow money, or pledge, mortgage or hypothecate its assets, except
that a Fund may (i) borrow from banks or enter into reverse repurchase
agreements, or employ similar investment techniques, and pledge its assets in
connection therewith, but only if immediately after each borrowing and
continuing thereafter, there is asset coverage of 300% and (ii) enter into
reverse repurchase agreements and transactions in options, futures, options on
futures, and forward foreign currency contracts as described in the Prospectuses
and in this Statement of Additional Information (the deposit of assets in escrow
in connection with the writing of covered put and call options and the purchase
of securities on a when-issued or delayed delivery basis and collateral
arrangements with respect to initial
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or variation margin deposits for futures contracts, options on futures
contracts, and forward foreign currency contracts will not be deemed to be
pledges of such Fund's assets);
(8) issue senior securities, except insofar as such Fund may be deemed
to have issued a senior security by reason of borrowing money in accordance with
the Fund's borrowing policies, and except for purposes of this investment
restriction, collateral, escrow, or margin or other deposits with respect to the
making of short sales, the purchase or sale of futures contracts or related
options, purchase or sale of forward foreign currency contracts, and the writing
of options on securities are not deemed to be an issuance of a senior security;
(9) lend any funds or other assets, except that such Fund may,
consistent with its investment objective and policies: (a) invest in debt
obligations, including bonds, debentures, or other debt securities, bankers'
acceptances and commercial paper, even though the purchase of such obligations
may be deemed to be the making of loans, (b) enter into repurchase agreements
and reverse repurchase agreements, and (c) lend its portfolio securities in an
amount not to exceed one-third of the value of its total assets, provided such
loans are made in accordance with applicable guidelines established by the SEC
and the Trustees of the Trust; or
(10) act as an underwriter of securities of other issuers, except to
the extent that in connection with the disposition of portfolio securities, it
may be deemed to be an underwriter under the federal securities laws.
Notwithstanding the provisions of fundamental investment restrictions
(7) and (8) above, a Fund may borrow money for temporary administrative
purposes. To the extent that borrowings for temporary administrative purposes
exceed 5% of the total assets of a Fund, such excess shall be subject to the
300% asset coverage requirement of fundamental investment restriction (7).
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.);
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<PAGE>
(3) make short sales of securities or maintain a short position for the
account of a Fund unless at all times when a short position is open such Fund
owns an equal amount of such securities or owns or has the right to acquire
securities which, without payment of any further consideration, are convertible
into or exchangeable for securities of the same issue as, and equal in amount
to, the securities sold short;
(4) purchase or sell commodities or commodity contracts except that a Fund
may purchase and sell financial futures contracts and related options and the
Precious Metals Fund may purchase and sell precious metals and other commodities
and futures thereon;
(5) with respect to the Renaissance, Growth, Target, Opportunity,
Innovation, International, International Growth and Precious Metals Funds, make
loans, except by purchase of debt obligations or by entering into repurchase
agreements or through the lending of the Fund's portfolio securities with
respect to not more than 25% of its total assets (33 1/3% in the case of the
Target Fund);
(6) with respect to the Renaissance, Growth, Target, Opportunity,
Innovation, International, International Growth and Precious Metals Funds, and
in each case with respect to 75% of such Fund's total assets, invest in
securities of any issuer if, immediately after such investment, more than 5% of
the total assets of such Fund (taken at current value) would be invested in the
securities of such issuer; provided that this limitation does not apply to bank
certificates of deposit or to obligations issued or guaranteed as to interest
and principal by the U.S. government or its agencies or instrumentalities;
(7) purchase securities the disposition of which is restricted under the
federal securities laws (excluding for purposes of this restriction securities
offered and sold pursuant to Rule 144A of the 1933 Act and Section 4(2)
commercial paper) if, as a result, such investments would exceed 15% of the
value of the net assets of the relevant Fund;
(8) write (sell) or purchase options except that each Fund may (a) write
covered call options or covered put options on securities that it is eligible to
purchase and enter into closing purchase transactions with respect to such
options, and (b) in combination therewith, or separately, purchase put and call
options on securities it is eligible to purchase, and (c) each Fund may engage
in options on securities indexes, options on foreign currencies, options on
futures contracts, and options on other financial instruments or one or more
groups of instruments; provided that the premiums paid by each Fund on all
outstanding options it has purchased do not exceed 5% of its total assets. Each
Fund may enter into closing sale transactions with respect to options it has
purchased;
(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
-29-
<PAGE>
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 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
The Trustees of the Trust, their ages, and a description of their principal
occupations during the past five years are listed below. Except as shown, each
Trustee's principal occupation and business experience for the last five years
have been with the employer(s) indicated, although in some cases the Trustee may
have held different positions with such employer(s).
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------
<S> <C>
E. Philip Cannon Proprietor, Cannon & Company, an affiliate of Inverness Management
3838 Olympia LLC, a private equity investment firm. Formerly, Headmaster, St. John's
Houston, TX 77019 School, Houston, Texas, Trustee of PIMCO Advisors Funds ("PAF") and
Age 58 Cash Accumulation Trust ("CAT"), General Partner, J.B. Poindexter &
Co., Houston, Texas (private partnership), and Partner, Iberia Petroleum
Company (oil and gas production). Mr. Cannon was a director of WNS
Inc., a retailing company which filed a petition in bankruptcy within the last
five years.
- -----------------------------------------------------------------------------------------------------------
Donald P. Carter Formerly, Trustee of PAF and CAT, Chairman, Executive Vice President
434 Stable Lane and Director, Cunningham & Walsh, Inc., Chicago (advertising agency).
Lake Forest, IL 60045
Age 71
- -----------------------------------------------------------------------------------------------------------
Gary A. Childress Private investor. Formerly, Chairman and Director, Bellefonte Lime
11 Longview Terrace Company, Inc. Mr. Childress is a partner in GenLime, L.P., a private
Madison, CT 06443 limited partnership, which has filed a petition in bankruptcy within the last
Age 65 five years. Formerly, Trustee of PAF and CAT.
- -----------------------------------------------------------------------------------------------------------
William D. Cvengros* Chairman of the Board of the Trust; Chief Executive Officer, President, and
800 Newport Center Drive member of the Management Board, PIMCO Advisors; President and Chief
Newport Beach, CA 92660 Executive Officer, Value Advisors LLC; Co-Chairman, The Emerging
Age 50 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 Advisors Funds plc, 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).
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-30-
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------
Richard L. Nelson President, Nelson Financial Consultants; Director, Wynn's International,
8 Cherry Hills Lane Inc.; and Trustee, Pacific Select Fund. Formerly, Partner, Ernst & Young.
Newport Beach, CA 92660
Age 69
- -----------------------------------------------------------------------------------------------------------
Lyman W. Porter Professor of Management at the University of California, Irvine; and
2639 Bamboo Street Trustee, Pacific Select Fund.
Newport Beach, CA 92660
Age 69
- -----------------------------------------------------------------------------------------------------------
Alan Richards Retired Chairman of E.F. Hutton Insurance Group; Former Director of E.F. Hutton and
7381 Elegans Place Company, Inc.; Chairman of IBIS Capital, LLC; Director, Inspired Arts,Inc.; Former
Carlsbad, CA 92009 Director of Western National Corporation.
Age 69
- -----------------------------------------------------------------------------------------------------------
Joel Segall Formerly, Trustee of PAF and CAT, President and University Professor,
11 Linden Shores Bernard M. Baruch College, The City University of New York; Deputy
Branford, CT 06405 Under Secretary for International Affairs, United States Department of
Age 76 Labor; Professor of Finance, University of Chicago; and Board of
Managers, Coffee, Sugar and Cocoa Exchange.
- -----------------------------------------------------------------------------------------------------------
W. Bryant Stooks President, Bryant Investments, Ltd.; Director, American Agritec LLC; and
1530 E. Montebello Director, Valley Isle Excursions, Inc. Formerly, Trustee of PAF and CAT,
Phoenix, AZ 85014 President, Senior Vice President, Director and Chief Executive Officer,
Age 58 Archirodon Group Inc.; Partner, Arthur Andersen & Co.
- -----------------------------------------------------------------------------------------------------------
Gerald M. Thorne Director, UPI Inc. and American Orthodontics Corp. Formerly, Trustee of
5 Leatherwood Lane PAF and CAT, Director, Kaytee, Inc., President and Director, Firstar
Savannah, GA 31414 National Bank of Milwaukee; Chairman, President and Director, Firstar
Age 60 National Bank of Sheboygan; Director, Bando-McGlocklin.
- -----------------------------------------------------------------------------------------------------------
Stephen J. Treadway* President and Chief Executive Officer of the Trust; Executive Vice
2187 Atlantic Street President, PIMCO Advisors; Chairman and President, PIMCO Funds
Stamford, CT 06902 Distributors LLC ("PFDLLC"); President, The Emerging Markets Income
Age 51 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.;
Executive Vice President, Value Advisors LLC; Chairman, Municipal
Advantage Fund, Inc. and The Central European Value Fund, Inc.
Formerly, Trustee, President and Chief Executive Officer of CAT;
Executive Vice President, Smith Barney Inc.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Trustee is an "interested person" of the Trust (as defined in Section
2(a)(19) of the 1940 Act).
-31-
<PAGE>
OFFICERS
The chart below sets forth the name, address, age, position with the Trust,
and principal occupation during the past five years of each officer of the
Trust. Unless otherwise indicated, the business address of all persons listed
below is 840 Newport Center Drive, Suite 300, Newport Beach, California 92660:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITION(S) WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST
TRUST FIVE YEARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Stephen J. Treadway Trustee, President and Executive Vice President, PIMCO Advisors;
2187 Atlantic Street Chief Executive Officer Chairman and President, PFDLLC;
Stamford, CT 06902 Executive Vice President, Value Advisors
Age 51 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 39 President Director, Pacific Investment Management
Company ("Pacific Investment
Management"); Trustee and President,
PIMCO Variable Insurance Trust; Director
and President, PIMCO Commercial
Mortgage Securities Trust, Inc.; Director,
PIMCO Advisors Funds plc; and Director,
PIMCO Global Advisors (Ireland) Limited.
Formerly, Executive Vice President, Pacific
Investment Management, PAF and CAT.
- -----------------------------------------------------------------------------------------------
</TABLE>
-32-
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Newton B. Schott, Jr. Vice President and Executive Vice President, Chief
2187 Atlantic Street Secretary Administrative Officer, General Counsel and
Stamford, CT 06902 Secretary, PFDLLC; Senior Vice President,
Age 56 Value 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, Senior Vice President-Legal and
Secretary, PIMCO Advisors; Executive
Vice President, Secretary and General
Counsel, Thomson Advisory Group and
PIMCO Advisors.
- -----------------------------------------------------------------------------------------------
Jeffrey M. Sargent Vice President Vice President and Manager Shareholder
Age 36 Services and Fund Administration, Pacific
Investment Management; Senior Vice
President of PIMS; Senior Vice President,
PIMCO Variable Insurance Trust; and
Senior Vice President, PIMCO Commercial
Mortgage Securities Trust, Inc.
- -----------------------------------------------------------------------------------------------
Richard M. Weil Vice President General Counsel, PIMCO Advisors.
Age 35 Formerly, Vice President, Bankers Trust
Company; Associate, Simpson, Thatcher &
Bartlett.
- -----------------------------------------------------------------------------------------------
John P. Hardaway Treasurer Senior Vice President and Manager of Fund
Age 41 Operations/Pacific Investment Management;
Treasurer of PIMS; Treasurer, PIMCO
Variable Insurance Trust; Treasurer, PIMCO
Commercial Mortgage Securities Trust, Inc.
Formerly, Treasurer of PAF and CAT.
- -----------------------------------------------------------------------------------------------
Joseph D. Hattesohl Assistant Treasurer Vice President and Manager of Fund
Age 35 Taxation, Pacific Investment Management;
Assistant Treasurer, PIMS; Assistant
Treasurer of PIMCO Variable Insurance
Trust; and Assistant Treasurer, PIMCO
Commercial Mortgage Securities Trust, Inc.
Formerly, Director of Financial Reporting,
Carl I. Brown & Co.; Tax Manager, Price
Waterhouse LLP.
- -----------------------------------------------------------------------------------------------
</TABLE>
-33-
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Garlin G. Flynn Assistant Secretary Specialist, PIMCO Funds Administration;
Age 52 Secretary, PIMS; Secretary, PIMCO
Variable Insurance Trust; and Secretary,
PIMCO Commercial Mortgage Securities
Trust, Inc. Formerly, Senior Fund
Administrator, Pacific Investment
Management; Senior Mutual Fund Analyst,
PIMCO Advisors Institutional Services;
Senior Mutual Fund Analyst, Pacific
Financial Asset Management Corporation.
- -----------------------------------------------------------------------------------------------
</TABLE>
TRUSTEES' COMPENSATION
Trustees other than those affiliated with PIMCO Advisors, a Sub-Adviser, or
Pacific Investment Management, receive an annual retainer of $45,000, plus
$2,000 for each Board of Trustees meeting attended, and $500 for each Audit and
Performance Committee meeting attended, plus reimbursement of related expenses.
Each Audit and Performance Committee member receives an additional annual
retainer of $1,000, the Chairman of the Audit and Performance Committees
receives an additional annual retainer of $2,000, the Chairman of the
Independent Trustees receives an additional annual retainer of $6,000, and each
Vice Chairman of the entire Board receives an additional annual retainer of
$3,000. Trustees do not currently receive any pension or retirement benefits
from the Trust or the Fund Complex (see below). The Trust has adopted a
deferred compensation plan for the Trustees, which went into place during 1997,
which permits the Trustees to defer their receipt of compensation from the
Trust, at their election, in accordance with the terms of the plan.
-34-
<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, 1998:
<TABLE>
<CAPTION>
--------------------------- ---------------------- ---------------------
(1) (2) (3)
TOTAL
AGGREGATE COMPENSATION
NAME OF TRUSTEE COMPENSATION FROM FROM TRUST AND
TRUST FUND COMPLEX1
--------------------------- ---------------------- ---------------------
<S> <C> <C>
E. Philip Cannon/2/ $51,600 $60,000
--------------------------- ---------------------- ---------------------
Donald P. Carter $58,425 $65,500
--------------------------- ---------------------- ---------------------
Gary A. Childress $51,600 $60,000
--------------------------- ---------------------- ---------------------
Gary L. Light/3/ $38,700 $45,500
--------------------------- ---------------------- ---------------------
Richard L. Nelson $51,275 $93,000
--------------------------- ---------------------- ---------------------
Lyman W. Porter/2/ $49,900 $90,500
--------------------------- ---------------------- ---------------------
Alan Richards $56,100 $98,500
--------------------------- ---------------------- ---------------------
Joel Segall/2/ $49,475 $57,500
--------------------------- ---------------------- ---------------------
W. Bryant Stooks $49,475 $56,500
--------------------------- ---------------------- ---------------------
Gerald M. Thorne/2/ $51,175 $59,500
--------------------------- ---------------------- ---------------------
</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, and PIMCO Partners LLC, a California limited liability
company controlled by the current Managing Directors and two former Managing
Directors of Pacific Investment Management
__________________
/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), CAT
(for all Trustees), and Pacific Select Fund (for Messrs. Nelson, Porter, and
Richards) for the twelve-month period ended June 30, 1998. By virtue of having
PIMCO Advisors or an affiliate of PIMCO Advisors as investment adviser, the
Trust, CAT and Pacific Select Fund were considered to be part of the same "Fund
Complex" for these purposes. As a result of a change in management of CAT on
December 12, 1997, no Trustee of the Trust is currently a Trustee of CAT and CAT
is no longer part of the same "Fund Complex" as the Trust.
/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 -
$51,600, $60,000; Porter - $49,900, $58,000; Segall - $26,650, $32,000; Thorne -
$51,175, $59,500.
/3/ Mr. Light retired as a Trustee of the Trust during the fiscal year
ended June 30, 1998.
-35-
<PAGE>
(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 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 $244.2 billion of assets under management as of December 31,
1998.
PIMCO Advisors, subject to the supervision of the Board of Trustees, is
responsible for providing advice and guidance with respect to the Funds and
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. For all of the Funds except the Growth,
Target, Opportunity, Innovation 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 and Innovation 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 Company 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.
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
-36-
<PAGE>
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, Capital Appreciation,
Mid-Cap Growth, Structured Emerging Markets,
Tax-Efficient Structured Emerging Markets,
Enhanced Equity and Balanced Funds................................................... .45%
Growth and Value 25 Funds............................................................... .50%
International and Target Funds.......................................................... .55%
Core Equity Fund........................................................................ .57%
Small-Cap Value, Renaissance, Precious Metals
and International Developed Funds..................................................... .60%
Mid-Cap Equity Fund..................................................................... .63%
Opportunity and Innovation Funds........................................................ .65%
Emerging Markets and International Growth Funds......................................... .85%
Small-Cap Growth Fund................................................................... 1.00%
Micro-Cap Growth Fund................................................................... 1.25%
</TABLE>
For the fiscal years ended June 30, 1998, June 30, 1997 and June 30,
1996 (the fiscal year ended June 30, 1996 being an eight-month period) the Funds
paid the Adviser (or its predecessor) the following amounts under the Advisory
Contract:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
FUND 6/30/98 6/30/97 6/30/96
- ---- ------- ------- -------
<S> <C> <C> <C>
Equity Income Fund $795,252 $555,146 $425,899
Value Fund 951,140 463,869 65,873
Small-Cap Value Fund 1,395,130 249,347 156,721
Core Equity Fund 504,760 234,333 145,931
Mid-Cap Equity Fund 53,956 48,656 35,315
Capital Appreciation Fund 3,627,790 1,953,374 883,498
Mid-Cap Growth Fund 2,622,029 1,219,531 617,546
Micro-Cap Growth Fund 2,759,876 1,390,317 669,726
Small-Cap Growth Fund 411,785 327,245 426,098
Enhanced Equity Fund 199,467 292,187 274,512
Emerging Markets Fund 349,026 568,277 440,978
International Developed Fund 653,050 525,817 294,777
Balanced Fund 300,049 306,756 235,529
Renaissance Fund* 3,010,051 913,256 N/A
Growth Fund* 9,329,701 3,758,433 N/A
Target Fund* 6,607,151 2,887,743 N/A
Opportunity Fund* 5,172,363 2,324,663 N/A
Innovation Fund* 2,028,712 750,414 N/A
International Fund* 922,680 559,353 N/A
</TABLE>
-37-
<PAGE>
<TABLE>
<S> <C> <C> <C>
International Growth Fund** 24,756 N/A N/A
Precious Metals Fund* 165,918 119,710 N/A
Tax Exempt Fund* (1) 144,515 66,977 N/A
----------- ---------- --------
TOTAL $42,029,157 $19,515,404 $4,672,403
</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 merged 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.
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 and Innovation 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. The Adviser currently has seven
subsidiary partnerships, the following six of which manage one or more of the
Funds: Pacific Investment Management, Parametric Portfolio Associates
("Parametric"), Cadence Capital Management "ACadence"), NFJ Investment Group
("NFJ"), Columbus Circle Investors ("Columbus Circle"), and Blairlogie Capital
Management ("Blairlogie"). On or about April 30, 1999, it is anticipated that
the Adviser will sell substantially all of its ownership interest in Blairlogie.
See "Blairlogie" below. In addition, on or about May 7, 1999, PIMCO Equity
Advisors will assume portfolio management responsibility for the Renaissance
Fund. See "Columbus Circle" below.
Pacific Investment Management
- -----------------------------
Pursuant to a Portfolio Management Agreement between the Adviser and
Pacific Investment Management, Pacific Investment Management provides investment
advice with respect to the portion of the assets of the Balanced Fund allocated
by the Adviser for investment in fixed income securities. For the services
provided, the Adviser (not
-38-
<PAGE>
the Trust) pays Pacific Investment Management a fee at the annual rate of .25%
of the average daily net assets of the Balanced Fund allocated to Pacific
Investment Management for investment in fixed income securities.
Pacific Investment Management is an investment management firm organized
as a general partnership. Pacific Investment Management has two partners: PIMCO
Advisors as the supervisory partner, and PIMCO Management Inc. as the managing
partner. The predecessor investment adviser to Pacific Investment Management
commenced operations in 1971. Pacific Investment Management is located at 840
Newport Center Drive, Suite 300, Newport Beach, California 92660. Pacific
Investment Management provides advisory services to PIMCO Funds, PIMCO Variable
Insurance Trust, PIMCO Commercial Mortgage Securities Trust, Inc., which is a
closed-end management investment company, managed accounts consisting of
proceeds from various pension and profit sharing plans and other sub-advised
open-end management investment companies. Pacific Investment Management had
approximately $158 billion of assets under management as of December 31, 1998.
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 and Innovation Funds. Prior to March 5, 1999, Columbus Circle served
as Sub-Adviser to these Funds. On or about May 7, 1999, PIMCO Equity Advisors
will assume portfolio management responsibility for the Renaissance Fund.
Information about PIMCO Advisors, including information regarding investment
advisory fees paid to PIMCO Advisors by the Growth, Target, Opportunity and
Innovation Funds, is provided above under "Investment Adviser."
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 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 December
31, 1998, of approximately $3.4 billion.
Cadence
- -------
Pursuant to a Portfolio Management Agreement between the Adviser and
Cadence, Cadence provides investment advisory services to the Capital
Appreciation Fund, the Mid-Cap Growth Fund, the Micro-Cap Growth Fund, the
Small-Cap Growth Fund and a portion of the Balanced Fund allocated by the
Adviser for investment in common stocks. For the services provided, the Adviser
(not the Trust) pays Cadence a monthly fee for each Fund at the following annual
rates (based on the average daily net assets of the particular Fund): .35% for
the Capital Appreciation Fund, .35% for the Mid-Cap Growth Fund, .35% for the
portion of the Balanced Fund's assets allocated to Cadence for investment in
common stock, .90% for the Small-Cap Growth Fund, and 1.15% for the Micro-Cap
Growth Fund.
-39-
<PAGE>
Cadence is an investment management firm organized as a general
partnership. Cadence is the successor investment adviser to Cadence Capital
Management Corporation, a wholly owned subsidiary of PFAMCo. Cadence has two
partners: PIMCO Advisors as the supervisory partner, and Cadence Capital
Management Inc. as the managing partner. The predecessor investment adviser to
Cadence commenced operations in 1988. Cadence is located at Exchange Place, 53
State Street, Boston, Massachusetts 02109. Cadence provides investment
management services to a number of institutional accounts, including employee
benefit plans, college endowment funds and foundations. Accounts managed by
Cadence had combined assets, as of December 31, 1998, of approximately $7.4
billion.
NFJ
- ---
Pursuant to a Portfolio Management Agreement between the Adviser and
NFJ, NFJ provides investment advisory services to the Equity Income Fund, the
Value Fund, the Value 25 Fund, the Small-Cap Value Fund, and a portion of the
Balanced Fund allocated by the Adviser for investment in common stocks. For the
services provided, the Adviser (not the Trust) pays NFJ a monthly fee for each
Fund at the following annual rates (based on the average daily net assets of the
particular Fund): .35% for the Equity Income Fund, .40% for the Value 25 Fund,
.35% for the Value Fund, .35% for the portion of the Balanced Fund allocated to
NFJ for investment in common stock, and .50% for the Small-Cap Value Fund.
NFJ is an investment management firm organized as a general partnership.
NFJ is the successor investment adviser to NFJ Investment Group, Inc., a wholly
owned subsidiary of PFAMCo. NFJ has two partners: PIMCO Advisors as the
supervisory partner, and NFJ Management Inc. as the managing partner. The
predecessor investment adviser to NFJ commenced operations in 1989. NFJ is
located at 2121 San Jacinto, Suite 1840, Dallas, Texas 75201. NFJ provides
investment management services to a number of institutional accounts, including
employee benefit plans, college endowment funds and foundations. Accounts
managed by NFJ had combined assets, as of December 31, 1998, of approximately
$2.4 billion.
Columbus Circle
- ---------------
Pursuant to a Portfolio Management Agreement between the Adviser and
Columbus Circle, Columbus Circle provides investment advisory services to the
Renaissance, Core Equity, Mid-Cap Equity and International Growth Funds. For the
services provided, the Adviser (not the Trust) pays Columbus Circle a monthly
fee for each Fund at the following annual rates (based on the average daily net
assets of the particular Fund): .38% for the Renaissance Fund, .47% for the Core
Equity Fund, .53% for the Mid-Cap Equity Fund, and .75% for the International
Growth Fund.
Columbus Circle is an investment management firm organized as a general
partnership. Columbus Circle is the successor investment adviser to the Columbus
Circle Investors Division of Thomson Advisory Group L.P. ("TAG"). Columbus
Circle has two partners: PIMCO Advisors as the supervisory partner, and Columbus
Circle Investors Management Inc. as the managing partner. Columbus Circle's
ultimate predecessor commenced operations in 1975. Columbus Circle is located at
Metro Center, One Station Place, 8th Floor, Stamford, Connecticut 06902.
Columbus Circle manages discretionary accounts for institutions, including
corporate, government and union pension and profit-sharing plans, foundations
and educational institutions. Accounts managed by Columbus Circle had combined
assets, as of December 31, 1998, of $9.6 billion.
Effective on or about May 7, 1999, PIMCO Equity Advisors will assume
portfolio management responsibility for the Renaissance Fund.
Blairlogie
- ----------
Pursuant to a Portfolio Management Agreement between the Adviser and
Blairlogie, Blairlogie provides investment advisory services to the
International, International Developed and Emerging Markets Funds. For the
services provided, the Adviser (not the Trust) pays Blairlogie a monthly fee for
each Fund at the following annual
-40-
<PAGE>
rates (based on the average daily net assets of the particular Fund): .40% for
the International Fund, .50% for the International Developed Fund, and .75% for
the Emerging Markets Fund.
Blairlogie is an investment management firm organized as a limited
partnership under the laws of the United Kingdom. Blairlogie is the successor
investment adviser to Blairlogie Capital Management Ltd., an indirect subsidiary
of PFAMCo, which commenced operations in 1992. Blairlogie has two general
partners and one limited partner. The general partners are PIMCO Advisors, which
serves as the supervisory partner, and Blairlogie Holdings Limited, a
wholly-owned subsidiary of PIMCO Advisors, which serves as the managing partner.
The limited partner is Blairlogie Partners L.P., a limited partnership, the
general partner of which is Pacific Asset Management LLC (a subsidiary of
Pacific Life Insurance Company), and the limited partners of which are the
principal executive officers of Blairlogie Capital Management. Blairlogie is
located at 4th Floor, 125 Princes Street, Edinburgh EH2 4AD, Scotland.
Blairlogie provides investment management services to a number of institutional
accounts, including employee benefit plans, college endowment funds and
foundations. Accounts managed by Blairlogie had combined assets, as of December
31, 1998, of approximately $900 million.
It is anticipated that the Adviser will sell substantially all of its
ownership interest in Blairlogie to subsidiaries of Alleghany Asset Management,
Inc. on or about April 30, 1999 (the "Blairlogie Transaction"). The Blairlogie
Transaction is subject to a number of conditions.
In connection with the Blairlogie Transaction, it is proposed that the
Emerging Markets and International Developed Funds (the "Transferring Funds")
will transfer all of their assets and liabilities to newly formed series of
Alleghany Funds to be managed by Blairlogie (the proposed transactions are
referred to as "Reorganizations"). The proposed Reorganizations are subject to a
number of conditions. In addition, the Adviser has determined to continue to
retain Blairlogie as the Sub-Adviser of the International Fund following the
consummation of the Blairlogie Transaction.
The relevant Prospectuses and this Statement of Additional Information
will be supplemented or revised if these events do not occur substantially in
accordance with the schedule outlined above.
Van Eck
- -------
Pursuant to a Portfolio Management Agreement between the Adviser and Van
Eck, Van Eck provides investment advisory services to the Precious Metals Fund.
For the Services provided, the Adviser (not the Trust) pays Van Eck a monthly
fee at the annual rate of .35% based on the average daily net assets of the
Precious Metals Fund.
Van Eck is a Delaware corporation registered as an investment adviser
with the SEC. Van Eck and its affiliates advise other mutual funds and private
accounts. Van Eck is controlled by John C. van Eck who, along with members of
his immediate family, owns 100% of the stock of Van Eck. Van Eck is located at
99 Park Avenue, New York, New York 10001. Accounts managed by Van Eck had
combined assets, as of December 31, 1998, of approximately $1.1 billion.
PIMCO Advisors determines the allocation of the Balanced Fund's assets
among the various asset classes and types of securities in which the Fund
invests. PIMCO Advisors reserves the right to allocate a portion of the Fund's
assets for investment in money market instruments and reserves the right to
manage the investment of such assets.
-41-
<PAGE>
For the fiscal years ended June 30, 1998, June 30, 1997 and June 30,
1996 (the fiscal year ended June 30, 1996 being an eight-month period), the
amount of portfolio management fees paid by the Adviser (or its predecessor) to
the applicable Sub-Adviser (or its predecessor) for each of the Funds was as
follows:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
06/30/98 06/30/97 06/30/96
-------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $618,529 $492,429 $425,899
Value Fund 739,776 388,966 65,873
Small-Cap Value Fund 1,162,608 224,788 156,721
Core Equity Fund 416,205 215,998 136,615
Mid-Cap Equity Fund 45,391 45,074 23,814
Capital Appreciation Fund 2,821,614 1,714,191 883,498
Mid-Cap Growth Fund 2,039,356 1,059,242 617,546
Micro-Cap Growth Fund 2,539,086 1,325,695 669,726
Small-Cap Growth Fund 370,606 311,280 426,098
Enhanced Equity Fund 155,141 268,021 274,512
Emerging Markets Fund 307,963 501,411 385,438
International Developed Fund 544,208 478,789 237,138
Balanced Fund 212,532 228,898 161,345
Renaissance Fund* 1,906,366 575,288 N/A
Growth Fund* 6,344,197 2,544,364 N/A
Target Fund* 4,324,681 1,869,073 N/A
Opportunity Fund* 3,819,591 1,709,827 N/A
Innovation Fund* 1,186,016 435,246 N/A
International Fund* 671,040 348,938 N/A
International Growth Fund** 11,650 N/A N/A
Precious Metal Fund* 96,785 66,070 N/A
Tax Exempt Fund* 144,515 66,756 N/A
------- ------------- ---------
TOTAL $30,477,856 $14,870,344 $4,464,223
</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:
-42-
<PAGE>
<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 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
CLASSES* SHARES* SHARES**
------- ------ ------
<S> <C> <C> <C>
Equity Income Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Tax-Efficient Equity Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Value Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Small-Cap Value Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Core Equity Fund .25% N/A N/A
Mid-Cap Equity Fund .25% N/A N/A
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
INSTITUTIONAL AND CLASS A, CLASS B,
ADMINISTRATIVE AND CLASS C CLASS D
CLASSES* SHARES* SHARES**
------- ------- ------
<S> <C> <C> <C>
Value 25 Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Capital Appreciation Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Mid-Cap Growth Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Micro-Cap Growth Fund .25% N/A N/A
Small-Cap Growth Fund .25% N/A N/A
Enhanced Equity Fund .25% N/A N/A
Emerging Markets Fund .50% .65% of first $2.5 billion N/A
.60% of amounts in excess of $2.5 billion
International Developed Fund .50% .65% of first $2.5 billion N/A
.60% of amounts in excess of $2.5 billion
Balanced Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Renaissance Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Growth Fund .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 Fund .50% N/A N/A
Precious Metals Fund N/A .45% of first $2.5 billion N/A
.40% of amounts in excess of $2.5 billion
Tax-Efficient Structured .50% N/A N/A
Emerging Markets Fund
Structured Emerging Markets .50% N/A N/A
Fund
90/10 Portfolio .10%*** .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
</TABLE>
-44-
<PAGE>
<TABLE>
<CAPTION>
INSTITUTIONAL AND CLASS A, CLASS B,
ADMINISTRATIVE AND CLASS C CLASS D
CLASSES* SHARES* SHARES**
------- ------- ------
<S> <C> <C> <C>
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 each Portfolio reflects a fee waiver currently in
effect. In the absence of the waiver, this Administrative Fee rate for 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; (vi) extraordinary expenses, including
costs of litigation and indemnification expenses; (vii) expenses which are
capitalized in accordance with generally accepted accounting principals; and
(viii) any expenses allocated or allocable to a specific class of shares
("Class-specific expenses").
Class-specific expenses include distribution and/or service fees
payable with respect to the Class A, Class B, Class C, Class D or Administrative
Class shares and administrative fees as described above, and may include certain
other expenses as permitted by the Trust's Amended and Restated Multi-Class Plan
(the "Multi-Class Plan") adopted pursuant to Rule 18f-3 under the 1940 Act,
which is subject to review and approval by the Trustees. It is not presently
anticipated that any expenses other than distribution and/or service fees and
administrative fees will be allocated on a class-specific basis.
The Administration Agreement may be terminated by the Trust at any time
by vote of (1) a majority of the Trustees, (2) a majority of the outstanding
voting securities of the Trust, or (3) with respect to the Renaissance, Growth,
Target, Opportunity, Innovation, International and Precious Metals Funds, by a
majority of the Trustees who are not interested persons of the Trust or PIMCO
Advisors, on 60 days' written notice to PIMCO Advisors.
Under the Administration Agreement, the Administrator or an affiliate
may pay financial service firms a portion of the Class D administration fees in
return for the firms' services (normally not to exceed an annual rate of .35% of
a Fund's average daily net assets attributable to Class D shares purchased
through such firms). The Administration Agreement includes a plan specific to
Class D shares which has been adopted in conformity with the requirements set
forth under Rule 12b-1 of the 1940 Act to allow for payment of up to .25% per
annum of the Class D administrative fees as reimbursement for expenses in
respect of activities that may be deemed to be primarily intended to result in
the sale of Class D shares. The principal types of activities for which such
payments may be made are services in connection with the distribution of Class D
shares and/or the provision of shareholder services. See "Distribution of Trust
Shares--Plan for Class D Shares."
-45-
<PAGE>
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, 1998, June 30, 1997 and June 30,
1996 (the fiscal year ended June 30, 1996 being an eight-month period), the
aggregate amount of the administration fees paid by the Funds was as follows
(Class A, Class B and Class C shares were not offered prior to January 17, 1997
and Class D shares were not offered during the periods listed):
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
FUND 06/30/98 06/30/97 06/30/96
- ---- -------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $487,106 $311,798 $236,611
Value Fund 720,965 318,624 36,596
Small-Cap Value Fund 850,182 114,067 65,176
Core Equity Fund 221,386 102,634 63,942
Mid-Cap Equity Fund 21,411 19,291 14,011
Capital Appreciation Fund 2,144,151 1,093,013 490,803
Mid-Cap Growth Fund 1,722,412 729,997 342,880
Micro-Cap Growth Fund 551,975 278,025 133,934
Small-Cap Growth Fund 102,410 81,774 106,715
Enhanced Equity Fund 110,815 161,982 151,842
Emerging Markets Fund 208,654 312,540 259,300
International Developed Fund 555,314 437,490 244,350
Balanced Fund 186,627 170,134 130,017
Renaissance Fund* 2,006,144 605,566 N/A
Growth Fund* 7,463,761 2,993,370 N/A
Target Fund* 4,805,201 2,076,748 N/A
Opportunity Fund* 3,182,992 1,424,856 N/A
Innovation Fund* 1,248,438 458,154 N/A
International Fund* 1,090,440 567,025 N/A
International Growth Fund** 14,562 N/A N/A
Precious Metals Fund* 124,438 84,947 N/A
Tax Exempt Fund* 193,724 89,008 N/A
------- ----------- --------
TOTAL $28,013,108 $12,431,043 $2,276,177
</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.
-46-
<PAGE>
DISTRIBUTION OF TRUST SHARES
DISTRIBUTOR AND MULTI-CLASS PLAN
PIMCO Funds Distributors LLC (the "Distributor") serves as the
distributor of each class of the Trust's shares pursuant to a distribution
contract (the "Distribution Contract") with the Trust. The Distributor is a
wholly-owned subsidiary of PIMCO Advisors. The Distribution Contract is
terminable with respect to a Fund, Portfolio or class or 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").
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 of shares bears any class-specific expenses allocated to it; (c) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its distribution or service arrangements; and (d) each class
has separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class. In
addition, each class may have a differing sales charge structure, and differing
exchange and conversion features.
-47-
<PAGE>
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 "How to Redeem," a contingent deferred
sales charge is imposed upon certain redemptions of Class A, Class B and Class C
shares. No contingent deferred sales charge is currently imposed upon
redemptions of Class D, Institutional Class or Administrative Class shares.
Because contingent deferred sales charges are calculated on a 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, 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:
YEAR YEAR
ENDED ENDED
CLASS 6/30/98 6/30/97
- ----- ------- -------
Class A $2,273 $40,456
Class B $945,353 $789,851
Class C $480,061 $533,975
Shares of the Portfolios were first offered beginning October 1, 1998.
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, 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 "Alternative Purchase Arrangements -
Initial Sales Charge Alternative - Class A Shares," Class A shares of the Trust
are sold pursuant to an initial sales charge, which declines as the amount of
the purchase reaches certain defined levels. For the fiscal years ended June 30,
1998 and June 30, 1997, the Distributor received an aggregate of $4,878,434 and
$2,927,636, respectively, and retained an aggregate of $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 "Distributor and Distribution and Servicing Plans,"
Class A, Class B and Class C shares of the Trust are continuously offered
through participating brokers which are members of the NASD and which have
dealer agreements with the Distributor, or which have agreed to act as
introducing brokers.
-48-
<PAGE>
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 in the Class A, B and C Prospectus and the Retail Portfolio
Prospectus, the distribution and servicing fees may be paid with respect to
services rendered and expenses borne in the past with respect to Class A, Class
B and Class C shares as to which no distribution and servicing fees were paid on
account of such limitations. The Distributor pays (i) all or a portion of the
distribution fees it receives from the Trust to participating and introducing
brokers, and (ii) all or a portion of the servicing fees it receives from the
Trust to participating and introducing brokers, certain banks and other
financial intermediaries.
Each Retail Plan may be terminated with respect to any Fund 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.
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.
-49-
<PAGE>
PAYMENTS PURSUANT TO CLASS A PLANS
For the fiscal years ended June 30, 1998 and June 30, 1997, the Trust
paid the Distributor an aggregate of $2,017,316 and $1,147,572, respectively,
pursuant to the Class A Retail Plan. Such payments were allocated among the
operational Funds as follows (Class A shares of the Portfolios were initially
offered beginning October 1, 1998):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FUND 06/30/98 06/30/97
- ---- -------- --------
<S> <C> <C>
Equity Income Fund $20,227 $938
Value Fund 46,720 14,876
Small-Cap Value Fund 91,688 2,770
Core Equity Fund N/A N/A
Mid-Cap Equity Fund N/A N/A
Capital Appreciation Fund 75,035 5,510
Mid-Cap Growth Fund 72,631 12,246
Micro-Cap Growth Fund N/A N/A
Small-Cap Growth Fund N/A N/A
Enhanced Equity Fund N/A N/A
Emerging Markets Fund 697 108
International Developed Fund 2,903 169
Balanced Fund 12,278 173
Renaissance Fund 130,230 53,527
Growth Fund 403,013 290,828
Target Fund 394,300 288,012
Opportunity Fund 531,993 320,127
Innovation Fund 164,089 99,910
International Fund 42,700 34,195
International Growth Fund N/A N/A
Precious Metals Fund 13,370 14,218
Tax Exempt Fund 15,442 9,965
</TABLE>
During the fiscal year ended June 30, 1998, 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, $1,512,987;
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), $504,329. These
totals, allocated among (i) compensation and (ii) sales material and other
expenses for each Fund, were as follows:
<TABLE>
<CAPTION>
SALES MATERIAL
AND OTHER
COMPENSATION EXPENSES TOTAL
------------ -------- -----
<S> <C> <C> <C>
Equity Income Fund $15,170 $5,057 $20,227
Value Fund 35,040 11,680 46,720
Small-Cap Value Fund 68,766 22,922 91,688
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 56,276 18,759 75,035
Mid-Cap Growth Fund 54,473 18,158 72,631
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 523 174 697
International Developed Fund 2,177 726 2,903
Balanced Fund 9,208 3,070 12,278
Renaissance Fund 97,672 32,558 130,230
Growth Fund 302,260 100,753 403,013
</TABLE>
-50-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Target Fund 295,725 98,575 394,300
Opportunity Fund 398,995 132,998 531,993
Innovation Fund 123,067 41,022 164,089
International Fund 32,025 10,675 42,700
International Growth Fund N/A N/A N/A
Precious Metals Fund 10,027 3,343 13,370
Tax Exempt Fund 11,582 3,861 15,442
</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:
YEAR ENDED
SEPT. 30, 1996
--------------
Renaissance Fund $ 38,973
Growth Fund 351,506
Target Fund 338,598
Opportunity Fund 308,794
Innovation Fund 88,089
International Fund 42,411
Precious Metals Fund 21,416
Tax Exempt Fund 10,288
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, 1998 and June 30, 1997, the Trust
paid the Distributor an aggregate of $4,549,168 and $1,670,623, respectively,
pursuant to the Class B Retail Plan. Such payments were allocated among the
operational Funds as follows (Class B shares of the Portfolios were initially
offered beginning October 1, 1998):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FUND 06/30/98 06/30/97
- ---- -------- ------------
<S> <C> <C>
Equity Income Fund $80,992 $5,019
Value Fund 311,768 101,067
Small-Cap Value Fund 611,536 17,419
Core Equity Fund N/A N/A
Mid-Cap Equity Fund N/A N/A
Capital Appreciation Fund 165,015 5,077
Mid-Cap Growth Fund 528,760 104,374
Micro-Cap Growth Fund N/A N/A
Small-Cap Growth Fund N/A N/A
Enhanced Equity Fund N/A N/A
Emerging Markets Fund 4,696 633
International Developed Fund 21,969 2,256
Balanced Fund 42,373 2,223
Renaissance Fund 603,997 204,965
Growth Fund 660,761 351,684
</TABLE>
-51-
<PAGE>
<TABLE>
<S> <C> <C>
Target Fund 727,857 450,009
Opportunity Fund N/A N/A
Innovation Fund 629,537 332,295
International Fund 85,359 53,098
International Growth Fund N/A N/A
Precious Metals Fund 41,484 21,713
Tax Exempt Fund 33,064 18,818
</TABLE>
During the fiscal year ended June 30, 1998, 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, $3,411,876;
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), $1,137,292.
These totals, allocated among (i) compensation and (ii) sales material and other
expenses for each Fund, were as follows:
<TABLE>
<CAPTION>
SALES MATERIAL
AND OTHER
COMPENSATION EXPENSES TOTAL
------------ -------- -----
<S> <C> <C> <C>
Equity Income Fund $60,744 $20,248 $80,992
Value Fund 233,826 77,942 311,768
Small-Cap Value Fund 458,652 152,884 611,536
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 123,761 41,254 165,015
Mid-Cap Growth Fund 396,570 132,190 528,760
Micro-Cap Growth Fund N/A N/A N/A
Small-Cap Growth Fund N/A N/A N/A
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund 3,522 1,174 4,696
International Developed Fund 16,477 5,492 21,969
Balanced Fund 31,780 10,593 42,373
Renaissance Fund 452,998 150,999 603,997
Growth Fund 495,571 165,190 660,761
Target Fund 545,893 181,964 727,857
Opportunity Fund N/A N/A N/A
Innovation Fund 472,153 157,384 629,537
International Fund 64,020 21,340 85,359
International Growth Fund N/A N/A N/A
Precious Metals Fund 31,113 10,371 41,484
Tax Exempt Fund 24,798 8,266 33,064
</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:
-52-
<PAGE>
<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.
PAYMENTS PURSUANT TO CLASS C PLANS
For the fiscal years ended June 30, 1998 and June 30, 1997, the Trust
paid the Distributor an aggregate of $42,819,673 and $28,944,078, respectively,
pursuant to the Class C Retail Plan. Such payments were allocated among the
operational Funds as follows (Class C shares of the Portfolios were initially
offered beginning October 1, 1998):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FUND 06/30/98 06/30/97
- ---- -------- ---------
<S> <C> <C>
Equity Income Fund $139,875 $13,919
Value Fund 784,829 245,893
Small-Cap Value Fund 814,232 39,558
Core Equity Fund N/A N/A
Mid-Cap Equity Fund N/A N/A
Capital Appreciation Fund 392,705 28,078
Mid-Cap Growth Fund 951,993 197,365
Micro-Cap Growth Fund N/A N/A
Small-Cap Growth Fund N/A N/A
Enhanced Equity Fund N/A N/A
Emerging Markets Fund 14,813 5,070
International Developed Fund 40,459 4,936
Balanced Fund 41,412 1,876
Renaissance Fund 3,887,867 2,024,245
Growth Fund 16,386,591 11,107,219
Target Fund 9,707,945 7,238,372
Opportunity Fund 5,829,510 4,950,118
Innovation Fund 1,834,958 1,149,018
International Fund 1,421,443 1,354,452
International Growth Fund N/A N/A
Precious Metals Fund 181,565 255,508
Tax Exempt Fund 389,476 328,451
</TABLE>
During the fiscal year ended June 30, 1998, 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, $32,114,755;
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), $10,704,918. These
totals, allocated among (i) compensation and (ii) sales material and other
expenses for each Fund, were as follows:
-53-
<PAGE>
<TABLE>
<CAPTION>
SALES MATERIAL
AND OTHER
COMPENSATION EXPENSES TOTAL
------------ -------- -----
<S> <C> <C> <C>
Equity Income Fund $104,906 $34,969 $139,875
Value Fund 588,622 196,207 784,829
Small-Cap Value Fund 610,674 203,558 814,232
Core Equity Fund N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 294,529 98,176 392,705
Mid-Cap Growth Fund 713,995 237,998 951,993
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 11,110 3,703 14,813
International Developed Fund 30,344 10,115 40,459
Balanced Fund 31,059 10,353 41,412
Renaissance Fund 2,915,900 971,967 3,887,867
Growth Fund 2,289,943 4,096,648 16,386,591
Target Fund 7,280,959 2,426,986 9,707,945
Opportunity Fund 4,372,132 1,457,378 5,829,510
Innovation Fund 1,376,218 458,740 1,834,958
International Fund 1,066,082 355,361 1,421,443
International Growth Fund N/A N/A N/A
Precious Metals Fund 136,174 45,391 181,565
Tax Exempt Fund 292,107 97,369 389,476
</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:
Year Ended
Sept. 30, 1996
--------------
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
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.
-54-
<PAGE>
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
in connection with the servicing of Class A, Class B and Class C shareholders of
the Funds 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, Class B and Class C Distribution and
Servicing Plans, which are similar to the Trust's current 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 did not offer Class A,
Class B or Class C shares prior to January 17, 1997. As of June 30, 1998, such
expenses were approximately $11,946,000 in excess of payments under the Class A
Plan, $22,563,000 in excess of payments under the Class B Plan and $2,252,000 in
excess of payments under the Class C Plan.
The allocation of such excess (on a pro rata basis) among the Funds
listed below as of June 30, 1998 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
- ---- ------- ------- -------
<S> <C> <C> <C>
Balanced Fund $ 114,354 $ 311,366 $ 4,119
Capital Appreciation Fund 864,192 1,414,624 34,818
Emerging Markets Fund 5,052 13,321 569
Equity Income Fund 153,514 524,983 11,208
Growth Fund 2,217,715 2,796,317 905,533
Innovation Fund 1,055,088 2,811,646 106,466
International Developed Fund 58,174 105,611 3,110
International Fund 216,026 322,227 68,277
Mid-Cap Growth Fund 677,693 2,930,058 68,372
Opportunity Fund 2,412,474 -- 243,645
Precious Metals Fund 43,292 132,484 6,856
Renaissance Fund 1,010,427 3,479,893 228,385
Small-Cap Value Fund 889,489 3,634,823 63,450
Target Fund 1,969,040 2,846,350 464,235
Value Fund 259,521 1,239,508 42,959
</TABLE>
The allocation of such excess (on a pro rata basis) among the Funds,
calculated as a percentage of net assets of each Fund listed below as of June
30, 1998, was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
- ---- ------- ------- -------
<S> <C> <C> <C>
Balanced Fund 1.19% 3.47% 0.05%
Capital Appreciation Fund 1.19 3.47 0.05
Emerging Markets Fund 1.19 3.47 0.05
Equity Income Fund 1.19 3.47 0.05
Growth Fund 1.19 3.47 0.05
Innovation Fund 1.19 3.47 0.05
International Developed Fund 1.19 3.47 0.05
International Fund 1.19 3.47 0.05
Mid-Cap Growth Fund 1.19 3.47 0.05
Opportunity Fund 1.19 -- 0.05
Precious Metals Fund 1.19 3.47 0.05
Renaissance Fund 1.19 3.47 0.05
Small-Cap Value Fund 1.19 3.47 0.05
Target Fund 1.19 3.47 0.05
Value Fund 1.19 3.47 0.05
</TABLE>
-55-
<PAGE>
DISTRIBUTION AND ADMINISTRATIVE SERVICES PLANS FOR ADMINISTRATIVE CLASS SHARES
The Trust has adopted an Administrative Services Plan with respect to
the Administrative Class shares of each Fund and Portfolio. The Trust also has
adopted a Distribution Plan (together with the Administrative Services Plan, the
"Administrative Plans") with respect to the Administrative Class shares of each
Fund and Portfolio except the Emerging Markets, Capital Appreciation and
Small-Cap Growth Funds, which are not subject to such Distribution Plan.
Under the terms of the Administrative Distribution Plan, the Trust is
permitted to reimburse, out of the assets attributable to the Administrative
Class shares of each applicable Fund 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.
Each Administrative Plan provides that it may not be amended to
increase materially the costs which Administrative Class shareholders may bear
under the Plan without the approval of a majority of the outstanding voting
securities of the Administrative Class, and by vote of a majority of both (i)
the Trustees of the Trust and (ii) those Trustees ("disinterested Administrative
Plan Trustees") who are not "interested persons" of the Trust (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of the Plan or any agreements related to it, cast in person at a meeting called
for the purpose of voting on the Plan and any related amendments.
Each Administrative Plan provides that it may not take effect until
approved by vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Administrative Plan Trustees. The Administrative Class
Distribution Plan further provides that it may not take effect unless approved
by the vote of a majority of the outstanding voting securities of the
Administrative Class.
Each Administrative Plan provides that it shall continue in effect so
long as such continuance is specifically approved at least annually by the
Trustees and the disinterested Administrative Plan Trustees. Each Administrative
Plan provides that any person authorized to direct the disposition of monies
paid or payable by a class pursuant to the Plan or any related agreement shall
provide to the Trustees, and the Board shall review at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
-56-
<PAGE>
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.
PAYMENTS PURSUANT TO THE ADMINISTRATIVE PLANS
For the fiscal years ended June 30, 1998 and June 30, 1997, the Trust
paid qualified service providers an aggregate of $502,216 and $132,422,
respectively, pursuant to the Administrative Services Plan and the
Administrative Distribution Plan.
Of these aggregate totals, $362,416 and $111,468, respectively, were
paid pursuant to the Administrative Services Plan and/or the Administrative
Distribution Plan for the Funds listed below and were allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FUND 06/30/98 06/30/97
- ---- -------- --------
<S> <C> <C>
Equity Income Fund $25,885 $16,938
Value Fund 11,304 0
Small-Cap Value Fund 22,930 12,276
Core Equity Fund 211,557 79,366
Mid-Cap Equity Fund 1,846 0
Mid-Cap Growth Fund 64,116 4,723
Micro-Cap Growth Fund 8,918 1,898
Enhanced Equity Fund 9,207 0
International Developed Fund 6,653 13,205
</TABLE>
The additional portions of the aggregate totals, $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 (Administrative Class shares of the
Portfolios were initially offered beginning March 8, 1999):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FUND 06/30/98 06/30/97
- ---- -------- --------
<S> <C> <C>
Capital Appreciation Fund $137,462 $3,297
Emerging Markets Fund 1,802 582
Small-Cap Growth Fund 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.
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<PAGE>
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.
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
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services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to the Class D Plan will qualify as "service
fees" and therefore will not be limited by NASD rules.
PURCHASES, EXCHANGES AND REDEMPTIONS
Purchases, exchanges and redemptions of 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 "How to Buy Shares," "Exchange
Privilege," and "How to Redeem," and in the Institutional Prospectus and the
Institutional Portfolio Prospectus under the headings "Purchase of Shares,"
"Redemption of Shares," and "Net Asset Value."
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 "Exchange
Privilege," and in the Institutional Prospectus and the Institutional Portfolio
Prospectus under the caption "Redemption of Shares," 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-
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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 Prospectus.
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.
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.
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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
INVESTMENT DECISIONS
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). Thus, a particular security may be bought
or sold for certain clients even though it could have been bought or sold for
other clients at the same time. Likewise, a particular security may be bought
for one or more clients when one or more clients are selling the security. In
some instances, one client may sell a particular security to another client. It
also sometimes happens that two or more clients simultaneously purchase or sell
the same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in the Adviser's or the 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.
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
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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, 1998, June 30, 1997 and June 30,
1996 (the fiscal year ended June 30, 1996 being an eight-month period), the
following amounts of brokerage commissions were paid by the Funds:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
FUND 6/30/98 6/30/97 6/30/96
- ---- ---------- --------- ---------
<S> <C> <C> <C>
Equity Income Fund $239,458 $161,012 $221,694
Value Fund 437,002 203,403 65,062
Small-Cap Value Fund 810,211 146,551 74,170
Capital Appreciation Fund 1,384,393 889,931 467,569
Mid-Cap Growth Fund 1,115,609 634,436 382,764
Micro-Cap Growth Fund 237,969 315,009 124,194
Small-Cap Growth Fund 71,734 113,103 76,333
Enhanced Equity Fund 61,193 196,460 114,363
Emerging Markets Fund 238,241 591,312 622,328
International Developed Fund 326,193 498,041 306,741
Balanced Fund 91,788 197,598 95,606
Core Equity Fund 219,194 114,173 54,049
Mid-Cap Equity Fund 44,404 31,940 16,691
Renaissance Fund* 2,539,296 717,040 N/A
Growth Fund* 4,154,740 2,632,126 N/A
Target Fund* 5,577,623 2,584,198 N/A
Opportunity Fund* 1,345,809 1,187,818 N/A
Innovation Fund* 412,457 224,529 N/A
International Fund* 785,827 748,412 N/A
International Growth Fund** 26,179 N/A N/A
Precious Metals Fund* 98,635 81,251 N/A
Tax Exempt Fund* N/A 0 N/A
--- ------ ---
TOTAL $20,217,955 $12,268,343 $2,624,832
</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.
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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>
<CAPTION>
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>
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.
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.
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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
Except as described in the Prospectuses, the Adviser and Sub-Advisers
manage the portfolios of the Funds without regard generally to restrictions on
portfolio turnover. The use of futures contracts and other derivative
instruments with relatively short maturities may tend to exaggerate the
portfolio turnover rate for some of the Funds. Trading in fixed income
securities does not generally involve the payment of brokerage commissions, but
does involve indirect transaction costs. The use of futures contracts may
involve the payment of commissions to futures commission merchants. The higher
the rate of portfolio turnover of a Fund, the higher these transaction costs
borne by the Fund generally will be. 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.
In connection with the change in Sub-Advisers of the Renaissance,
Growth, Target, Opportunity and Innovation 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 Class A, B and C Prospectus, the Class D
Prospectus and the Retail Portfolio Prospectus under the heading "How Net Asset
Value is Determined", and in the Institutional Prospectus and Institutional
Portfolio Prospectus under the heading "Net Asset Value," the Trust's net asset
value per share for the purpose of pricing purchase and redemption orders is
determined on each day the New York Stock Exchange is open as of the close of
regular trading (normally, 4:00 p.m. Eastern time) on the Exchange. The Trust
expects that the holidays upon which the Exchange will be closed are as follows:
New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The values of portfolio securities that are traded on stock exchanges
outside the United States are based upon the price on the exchange as of the
close of business of the exchange immediately preceding the time of valuation.
Securities traded in over-the-counter markets in European and Pacific Basin
countries are normally completed well before 4:00 p.m. (Eastern time). In
addition, European and Pacific Basin securities trading may not take place on
all business days in New York. Furthermore, trading takes place in Japanese
markets on certain Saturdays and in various foreign markets on days which are
not business days in New York and on which net asset value of these Funds is not
calculated. The calculation of the net asset value of certain Funds that invest
in foreign securities may not take place contemporaneously with the
determination of the prices of portfolio securities used in such calculation. If
events materially affecting the values of portfolio securities occur between the
time their prices are determined and 4:00 p.m. (Eastern time), these securities
will be valued at fair value as determined by the Adviser or a Sub-Adviser and
approved in good faith by the Board of Trustees.
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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 the sum of
(i) at least 90% of its investment company taxable income (which includes
dividends, interest and net short-term capital gains in excess of any net
long-term capital losses) and (ii) 90% of its tax exempt interest, net of
expenses allocable thereto. By qualifying as a regulated investment company,
each Fund and Portfolio will not be subject to federal income taxes to the
extent that its net investment income, net short-term capital gains and net
long-term capital gains are distributed. In addition, the Treasury Department is
authorized to promulgate regulations under which gains from foreign currencies
(and options, futures, and forward contracts on foreign currency) would not
constitute qualifying income for purposes of the Qualifying Income Test if such
gains are not directly related to investing in securities (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.
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 (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 equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of
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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. 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.
The tax status of each Fund and Portfolio and the distributions which
it may make are summarized in the Class A, B and C Prospectus, the Class D
Prospectus and the Retail Portfolio Prospectus under the captions
"Distributions" and "Taxes", and in the Institutional Prospectus and
Institutional Portfolio Prospectus under the caption "Dividends, Distributions
and Taxes." 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. Distributions received by tax-exempt
shareholders will not be subject to federal income tax to the extent permitted
under the applicable tax exemption.
A portion of the dividends paid by Funds that invest in stock of U.S.
corporations may qualify for the deduction for dividends received by
corporations (subject generally to a 46-day holding period requirement).
Dividends paid by the other Funds generally are not expected to qualify for the
deduction for dividends received by corporations.
Distributions of net capital gains, if any, designated as capital
gain dividends, are taxable as long-term capital gains (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 a 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.
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
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<PAGE>
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.
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 gain 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.
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<PAGE>
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 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
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by a Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. A portion of the OID includable in income with respect to
certain high-yield corporate debt securities may be treated as a dividend for
U.S. federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by a Fund in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. A Fund may make one or more of the elections applicable to debt
securities having market discount, which could affect the character and timing
of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by a Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
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<PAGE>
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
A Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
OTHER TAXATION
Pursuant to Treasury Department regulations, certain expenses of
nonpublicly offered regulated investment companies, including advisory fees, are
not deductible by those regulated investment companies for purposes of
calculating the income of certain shareholders, generally including individuals
and entities that compute their taxable income in the same manner as an
individual (thus, for example, a qualified pension plan is not subject to this
rule). The shareholder's pro rata portion of such expenses will be treated as
income to the shareholder and will be deductible by the shareholder, subject to
the 2% "floor" on miscellaneous itemized deductions and other limitations on
itemized deductions set forth in the Code. A regulated investment company
generally will be classified as nonpublicly offered unless it either has 500
shareholders at all times during a taxable year or continuously offers shares
pursuant to a public offering.
Distributions also may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation. Under the
laws of various states, distributions of investment company taxable income
generally are taxable to shareholders even though all or a substantial portion
of such distributions may be derived from interest on certain federal
obligations which, if the interest were received directly by a resident of such
state, would be exempt from such state's income tax ("qualifying federal
obligations"). However, some states may exempt all or a portion of such
distributions from income tax to the extent the shareholder is able to establish
that the distribution is derived from qualifying federal obligations. Moreover,
for state income tax purposes, interest on some federal obligations generally is
not exempt from taxation, whether received directly by a shareholder or through
distributions of investment company taxable income (for example, interest on
FNMA Certificates and GNMA Certificates). Each Fund 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.
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<PAGE>
PERFORMANCE INFORMATION
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 Renaissance and Balanced Funds and
the 30/70 Portfolio 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 Renaissance and Balanced Funds and the 30/70 Portfolio)
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.
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 December 31, 1998, the yields of the
Balanced Fund and Renaissance Fund 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>
Balanced Fund 2.48% N/A 1.96% 1.31% 1.30% N/A
Renaissance Fund 0.39% 0.29% 0.01% -0.75% -0.75% -0.01%
</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
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<PAGE>
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.
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.
-70-
<PAGE>
The table below sets forth the average annual total return of certain
classes of shares of the following Funds for periods ended December 31, 1998.
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 DECEMBER 31, 1998*
<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 8.37% 17.83% 16.51% 03/08/91 03/08/91
Administrative 8.12% 17.54% 16.22% 11/30/94
Class A 2.09% 16.07% 15.22% 1/20/97
Class B 2.52% 16.30% 15.20% 1/20/97
Class C 6.36% 16.53% 15.21% 1/20/97
Class D 8.07% 17.39% 16.06% 4/8/98
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Value Institutional 10.17% 17.39% 16.74% 12/30/91 12/30/91
Administrative 9.77% 17.10% 16.45% 8/21/97
Class A 3.72% 15.62% 15.35% 1/13/97
Class B 4.14% 15.86% 15.43% 1/13/97
Class C 8.06% 16.08% 15.43% 1/13/97
Class D 9.86% 16.96% 16.30% 4/8/98
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Small-Cap Value Institutional -9.16% 13.62% 14.78% 10/1/91 10/1/91
Administrative -9.37% 13.33% 14.49% 11/1/95
Class A -14.46% 11.90% 13.44% 1/20/97
Class B -14.50% 12.08% 13.48% 1/20/97
Class C -11.06% 12.33% 13.48% 1/20/97
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Capital Institutional 17.59% 21.32% 19.74% 3/8/91 3/8/91
Appreciation Administrative 17.26% 21.02% 19.45% 7/31/96
Class A 10.73% 19.49% 18.42% 1/20/97
Class B 11.33% 19.78% 18.40% 1/20/97
Class C 15.32% 19.96% 18.40% 1/20/97
Class D 17.14% 20.84% 19.27% 4/8/98
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Mid-Cap Growth Institutional 7.93% 19.08% 18.23% 8/26/91 8/26/91
Administrative 7.81% 18.81% 17.95% 11/30/94
Class A 1.55% 17.27% 16.85% 1/13/97
Class B 1.66% 17.52% 16.89% 1/13/97
Class C 5.66% 17.73% 16.89% 1/13/97
Class D 7.80% 18.68% 17.81% 4/8/98
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Micro-Cap Growth Institutional -3.88% 17.50% 19.21% 6/25/93 6/25/93
Administrative -4.08% 17.21% 18.92% 4/1/96
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Small-Cap Growth Institutional -8.50% 10.66% 18.44% 1/7/91 1/7/91
Administrative -8.89% 10.49% 18.22% 9/27/95
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Enhanced Equity Institutional 26.51% 21.82% 17.39% 2/11/91 2/11/91
Administrative 26.14% 21.50% 17.09% 8/21/97
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Emerging Institutional -27.39% -9.66% -1.08% 6/1/93 6/1/93
Markets Administrative -27.65% -9.94% -1.37% 11/1/94
Class A -31.68% -11.04% -2.46% 1/20/97
Class B -31.80% -11.02% -2.35% 1/20/97
Class C -28.93% -10.69% -2.19% 1/20/97
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
International Institutional 23.92% 10.88% 10.87% 6/8/93 6/8/93
Developed Administrative 23.41% 10.57% 10.57% 11/30/94
Class A 16.80% 9.22% 9.34% 1/20/97
Class B 17.34% 9.33% 9.49% 1/20/97
Class C 21.43% 9.62% 9.62% 1/20/97
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
International Institutional 39.40% N/A 39.40% 12/31/97 12/31/97
Growth
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Balanced Institutional 12.23% 14.25% 13.43% 6/25/92 6/25/92
Class A 5.67% 12.50% 11.99% 1/20/97
Class B 6.28% 12.72% 12.14% 1/20/97
Class C 10.04% 12.97% 12.16% 1/20/97
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Core Equity Institutional 41.06% N/A 27.77% 12/28/94 12/28/94
Administrative 40.47% N/A 27.41% 5/31/95
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Mid-Cap Equity Institutional 29.89% N/A 23.53% 12/28/94 12/28/94
Administrative 29.56% N/A 23.23% 8/21/97
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Value 25 Institutional N/A N/A -14.51% 7/10/98 7/10/98
Class A N/A N/A -19.36% 7/10/98
Class B N/A N/A -19.22% 7/10/98
Class C N/A N/A -15.76% 7/10/98
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Structured Institutional N/A N/A -7.04% 6/30/98 6/30/98
Emerging Markets
- ------------------- ----------------- ----------- ---------- ---------------- ------------ ------------
Tax-Efficient Institutional N/A N/A -5.37% 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).
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<PAGE>
The table below 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 December 31, 1998.
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.
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 1998*
<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 5.37% 17.17% 14.14%(#) 13.80%(#) 4/18/88 2/1/91
Class B 5.73% 17.39% 13.92% 13.53% 5/22/95
Class C 9.76% 17.62% 13.93% 13.54% 4/18/88
Class D 11.66%(#) 18.52%(#) 14.79%(#) 14.40%(#) 4/8/98
Institutional 11.83%(#) 18.93%(#) 15.22%(#) 14.83%(#) 12/30/97
Administrative 11.57%(#) 18.64%(#) 14.93%(#) 14.54%(#) 8/31/98
- ------------------- -------------- --------------- ------------- ------------- ---------------- ------------- --------------
Growth Class A 32.24% 19.82% 18.77%(#) 18.40%(#) 2/24/84 10/26/90
Class B 33.88% 20.08% 18.57% 17.98% 5/23/95
Class C 37.90% 20.27% 18.57% 17.98% 2/24/84
Institutional 40.45%(#) 21.64%(#) 19.93%(#) 19.32%(#) 4/1/99
Administrative 40.11%(#) 21.34%(#) 19.63%(#) 19.03%(#) 4/1/99
- ------------------- -------------- --------------- ------------- ------------- ---------------- ------------- --------------
Target Class A 17.32% 16.76% N/A 18.27% 12/17/92 12/17/92
Class B 18.27% 16.99% N/A 18.48% 5/22/95
Class C 22.27% 17.20% N/A 18.48% 12/17/92
Institutional 24.62%(#) 18.56%(#) N/A 19.84%(#) 4/1/99
Administrative 24.31%(#) 18.27%(#) N/A 19.55%(#) 4/1/99
- ------------------- -------------- --------------- ------------- ------------- ---------------- ------------- --------------
Opportunity Class A -3.62% 7.30% 18.03%(#) 16.79%(#) 2/24/84 12/17/90
Class B -2.82% 7.51% 17.84% 16.39% 4/1/99
Class C 0.47% 7.73% 17.84% 16.39% 2/24/84
Institutional 2.46%(#) 8.97%(#) 19.19%(#) 17.71%(#) 4/1/99
Administrative 2.20%(#) 8.70%(#) 18.90%(#) 17.42%(#) 4/1/99
- ------------------- -------------- --------------- ------------- ------------- ---------------- ------------- --------------
Innovation Class A 69.54% N/A N/A 34.67% 12/22/94 12/22/94
Class B 73.02% N/A N/A 35.35% 5/22/95
Class C 77.13% N/A N/A 35.55% 12/22/94
Class D 79.65% N/A N/A 36.63% 4/8/98
Institutional 80.13%(#) N/A N/A 37.09%(#) 3/5/99
Administrative 79.70%(#) N/A N/A 36.75%(#) Not yet
offered
- ------------------- -------------- --------------- ------------- ------------- ---------------- ------------- --------------
International** Class A 3.30% 2.18% 6.58%(#) 6.74%(#) 8/25/86 2/1/91
Class B 3.39% 2.22% 6.38% 6.42% 5/22/95
Class C 7.30% 2.53% 6.37% 6.41% 8/25/86
Institutional 9.68%(#) 3.74%(#) 7.61%(#) 7.65%(#) 9/30/98
Administrative 9.10%(#) 3.43%(#) 7.31%(#) 7.36%(#) 9/30/98
- ------------------- -------------- --------------- ------------- ------------- ---------------- ------------- --------------
</TABLE>
-73-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------- -------------- --------------- ------------- ------------- ---------------- ------------- --------------
Precious Metals** Class A -12.50% -17.02% -5.64%(#) -6.01%(#) 10/10/88 2/1/91
Class B -13.00% -17.10% -5.86% -6.25% 6/15/95
Class C -9.61% -16.81% -5.88% -6.26% 10/10/88
- ------------------- -------------- --------------- ------------- ------------- ---------------- ------------- --------------
Tax-Efficient Class A N/A N/A N/A -0.47% 7/10/98 7/10/98
Equity Class B N/A N/A N/A -0.10% 7/10/98
Class C N/A N/A N/A 3.90% 7/10/98
Class D N/A N/A N/A 5.30% 7/10/98
Administrative N/A N/A N/A 5.30%(#) 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 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).
-74-
<PAGE>
TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 1998
(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 -- -- 13.96% 13.57%
Class D 11.45% 17.77% 14.00% 13.61%
Institutional 11.83% 17.86% 14.04% 13.65%
Administrative 10.90% 17.66% 13.95% 13.55%
------------------ ---------------- ---------- ---------- ------------ -----------------
Growth Class A -- -- 18.61% 18.00%
Institutional 38.90% 20.27% 18.57% 17.98%
Administrative 38.90% 20.27% 18.57% 17.98%
------------------ ---------------- ---------- ---------- ------------ -----------------
Target Institutional 24.15% 18.09% -- 19.38%
Administrative 24.15% 18.09% -- 19.38%
------------------ ---------------- ---------- ---------- ------------ -----------------
Opportunity Class A -- -- 17.86% 16.40%
Institutional 1.29% 7.73% 17.84% 16.39%
Administrative 1.29% 7.73% 17.84% 16.39%
------------------ ---------------- ---------- ---------- ------------ -----------------
Innovation Institutional 79.41% -- -- 36.58%
Administrative 79.41% -- -- 36.58%
------------------ ---------------- ---------- ---------- ------------ -----------------
International Class A -- -- 6.42% 6.45%
Institutional 8.73% 2.61% 6.41% 6.45%
Administrative 8.36% 2.54% 6.38% 6.42%
------------------ ---------------- ---------- ---------- ------------ -----------------
Precious Metals Class A -- -- -5.79% -6.18%
------------------ ---------------- ---------- ---------- ------------ -----------------
Tax-Efficient Administrative -- -- -- 5.30%
Equity
------------------ ---------------- ---------- ---------- ------------ -----------------
</TABLE>
The following table sets forth the average annual total return of each
class of shares of the Portfolios for periods ended December 31, 1998. 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.
-75-
<PAGE>
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 1998*
<TABLE>
<CAPTION>
------------------- --------------- ------------ ----------------- -------------- --------------
SINCE INCEPTION INCEPTION INCEPTION
OF PORTFOLIO DATE OF DATE OF CLASS
PORTFOLIO CLASS** 1 YEAR (ANNUALIZED) PORTFOLIO
------------------- --------------- ------------ ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
90/10 Portfolio Class A N/A 7.97% 9/30/98 9/30/98
Class B N/A 9.09% 9/30/98
Class C N/A 13.09% 9/30/98
Institutional N/A 14.39%(#) 3/1/99
Administrative N/A 14.32%(#) 3/1/99
------------------- --------------- ------------ ----------------- -------------- --------------
60/40 Portfolio Class A N/A 4.04% 9/30/98 9/30/98
Class B N/A 4.94% 9/30/98
Class C N/A 8.94% 9/30/98
Institutional N/A 10.22%(#) 3/1/99
Administrative N/A 10.15%(#) 3/1/99
------------------- --------------- ------------ ----------------- -------------- --------------
30/70 Portfolio Class A N/A 0.21% 9/30/98 9/30/98
Class B N/A 0.80% 9/30/98
Class C N/A 4.76% 9/30/98
Institutional N/A 6.17%(#) 3/1/99
Administrative N/A 6.10%(#) 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).
-76-
<PAGE>
TOTAL RETURN FOR PERIODS ENDED
DECEMBER 31, 1998 (with no adjustment
for operating expenses of the noted
classes for periods prior to their inception dates)
<TABLE>
<CAPTION>
------------------- --------------- ------------- ----------------
SINCE
INCEPTION
PORTFOLIO CLASS** 1 YEAR OF PORTFOLIO
(ANNUALIZED)
------------------- --------------- ------------- ----------------
<S> <C> <C> <C>
90/10 Portfolio Institutional N/A 14.24%
Administrative N/A 14.24%
------------------- --------------- ------------- ----------------
60/40 Portfolio Institutional N/A 10.07%
Administrative N/A 10.07%
------------------- --------------- ------------- ----------------
30/70 Portfolio Institutional N/A 6.02%
Administrative N/A 6.02%
------------------- --------------- ------------- ----------------
</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,
Australasia, Far East) Index, the Morgan Stanley Capital International Emerging
Markets Free Index, the International Finance Corporation Emerging Markets
Index, the Baring Emerging Markets Index, or other unmanaged indexes that
measure performance of a pertinent group of securities; (ii) other groups of
mutual funds tracked by Lipper Analytical Services ("Lipper"), a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Funds. Unmanaged indexes
(i.e., other than Lipper) generally do not reflect deductions for administrative
and management costs or expenses. The Adviser and any of the 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 and Balanced Funds 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 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
-77-
<PAGE>
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.
-78-
<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:
Pt = [ 1- rd ]
[ -- ]
[ 360 ]
where,
r = decimal yield on the bill at time t (the
average of bid and ask quotes); and
d = the number of days to maturity as of time t.
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).
-79-
<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 Salomon Brothers
Long Term Corporate Bond Index), and for a hypothetical portfolio with 45% of
its assets in stocks comprising the S&P 500, 45% in bonds comprising the Salomon
Brothers Long Term Corporate Bond Index and 10% in stocks comprising the
Philadelphia Gold & Silver Index.
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%
</TABLE>
-80-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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>
- ---------------------------------
*Balanced:
--------
Stocks 45%
Bonds 45%
Gold 10%
Small Co. 0%
T-Bills 0%
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.
POTENTIAL COLLEGE COST TABLE
<TABLE>
<CAPTION>
Start Public Private Start Public Private
Year College College Year College College
- ---- ------- ------- ---- ------- -------
<S> <C> <C> <C> <C> <C>
1997 $13,015 $57,165 2005 $16,487 $72,415
1998 $13,406 $58,880 2006 $16,982 $74,587
1999 $13,808 $60,646 2007 $17,491 $76,825
2000 $14,222 $62,466 2008 $18,016 $79,130
2001 $14,649 $64,340 2009 $18,557 $81,504
2002 $15,088 $66,270 2010 $19,113 $83,949
2003 $15,541 $68,258 2011 $19,687 $86,467
2004 $16,007 $70,306 2012 $20,278 $89,061
</TABLE>
Costs assume a steady increase in the annual cost of college of 3% per year from
a 1996-97 base year amount. Actual rates of increase may be more or less than 3%
and may vary.
In its advertisements and other materials, the Trust may compare the
returns over periods of time of investments in stocks, bonds and treasury bills
to each other and to the general rate of inflation. For example, the average
annual return of each during the period from 1973 through 1998 was:
*Stocks: 13.6%
Bonds: 9.5%
T-Bills: 7.0%
Inflation: 5.3%
-81-
<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 is 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 period from
1973 through 1998, the average annual return of stocks comprising the Ibbotson's
Large Company Stock Total Return Index ranged from -26.5% to 37.4% while the
annual return of a hypothetical portfolio comprised 40% of such common stocks,
40% of bonds comprising the Ibbotson's Long-term Corporate bond Index and 20% of
Treasury bills comprising the Ibbottson's Treasury Bill Index (a "mixed
portfolio") would have ranged from -10.2% to 28.2% over the same period. The
average annual returns of each investment for each of the years from 1973
through 1998 is set forth in the following table.
<TABLE>
<CAPTION>
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- ---- ------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1973 -14.66% 1.14% 6.93% 8.80% -4.02%
1974 -26.47% -3.06% 8.00% 12.26% -10.21%
1975 37.20% 14.64% 5.80% 7.01% 21.90%
1976 23.84% 18.65% 5.08% 4.81% 18.01%
1977 -7.18% 1.71% 5.12% 6.77% -1.17%
1978 6.56% -0.07% 7.18% 9.03% 4.03%
1979 18.44% -4.18% 10.38% 13.31% 7.78%
1980 32.42% 2.61% 11.24% 12.40% 14.17%
1981 -4.91% -0.96% 14.71% 8.94% 0.59%
1982 21.41% 43.79% 10.54% 3.87% 28.19%
1983 22.51% 4.70% 8.80% 3.80% 12.64%
1984 6.27% 16.39% 9.85% 3.95% 11.03%
1985 32.16% 30.90% 7.72% 3.77% 26.77%
1986 18.47% 19.85% 6.16% 1.13% 16.56%
1987 5.23% -0.27% 5.46% 4.41% 3.08%
1988 16.81% 10.70% 6.35% 4.42% 12.28%
1989 31.49% 16.23% 8.37% 4.65% 20.76%
1990 -3.17% 6.87% 7.52% 6.11% 2.98%
1991 30.55% 19.79% 5.88% 3.06% 21.31%
1992 7.67% 9.39% 3.51% 2.90% 7.53%
1993 10.06% 13.17% 2.89% 2.75% 9.84%
1994 1.31% -5.76% 3.90% 2.67% -1.00%
1995 37.40% 27.20% 5.60% 2.70% 26.90%
1996 23.10% 1.40% 5.20% 3.30% 10.84%
1997 33.40% 12.90% 7.10% 1.70% 19.94%
1998 28.58% 10.76% 4.86% 1.61% 16.70%
</TABLE>
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
-82-
<PAGE>
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.
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
-83-
<PAGE>
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. The following lists various analysts and the
Sub-Adviser with whom they are associated: Pacific Investment Management -- Jane
Howe, Mark Hudoff, Doris Nakamura and Ray Kennedy.
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 AND OTHER COMPLIANCE EFFORTS OF THE ADVISER
The Adviser and its affiliates are currently in the process of attempting
to ensure that all trading, accounting, and other systems are able to be Year
2000 compliant. The Year 2000 problem is the inability of computer systems to
correctly identify dates beyond December 31, 1999.
The Adviser began to take inventory of all systems in 1997 in order to
resolve these issues on a company-wide scale. The Adviser and its affiliates
have taken steps to understand the costs and work involved with fixing both
proprietary and purchased software, as well as to contact vendors and agencies
with which the Adviser and its affiliates interface.
Currently, the Adviser's estimate is that the cost necessary to make all
systems compatible will not be material. The Adviser's plan to identify and
remedy potentially disruptive Year 2000 problems addresses the following areas:
internally developed software, purchased software, exchanges with external data
partners, external suppliers, customers, and embedded chip devices. It is
anticipated that the conversion will continue into 1999 and will be completed on
time. Management of the Adviser is aware that unidentifiable complication may
trigger significantly greater expenses, however it feels that it will have the
necessary liquidity to resolve them in the event these factors become material.
Due to the nature of the Year 2000 problem, it is impossible to guarantee or
assure that there will not be disruptions or adverse results arising as a
consequence of entering the Year 2000.
Another potential computer system problem may arise in conjunction with the
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.
-84-
<PAGE>
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold annual
meetings of Trust shareholders to elect Trustees or for other purposes. It is
not anticipated that the Trust will hold shareholders' meetings unless required
by law or the Declaration of Trust. In this regard, the Trust will be required
to hold a meeting to elect Trustees to fill any existing vacancies on the Board
if, at any time, fewer than a majority of the Trustees have been elected by the
shareholders of the Trust. Shareholders may remove a person serving as Trustee
either by declaration in writing or at a meeting called for such purpose. The
Trustees are required to call a meeting for the purpose of considering the
removal of a person serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust. In the
event that such a request was made, the Trust has represented that it would
assist with any necessary shareholder communications. Shareholders of a class of
shares have different voting rights with respect to matters that affect only
that class.
All classes of shares of the Funds 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. 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
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.
-85-
<PAGE>
CERTAIN OWNERSHIP OF TRUST SHARES
As of March 10, 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 March 10, 1999, the following
persons owned of record or beneficially 5% or more of the noted class of shares
of the following Funds:
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownership Class Owned
--------- -----------
PIMCO EQUITY INCOME FUND
- ------------------------
<S> <C> <C>
INSTITUTIONAL
Bank of New York Western Trust Co. 1,596,590.722 17.05%
as Trustee for
Pacific Life Insurance Company R.I.S.P.
700 S. Flower Street, 2nd Floor
Los Angeles, California 90017
AM Castle & Co Emp Pension Equity Seg 1,110,620.192 11.86%
A/C #22-39912
P.O. Box 92956
Chicago, Illinois 60675-2956
Santa Barbara Foundation 827,338.480 8.84%
15 East Carrillo Street
Santa Barbara, California 93101-2780
AM Castle & Company Employee P/S/P Equity Fund 792,451.763 8.46%
A/C #22-39919
P.O. Box 92956
Chicago, Illinois 60675-2956
Northern Trust Company as Trustee for 698,200.084 7.46%
Brush Wellman Inc.
P.O. Box 92956
Chicago, Illinois 60675-0001
Bank of America NT&SA as Trustee for 622,439.676 6.65%
Mazda Motor of America
P.O. Box 3577, Terminal Annex
Los Angeles, California 90051-1577
ADMINISTRATIVE
First Union National Bank ** 642,713.805 66.57%
401 S. Tyon Street, FRB-3
CMG Fiduciary Operations Funds Group
Mail Code CMG-2-1151
Charlotte, North Carolina 28288-1151
</TABLE>
-86-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Invesco Trust Co. TTEE FBO Lykes Retirement 292,197.983 30.27%
Savings Plan
P.O. Box 77405
Atlanta, Georgia 30357
CLASS A
Carn & Co. ** 232,673.427 21.51%
USI Insurance Services Corporation
401(k) Plan
P.O. Box 96211
Washington, D.C. 20090-6211
Merrill Lynch Pierce Fenner & Smith Inc. ** 139,173.858 12.87%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Khosrow B. Semnani 80,450.418 7.44%
P.O. Box 3508
Salt Lake City, Utah 84110-3508
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc. ** 155,688.363 12.00%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc. ** 151,028.362 9.58%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO VALUE FUND
- ----------------
INSTITUTIONAL
Pacific Life Insurance Company 2,603,373.475 40.45%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
The Northern Trust Company as Trustee for 1,007,082.875 15.65%
Great Lakes Chemical Corporation
P.O. Box 92956
Chicago, Illinois 00006-0690
</TABLE>
-87-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
CMTA-GMPP & Allied Workers Pension Trust 804,467.423 12.50%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
BAC Local #19 Pension Trust 498,085.448 7.74%
Attn: Allied Administrators Inc.
777 Davis Street
San Francisco, California 94126-2500
Pacific Life Foundation 355,120.450 5.52%
Attn: Michele Myszka
700 Newport Center Drive
Newport Beach, California 92660-6307
California Race Track Association 342,172.277 5.32%
P.O. Box 60014
Arcadia, California 91006-6014
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc. ** 161,913.220 11.99%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc. ** 490,647.737 20.45%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc. ** 499,971.158 9.06%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
FTC & Co.** 307,787.457 5.58%
Datalynx House Acct.
P.O. Box 1731736
Denver, Colorado 80217-3736
</TABLE>
-88-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
PIMCO VALUE 25 FUND
- -------------------
INSTITUTIONAL
PIMCO Advisors L.P. 18,879.408 100.00%
Attn: R. M. Fitzgerald
800 Newport Center Drive
Newport Beach, California 92660
CLASS A
Larry Bouman 28,686.387 46.35%
7428 Old Maple Square
McLean, Virginia 22102-2817
Donaldson Lufkin Jenrette 10,712.440 17.31%
Securities Corporation Inc.**
P.O. Box 2052
Jersey City, New Jersey 07303-2052
CLASS B
Painewebber for the Benefit of 6,127.451 16.27%
B & K Tool and Die Corp. TTEE
B & K Employees Retirement Plan UA DTD 43063
2528 Mount Royal Road
Pittsburgh, Pennsylvania 15217-2541
Raul Llanos Trust 5,981.800 15.88%
APMC Pension Profit Sharing Plan
3749 N. Causeway Blvd., Suite B
Metairie, Louisianna 70002-1740
BSDT CUST 403-B Plan 3,332.676 8.85%
St. Lukes Hospital
For the Benefit of Particia A. Krenn
2 S. Halstead Street
Allentown, Pennsylvania 18103-2602
BSDT CUST Rollover IRA 3,081.106 8.18%
For the Benefit of Ellen J. Stetler
411 E. Oxford Street
Coopersburg, Pennsylvania 18036-1534
</TABLE>
-89-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
CLASS C
PIMCO Advisors L.P. 18,791.978 20.86%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
Raymond James & Associates, Inc. CSDN 12,717.359 14.12%
Sandra J. Jordan IRA
71 Silo Ridge Road, E
Orland Park, Illinois 60467-7329
Merrill Lynch Pierce Fenner & Smith Inc. ** 6,444.032 7.15%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
BSDT CUST IRA For the Benefit of 6,229.131 6.92%
Howard G. Wold
1002 City Park Blvd.
Alexandria, Louisiana 71301-5113
PIMCO SMALL CAP VALUE FUND
- --------------------------
INSTITUTIONAL
Pacific Mutual Life Insurance Company 421,949.197 11.78%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Mac & Company Account #855-577 356,739.470 9.96%
Mellon Bank NA
Mutual Funds
P.O. Box 320
Pittsburgh, Pennsylvania 15230-0320
Little Company Of Mary Hospital 313,164.978 8.74%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Lucile Packard Foundation for Children 230,162.916 6.43%
725 Welch Road
Palo Alto, California 94304
</TABLE>
-90-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Charles Schwab & Co., Inc. Rein** 214,705.165 5.99%
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, California 94104-4122
ADMINISTRATIVE
National Financial Services Corporation for the 608,719.058 45.43%
Exclusive Benefit of Our Customers**
1 World Trade Center
200 Liberty Street
New York, New York 10281
First Union National Bank ** 378,706.202 28.26%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
Wells Fargo Bank TTEE FBO 88,477.392 6.60%
Choicemaster (First Interstate)
P. O. Box 9800 Mutual Funds
Calabasas, California 91302-9800
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc. ** 984,725.824 14.29%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Norwest Bank MN NA 839,362.908 12.18%
Dain Rauscher Retirement Plan
#13281312 DTD 1/97
Attn: EBS MS 0035
510 Marquette, Suite 500
Minneapolis, MN 55479-0035
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,591,200.478 24.15%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-91-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,879,253.079 25.69%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO CAPITAL APPRECIATION FUND
- -------------------------------
INSTITUTIONAL
Donaldson Lufkin & Jenrette** 6,394,176.608 23.47%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Charles Schwab & Co., Inc. - Reinvest ** 2,248,722.640 8.25%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
ADMINISTRATIVE
Invesco Trust Company FBO 2,392,331.559 25.98%
Reynolds & Reynolds 401k Plan
P. O. Box 77405
Atlanta, Georgia 30357
Certain Employee (Fidelity) ** 2,053,077.110 22.30%
100 Magetian KWIC
Covington, Kentucky 41015
New York Life Trust Company ** 1,896,222.994 20.59%
51 Madison Avenue, Room 117A
New York, New York 10010
First Union National Bank ** 1,113,766.650 12.10%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
National Financial Services Corporation for ** 724,654.053 7.87%
the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
</TABLE>
-92-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,006,574.540 26.33%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Carn & Co. 02087501 461,471.357 12.07%
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 213,859.642 5.59%
Attn: Mutual Fund Department, 5th Floor
P. O. Box 27602
Richmond, Virginia 23261-7602
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc. ** 361,213.611 16.96%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc. ** 393,767.006 12.45%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS D
Charles Schwab & Co., Inc.** 11,236.293 96.45%
Special Custody Accounts FBO Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, California 94104
PIMCO MID CAP GROWTH FUND
- -------------------------
INSTITUTIONAL
Charles Schwab & Co., Inc. - Reinvest ** 5,110,502.727 20.81%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Mid Cap Growth Fund
</TABLE>
-93-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Norwest Bank Minnesota NA Custodian FBO 1,438,254.601 5.86%
Parkview Memorial Hospital
c/o Mutual Fund Processing
733 Marquette Avenue MS 0036
Minneapolis, Minnesota 55479-0036
Donald Lufkin & Jenrette** 1,248,834.982 5.09%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
ADMINISTRATIVE
National Financial Services Corporation for ** 1,714,751.550 29.85%
the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
Certain Employee (Fidelity) ** 1,555,424.959 27.08%
100 Magellan KW1C
Covington, Kentucky 41015
UMB TTEE FBO 456,597.513 7.95%
Andrew Profit Sharing Trust
c/o American Century Services
4500 Main
Kansas City, Missouri 64111
University of South Dakota Foundation 449,766.926 7.83%
P.O. Box 5555
Vermillion, South Dakota 57069-5555
First Union National Bank ** 289,170.727 5.03%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
CLASS A
Merrill Lynch Employee Services 1,181,261.225 23.38%
Merrill Lynch Trust Company FSB FBO
401k Plans Masterworks
P. O. Box 62000
San Francisco, California 94162-0001
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,143,034.499 22.63%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
</TABLE>
-94-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Jacksonville, Florida 32246-6484
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc. ** 813,825.945 20.01%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc. ** 938,135.214 16.57%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO MICRO CAP GROWTH FUND
- ----------------------------
INSTITUTIONAL
Charles Schwab & Co., Inc. - Reinvest.** 3,130,091.063 24.54%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Donald Lufkin & Jenrette** 1,992,483.878 15.62%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Bost & Co. A/C DOMF 8526562 1,218,835.616 9.56%
Dominion Resources
Attn: Mutual Fund Operations
P. O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
University of Southern California 1,054,372.511 8.27%
Treasurer's Office
University Park, BKS 402
Los Angeles, California 90089-2541
Mac & Co. A/C 054-024 883,353.905 6.93%
Mellon Bank N.A.
Public Service of New Mexico
P. O. Box 3198
Mutual Funds Operations
Pittsburgh, Pennsylvania 15230-3198
</TABLE>
-95-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Mac & Co. A/C OBRF 3331012 FBO 759,898.614 5.96%
Oberlin College
Attn: Mutual Fund Operations
P. O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
ADMINISTRATIVE
Northern Trust as Trustee for 105,642.120 61.83%
Sunday School Board
dba LifeWay Christian Resources
P.O. Box 92956
Chicago, Illinois 60675
New York Life Trust Company ** 59,079.618 34.58%
51 Madison Avenue, Room 117A
New York, New York 10010
PIMCO SMALL CAP GROWTH FUND
- ---------------------------
INSTITUTIONAL
The Jewish Federation of 962,059.558 16.77%
Metropolitan Chicago
One South Franklin Street, Room 625
Chicago, Illinois 60606-4609
DMNH Foundation 779,461.357 13.59%
2001 Colorado Blvd.
City Park
Denver, Colorado 00008-0205
Pacific Mutual Life Insurance Company 587,412.233 10.24%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Employees Retirement System of Jersey City 568,704.115 9.91%
325 Palisade Avenue
Jersey City, New Jersey 07307-1714
Berklee College of Music, Inc. 527,683.879 9.20%
1140 Boylston Street
Boston, Massachusetts 02215-3693
</TABLE>
-96-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
ESOR & Co. A/C 1-429-144-9 473,581.005 8.25%
Associated Bank Green Bay
Trust Operations Dept.
P. O. Box 19006
Green Bay, Wisconsin 54307-9006
Auburn Theological Seminary 330,487.906 5.76%
3041 Broadway
New York, New York 10027-5710
PIMCO CORE EQUITY FUND
- ----------------------
INSTITUTIONAL
California Race Track Association 28,523.401 32.28%*
P. O. Box 60014
Arcadia, California 91006-6014
Pacific Life Foundation 29,627.208 33.53%*
700 Newport Center Drive
Newport Beach, California 92660
90/10 Portfolio 8,979.119 10.16%
Mr. Bob Venable
Pimco Advisors LP
800 Newport Center Drive
Newport Beach, California 92660
60/40 Portfolio 8,403.212 9.51%
Mr. Bob Venable
Pimco Advisors LP
800 Newport Center Drive
Newport Beach, California 92660
Michele A. Ward 4,768.500 5.40%
40 Crossbow Lane
Easton, Connecticut 06612-1256
ADMINISTRATIVE
Pimco Advisors L.P. 461.894 94.89%
800 Newport Center Dr., 6th Floor
Attn: Jesse Jue
Newport Beach, California 92660
</TABLE>
-97-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
PIMCO MID CAP EQUITY FUND
- -------------------------
INSTITUTIONAL
Pacific Mutual Life Insurance Company 361,856.905 52.81%*
700 Newport Center Drive
Newport Beach, California 92660
IFTC as Custodian for 85,615.824 12.49%
John W. Barnum
5175 Tilden Street, N.W.
Washington, D.C. 20016-1961
Pacific Life Foundation 83,180.637 12.14%
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 80,122.144 11.69%
P.O. Box 60014
Arcadia, California 91006-6014
PIMCO ENHANCED EQUITY FUND
- --------------------------
INSTITUTIONAL
Pacific Mutual Life Insurance Company 1,622,977.785 50.54%*
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
CMTA-GMPP & Allied Workers Pension 471,882.305 14.69%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
BAC Local #19 Pension Trust 292,087.721 9.10%
Attn: Allied Administrators Inc.
777 Davis Street
San Francisco, California 94126-2500
Pacific Life Foundation 213,093.693 6.64%
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 205,296.722 6.39%
P.O. Box 60014
Arcadia, California 91006-6014
</TABLE>
-98-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
PIMCO EMERGING MARKETS FUND
- ---------------------------
INSTITUTIONAL
Pacific Mutual Life Insurance Company 678,070.744 36.15%*
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc. - Reinvest ** 644,005.573 34.33%*
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Pacific Life Foundation 104,181.429 5.55%
700 Newport Center Drive
Newport Beach, California 92660
California Race Track Association 100,352.709 5.35%
P.O. Box 60014
Arcadia, California 91006-6014
Donaldson Lufkin & Jenrette** 94,818.483 5.05%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
ADMINISTRATIVE
FTC & CO - Attn: Datalynx #165 228.618 95.08%
P.O. Box 173736
Denver, Colorado 80217-3736
CLASS A
American National Bank TR 45,349.714 50.02%
FBO Emerald Investments
#36062008
40 Skokie Blvd., Suite 105
Northbrook, Illinois 60062-1614
PaineWebber FBO 13,858.444 15.29%
Donald A. Gill as Trustee for
Joseph W. Gill Irrev. Trust
U/A DTD 11-08-94
9992 Mackey Circle
Overland Park, Kansas 66212-3458
</TABLE>
-99-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
PaineWebber FBO 6,444.018 7.11%
Donald A. Gill CDN
For Timothy P. Gill
UTMA-KS
9992 Mackey Circle
Overland Park, Kansas 66212-3458
CLASS B
PAF Sales Inc. 2,347.418 9.17%
Profit Sharing Plan
P.O. Box 307
Scarborough, New York 10510-0807
Painewebber for the Benefit of 1,740.644 6.80%
Painewebber CDN FBO
Ray G. Gross
P.O. Box 3321
Weehawken, New Jersey 07087-8154
Merrill Lynch Pierce Fenner & Smith Inc.** 1,592.000 6.22%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Raymond James & Associates, Inc. CSDN 1,557.632 6.08%
Ralph R. Castaldo IRA
311 Canvasback Road
Middletown, Delaware 19709-9148
PIMCO INTERNATIONAL DEVELOPED FUND
- ----------------------------------
INSTITUTIONAL
Pacific Life Insurance Company 1,676,132.204 21.94%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc. - Reinvest ** 1,478,005.199 19.35%
Attn: Mutual Fund Operations
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Citibank, N.A., Trustee for the benefit of 1,049,235.535 13.73%
Nissan Motor Mfg. Corp. U.S.A.
983 Nissan Drive
</TABLE>
-100-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Smyrna, Tennessee 37167-4400
Wachovia Bank NA as Trustee for the 1,045,759.472 13.69%
Atlanta Gas Light Company Retirement Plan
301 N. Main Street - MC NC 31057
Winston-Salem, North Carolina 27150
ADMINISTRATIVE
FTC & CO - Attn: Datalynx #165 1,392.590 42.55%
P.O. Box 173736
Denver, Colorado 80217-3736
Northern Trust Company Custodian 961.012 29.37%
J. Robert Andrews Trustee for Sandra Hogue Trust
P.O. Box 92956
Chicago, Illinois 60675
National Financial Services Corp. for the 901.075 27.53%
Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York, New York 10281
CLASS A
BSDT CUST IRA 9,456.885 9.02%
FBO William J. Murray
Duke University Medical Center
P.O. Box 3094
Durham, North Carolina 27715-3094
NFSC FEBO #AEX-769231 6,030.043 5.75%
Marianne H. Tinnin
316 Street S.W.
Alburquerque, New Mexico 87104
Penson Financial Services, Inc. 6,029.722 5.75%
FBO 140008891
1700 Pacific Avenue, Suite 1400
Dallas, Texas 75201
</TABLE>
-101-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Oliver V. Fullilove & Mirella R. Fullilove 5,520.811 5.27%
JT TEN WROS NOT TC
245 Reedway Lane
Kirkwood, Missouri 63122-2614
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc.** 13,583.969 7.98%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
NFSC FEBO #CL5-357065 10,445.340 6.14%
Michael Schell
50 Park Ave., Apt. 18E
New York, New York 10016-3082
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc.** 19,340.056 5.49%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO BALANCED FUND
- -------------------
INSTITUTIONAL
Bank of New York Western Trust Co. 1,292,106.322 36.54%
as Trustee for
Pacific Life Insurance Company R.I.S.P.
700 S. Flower Street, 2nd Floor
Los Angeles, California 90017
Redlands Community Hospital Retirement Plan 726,294.104 20.54%
350 Terracina Boulevard
Redlands, California 92373-4850
Dominguez Services Corporation 580,383.061 16.41%
21718 South Alameda Street
Long Beach, California 90810-0351
Bank of America as Trustee for 356,611.525 10.08%
The Music Center Operating Co.
P.O. Box 2788
Los Angeles, California 90051-0788
The Northern Trust Company as Trustee for 306,609.677 8.67%
</TABLE>
-102-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Ameron 401(k)
P.O. Box 92956
Chicago, Illinois 60675
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc.** 374,741.153 40.46%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Prudential Securities Inc. 157,295.506 40.46%
FBO the PRU R K for DC Clients TTEE
MSSA-ILA Local 1985 401 K
P.O. Box 15040
New Brunswick, New Jersey 08906-5040
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc.** 367,159.851 32.06%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc.** 227,871.172 19.27%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO TARGET FUND
- -----------------
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc.** 1,523,323.890 17.92%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc.** 1,680,386.738 34.75%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc.** 14,877,537.930 25.67%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
</TABLE>
-103-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Jacksonville, Florida 32246-6484
PIMCO PRECIOUS METALS FUND
- --------------------------
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc.** 66,357.292 9.90%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc.** 51,238.817 6.13%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc.** 308,256.086 10.34%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO RENAISSANCE FUND
- ----------------------
INSTITUTIONAL CLASS
National Investors Services Corp. For The 4,640.052 98.51%
Exclusive Benefit of Our Customers**
55 Water Street, 32nd Floor
New York, New York 10041-3299
ADMINISTRATIVE
Chase Manhattan Bank TTEE FBO MetLife 12,380.033 62.26%
Defined Contribution Group
770 Broadway 10th Floor
New York, New York 10003-9598
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc.** 707,919.152 13.40%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-104-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc.** 1,439,514.059 20.15%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc.** 3,697,406.070 14.38%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS D
PIMCO Advisors, L.P. 6,072.615 91.93%
800 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc.** 532.837 8.07%
Special Custody Accounts FBO Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, California 94104
PIMCO GROWTH FUND
- -----------------
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc.** 424,001.424 6.88%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc.** 974,397.858 25.52%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc.** 8,465,982.691 12.72%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-105-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
PIMCO OPPORTUNITY FUND
- ----------------------
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc.** 895,096.886 16.74%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
American Express Trust Company 366,582.461 6.85%
FBO WESCO Distribution Inc.
Retirement Savings Plan
733 Marquette Avenue
Minneapolis, Minnesota 55402-2309
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc.** 3,436,418.609 22.36%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO INNOVATION FUND
- ---------------------
INSTITUTIONAL CLASS
Michael C. Hirsh 9,006.304 53.93%
2701 Lighthouse Lane
Corona del Mar, California 92625
Friedmar & CO
c/o The Mechanics Bank 3,055.301 18.29%
Trust Operations Dept.
3170 Hilltop Mall Road
Michael C. Hirsh 1,679.363 10.06%
2701 Lighthouse Lane
Corona del Mar, California 92625
Hamilton Limited Partnership 1,527.650 9.15%
800 15th Street
Bellingham, Washington 98225
American Society for Technion #6 1,432.430 8.58%
810 7th Avenue
New York, New York 10019
</TABLE>
-106-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc.** 1,020,856.098 15.37%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc.** 2,019,942.386 15.15%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS D
Charles Schwab & Co., Inc.** 350,633.271 99.02%
Special Custody Accounts FBO Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, California 94104
PIMCO INTERNATIONAL FUND
- ------------------------
INSTITUTIONAL
90/10 Portfolio 122,451.239 45.82%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
60/40 Portfolio 113,631.486 42.52%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
30/70 Portfolio 31,173.031 11.66%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc.** 84,857.176 7.99%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-107-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
CIBC Oppenheimer Corp. 78,057.242 7.35%
FBO 033-59550-19
P.O. Box 3484
Church Street Station
New York, New York 10008-8484
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc.** 125,220.436 15.31%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc.** 1,159,356.646 12.56%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO INTERNATIONAL GROWTH FUND
- -------------------------------
INSTITUTIONAL
Pacific Asset Management LLC 500,000.000 99.26%*
700 Newport Center Drive
Newport Beach, California 92660-6307
PIMCO STRUCTURED EMERGING MARKETS FUND
- --------------------------------------
INSTITUTIONAL
Rhode Island Foundation 895,124.811 23.84%
Attn: Robert Rosendale
150 Royall Street
Canton, Massachusetts 02021
Berklee College of Music, Inc. 526,744.087 14.03%
1140 Boylston Street
Boston, Massachusetts 02215-3693
Hartford Foundation 335,941.996 8.95%
159 E. Main Street
Rochester, New York 14638
Munsen-Williams-Proctor Institute 297,905.432 7.93%
Attn: Anthony Spiridigloizzi
310 Genesee Street
Utica, New York 13502
</TABLE>
-108-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
The Reeves Foundation 268,739.950 7.16%
115 Summit Avenue
Summit, New Jersey 07901
Deseret Mutual Retiree Med. & Life Pl. Tr. 240,847.151 6.41%
c/o Doug Burton
60 East South Temple Street
Salt Lake City, Utah 84147
Brockton Health Corp. Endowment 208,235.989 5.55%
Attn: Steven Connolly
680 Centre Street
Brockton, Massachusetts 02402-3395
PIMCO TAX-EFFICIENT EQUITY FUND
- -------------------------------
ADMINISTRATIVE
PIMCO Advisors L.P. 6,422.018 6.12%
Attn: R. M. Fitzgerald
800 Newport Center Drive
Newport Beach, California
CLASS A
Merrill Lynch Pierce Fenner & Smith Inc.** 73,485.260 18.32%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
NFSC FEBO #0C8-332321 49,164.208 12.26%
The Robb Charitable Trust
Richard A. Robb
U/A 09/04/90
56 Pilgrim Road
Marblehead, Massachusetts 01945-1750
Larry Bouman 25,182.025 6.28%
7428 Old Maple Square
McLean, Virginia 22102-2817
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc.** 128,644.222 36.81%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Donaldson Lufkin Jenrette 19,944.584 5.71%
</TABLE>
-109-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303-2052
CLASS C
Merrill Lynch Pierce Fenner & Smith Inc.** 131,286.145 18.64%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Prudential Securities Inc. FBO 54,361.877 7.72%
Tinius Olsen International Co.
1105 North Market Street, Suite 1300
P.O. Box 8985
Wilmington, Delaware 19899-8985
CLASS D
PIMCO Advisors L.P. 75,000.000 100.00%
800 Newport Center Drive
Newport Beach, California 92660
INSTITUTIONAL
Alscott Investments, LLC 994,743.878 20.49%
501 Baybrook Court
Boise, Idaho 83706
Verb & Company (Weyerhaeuser) 810,937.720 16.70%
4380 S.W. Macadam, Suite 450
Portland, Oregon 97201
Waycrosse, Inc./International Equity Fund II 624,830.101 12.87%
P. O. Box 9300, MS 28
Minneapolis, Minnesota 55440-9300
Ruby Trust 588,903.067 12.13%
499 Park Avenue
New York, New York 10022
Alscott Investments, LLC 479,994.043 9.89%
501 Baybrook Court
Boise, Idaho 83706
Topaz Trust 348,346.312 7.17%
499 Park Avenue
New York, New York 10022
</TABLE>
-110-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
30/70 PORTFOLIO
- ---------------
INSTITUTIONAL
PIMCO Advisors L.P. 991.080 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
ADMINISTRATIVE
PIMCO Advisors L.P. 991.080 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
CLASS A
Donaldson Lufkin Jenrette 6,046.512 27.84%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey
Raymond James & Assoc. Inc. 2,490.040 11.47%
FAO Carolyn Union Grdn
FBO Carol L. Pearce (PASS)
A/C# 79537625
Route 3, Box 364
Lake City, Florida 32025
Raymond James & Assoc. Inc. 2,490.040 11.47%
FAO Carolyn Union Grdn
FBO Jessica M. Pearce
A/C# 79537625 (PASS)
Route 3, Box 364
Lake City, Florida 32025
Robert Selecky 2,360.314 10.87%
25 Alyea Street
Newark, New Jersey 07105-3201
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc. ** 24,382.896 16.10%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-111-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
BSDT CUST IRA 24,023.026 15.87%
FBO Miriam P. Squillace
1941 E. River Road
Livingston, Montana 59047-9146
A. G. Edwards & Sons, Inc. C/F 22,621.708 14.94%
Dr. James R. Drake
IRA Account
3004 Brownwood Drive
Chattanooga, Tennessee 37404-6309
Janney Montgomery Scott, Inc. 13,682.201 9.04%
A/C 1021-6717
Joseph L. Abriola & Gloria C. Abriola JT TEN
1801 Market Sreet
Philadelphia, Pennsylvania 19103-1675
N. F. Verratti, Inc. 9,725.016 6.42%
Profit Sharing Plan DTD 1-1-83
Nicholas F. Verratti, Jr. TTEE
450 Knowlton Road
Media, Pennsylvania 19063
Joseph L. Abriola (IRA) 8,794.903 5.81%
JMS Inc. CUST FBO
A/C 1021-6665
2 Steeplechase Lane
Blue Bell, Pennsylvania 19422-2460
Raymond James & Assoc. Inc. CSDN 2,490.040 11.47%
Cynthia Neff IRA
1664 Lewis Drive
Lakewood, Ohio 44107
CLASS C
Everen Securities, Inc. 43,857.450 15.41%
A/C 1608-3222
Bohlman Drugstore, Inc.
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
Everen Securities, Inc. 21,546.115 7.57%
A/C 6072-0770
Gilbert R. Parker
111 East Kilbourn Avenue
</TABLE>
-112-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Milwaukee, Wisconsin 53202
Everen Securities, Inc. 19,587.377 6.88%
A/C 2229-9937
Castle Rock Marine Plan #4935
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
George Goldie & Associates 18,101.895 6.36%
Money Purchase Plan
FBO George Goldie
155 Normandy Court
San Carlos, California 94070-1542
BSDT CUST Rollover IRA FBO 14,742.915 5.18%
Patricia C. Gabriel
1680 Lithia Way
Talent, Oregon 97540
90/10 PORTFOLIO
- ---------------
INSTITUTIONAL
PIMCO Advisors L.P. 916.590 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
ADMINSTRATIVE
PIMCO Advisors L.P. 916.590 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
CLASS A
Raymond James & Associates, Inc. CSDN 3,134.674 11.76%
Deborah L. Lean RIRA
3919 Chestnut Drive
Tacoma, Washington 98466
Raymond James & Associates, Inc. CSDN 2,649.020 9.94%
Daniel R. Lean RIRA
3919 Chestnut Drive
Tacoma, Washington 98466
Holly E. Allingham 2,595.745 9.74%
6044 S. Oakes Streete
</TABLE>
-113-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Tacoma, Washington 98409
Raymond James & Associates, Inc. CSDN 1,736.208 6.51%
Bobby G. Nelson SEP IRA
P.O. Box 570
Live Oak, FL 32060
Raymond James & Associates, Inc. CSDN 1,736.203 6.51%
Collins M. Fenton SEP IRA
13625 N. Meridian Road
Tallahassee, Florida 32312
Susan Toth CUST 1,337.944 5.02%
FBO Kelsey A. Toth UTMA MT
26 Harmony Circle Court
Missoula, Montana 59802-3341
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc. ** 24,093.708 22.88%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
McDonald Investments Inc. C/FBO 7,361.648 6.99%
Joe Scott IRA
1932 Klingensmith No. 55-A
Bloomfield Hills, Michigan 48302
Raymond James & Associates, Inc. CSDN 5,654.579 5.37%
Elise C. Arneal IRA R/O
9679 Redmont Road N.E.
Albuquerque, New Mexico 87109-6813
CLASS C
James A. Kamish & Phillip O. Messner TRS 33,079.106 7.94%
UA May 01 87
Kamish & Sons Inc., Profit Sharing Plan
6010 Concord Blvd.
Inver Grove Heights, Minnesota 55076-1806
60/40 PORTFOLIO
- ---------------
INSTITUTIONAL
PIMCO Advisors L.P. 947.867 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
</TABLE>
-114-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Newport Beach, California 92660
ADMINSTRATIVE
PIMCO Advisors L.P. 947.867 100.00%
Attn: Vinh Nguyen
800 Newport Center Drive
Newport Beach, California 92660
CLASS A
Donaldson Lufkin Jenrette 9,650.333 13.47%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303-9998
Donaldson Lufkin Jenrette 9,341.637 13.04%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303-9998
BSDT CUST IRA FBO 8,272.294 11.55%
Barbara L. Kistner
11611 S. Normandy
Worth, Illinois 60482
BSDT CUST Rollover IRA FBO 4,221.436 5.89%
Gwynneth A. Jones
48N. Allen Drive
Lodi, California 95242-2809
BSDT CUST Rollover IRA FBO 3,888.742 5.43%
Christi M. Fried
6400 Analitas Dr.
Lodi, California 95240-0801
BSDT CUST IRA FBO 3,827.394 5.34%
Franklyn N. Smith
2301 E. Oakland, Suite 1
Bloomington, Illinois 61701-5866
Raymond James & Associates, Inc. DSDN 3,757.511 5.25%
Winona M. Delaney IRA
5607 N. 41st Street
Tacoma, Washington 98407-2703
</TABLE>
-115-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
CLASS B
Merrill Lynch Pierce Fenner & Smith Inc. ** 22,651.441 9.02%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
BSDT CUST IRA FBO 20,728.953 8.26%
Rodney W. Spears
6409 State Road BB
W. Plains, Missouri 65775
Painewebber For the Benefit of 18,455.134 7.35%
Painewebber FBO
Elizabeth B. Stoeffler
P.O. Box 3321
Weehawken, New Jersey 07087-8154
BSDT CUST Rollover IRA FBO 16,029.733 6.39%
Sue L. Wheeler
3874 County Road 6920
West Plains, Missouri 65775-7621
BSDT CUST Rollover IRA FBO 15,500.269 6.18%
Ronald E. Frommel
2837 State Route 76
Willow Springs, Missouri 65793-8259
Raymond James & Associates, Inc. CSDN 13,972.815 5.57%
James L. Carnathan IRA
1301 East St.
Tarentum, Pennsylvania 15084
CLASS C
Everen Securities, Inc. 48,327.138 10.07%
A/C 5650-1283
Jeffrey LE B Morse
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
Everen Securities, Inc. 41,551.247 8.66%
A/C 2884-6490
Sheila T. Fitzgerald
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
</TABLE>
-116-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding
Beneficial Shares of
Ownnership Class Owned
---------- -----------
<S> <C> <C>
Everen Securities, Inc. 34,132.841 7.11%
A/C 6318-1885
Rachel G. Pontzer
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
</TABLE>
- ---------------------------------------------
* Entity owned 25% or more of the outstanding shares of beneficial interest of
the Fund, and therefore may be presumed to Acontrol@ 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 separate sub-custody agreements between IFTC and The Chase Manhattan
Bank, N.A. ("Chase"), and IFTC and State Street Bank and Trust Company ("State
Street"), Chase and State Street serve as subcustodians of the Trust for the
custody of the foreign securities acquired by those Funds that invest in foreign
securities. Under the agreements, Chase and State Street may hold foreign
securities at their principal offices and their branches, and subject to
approval by the Board of Trustees, at a foreign branch of a qualified U.S. bank,
with an eligible foreign subcustodian, or with an eligible foreign securities
depository.
Pursuant to rules or other exemptions under the 1940 Act, the Trust may
maintain foreign securities and cash in the custody of certain eligible foreign
banks and securities depositories. Selection of these foreign custodial
institutions is currently made by the Board of Trustees following a
consideration of a number of factors, including (but not limited to) the
reliability and financial stability of the institution; the ability of the
institution to perform capably custodial services for the Trust; the reputation
of the institution in its national market; the political and economic stability
of the country in which the institution is located; and further risks of
potential nationalization or expropriation of Trust assets, although the
Trustees reserve the right to delegate their selection responsibilities in light
of recent amendments to Rule 17f-5 under the 1940 Act, in which case the factors
for consideration would differ from those referenced above. Currently, the Board
of Trustees reviews annually the continuance of foreign custodial arrangements
for the Trust, but reserves the right to discontinue this practice as permitted
by the recent amendments to Rule 17f-5. No assurance can be given that the
Trustees' appraisal of the risks in connection with foreign custodial
arrangements will always be correct or that expropriation, nationalization,
freezes, or confiscation of assets that would impact assets of the Funds will
not occur, and shareholders bear the risk of losses arising from these or other
events.
-117-
<PAGE>
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.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectuses do not
contain all of the information included in the Trust's registration statements
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statements, including the exhibits
filed therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectuses as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the relevant registration statement, each such
statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
Audited financial statements for the Funds, as of June 30, 1998, for the
fiscal year then ended, including notes thereto, and the reports of
PricewaterhouseCoopers LLP thereon, each dated August 17, 1998, are incorporated
by reference from the Trust's three June 30, 1998 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, and another (the "Class D Annual Report") corresponds
to the Class D Prospectus. The Trust's June 30, 1998 Annual Reports are on file
electronically with the SEC (Retail Annual Report filed on September 8, 1998,
Accession No. 0001017062-98-001959; Institutional Annual Report - filed on
September 4, 1998, Accession No. 00010107062-98-001952; Class D Annual Report -
filed on September 8, 1998, Accession No. 0001017062-98-001961). The Portfolios
were not operational during the reporting periods ended June 30, 1998.
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.
-118-
<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
