<PAGE>
As filed with the Securities and Exchange Commission on November 13, 2000.
Registration Nos. 33-36528;
811-6161
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
---
Pre-Effective Amendment No. ___ / /
---
Post-Effective Amendment No. 54 / X /
---
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 / X /
---
Amendment No. 58 / X /
---
PIMCO FUNDS: MULTI-MANAGER SERIES
(Exact Name of Registrant as Specified in Charter)
840 Newport Center Drive, Newport Beach, CA 92660
(Address of principal executive offices) (Zip code)
(800) 427-4648
(Registrant's telephone number, including area code)
Name and address
of agent for service: Copies to:
--------------------- ----------
Stephen J. Treadway Newton B. Schott, Jr., Joseph B. Kittredge, Esq.
c/o PIMCO Funds Esq. Ropes & Gray
Distributors LLC c/o PIMCO Funds One International Place
2187 Atlantic Street Distributors LLC Boston, Massachusetts
Stamford, Connecticut 2187 Atlantic Street 02110
06902 Stamford, Connecticut
06902
It is proposed that this filing will become effective (check appropriate box):
/ X / Immediately upon filing pursuant to paragraph (b)
---
/ / On [date] pursuant to paragraph (b)
---
/ / 60 days after filing pursuant to paragraph (a)(1)
---
/ / On [date] pursuant to paragraph (a)(1)
---
/ / 75 days after filing pursuant to paragraph (a)(2)
---
/ / On [date] pursuant to paragraph (a)(2) of rule 485
---
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
--- previously filed post-effective amendment.
This post-effective amendment relates only to PIMCO Opportunity and
Small-Cap Value Funds, two series of the Registrant. No information
relating to any other series of the Registrant or to Class A, B, C or
Institutional or Administrative Class shares of the Funds is amended or
superseded hereby.
<PAGE>
PIMCO FUNDS: MULTI-MANAGER SERIES
Supplement Dated [ ]
to the
Prospectus for Class D Shares
Dated November 1, 2000
Disclosure Relating to PIMCO Opportunity Fund
The following Fund Summary is added to the PIMCO Funds: Multi-Manager Series
Prospectus for Class D shares.
1
<PAGE>
PIMCO Opportunity Fund
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Approximate
Investments Seeks capital Smaller Capitalization Range
and appreciation, no capitalization Between $100 million
Strategies consideration is common stocks and $2 billion
given to income
Approximate Number Dividend Frequency
of Holdings At least annually
60-100
The Fund seeks to achieve its investment objective by normally
investing at least 65% of its assets in common stocks of "growth"
companies with market capitalizations of between $100 million and
$2 billion at the time of investment.
The portfolio manager selects stocks for the Fund using a
"growth" style. The portfolio manager seeks to identify companies
with well-defined "wealth creating" characteristics, including
superior earnings growth (relative to companies in the same
industry or the market as a whole), high profitability and
consistent, predictable earnings. In addition, through fundamental
research, the portfolio manager seeks to identify companies that
are gaining market share, have superior management and possess a
sustainable competitive advantage, such as superior or innovative
products, personnel and distribution systems. The Fund looks to
sell a stock when the portfolio manager believes that its
earnings, market sentiment or relative performance are
disappointing or if an alternative investment is more attractive.
The Fund may also invest to a limited degree in other kinds of
equity securities, including preferred stocks and convertible
securities. The Fund may invest up to 15% of its assets in foreign
securities, except that it may invest without limit in American
Depository Receipts (ADRs). The Fund has in the past invested a
significant portion of its assets in technology or technology-related
companies, although there is no assurance that it will continue to do
so in the future.
In response to unfavorable market and other conditions, the Fund
may make temporary investments of some or all of its assets in
high-quality fixed income securities. This would be inconsistent
with the Fund's investment objective and principal strategies.
-------------------------------------------------------------------------------
Principal Risks
Among the principal risks of investing in the Fund, which could
adversely affect its net asset value, yield and total return, are:
.Market Risk .Liquidity Risk .Credit Risk
.Issuer Risk .Foreign .Management Risk
.Growth Securities Investment Risk
Risk .Currency Risk
.Smaller Company .Focused Investment Risk
Risk .Interest Rate Risk
.Technology Related
Risk
2
<PAGE>
PIMCO Opportunity Fund (continued)
Performance The following shows summary performance information for the Fund
Information in a bar chart and an Average Annual Total Returns table. The
information provides some indication of the risks of investing in
the Fund by showing changes in its performance from year to year and
by showing how the Fund's average annual returns compare with the
returns of a broad-based securities market index and an index of
similar funds. The bar chart, the information to its right and the
Average Annual Total Returns table show performance of the Fund's
Class C shares, which are offered in a different prospectus. This is
because the Fund did not offer Class D shares during the periods
shown. Although Class D and Class C shares would have similar annual
returns (because all the Fund's shares represent interests in the
same portfolio of securities), Class D performance would be higher
than Class C performance because of the higher expenses paid by
Class C shares.
The Average Annual Total Returns table also shows estimated
historical performance for Class D shares. The estimated Class D
performance is based on the performance of the Fund's
Class C shares, adjusted to reflect the actual distribution and/or
service (12b-1) fees and other expenses paid by Class D shares.
Prior to March 6, 1999, the Fund had a different sub-adviser and
would not necessarily have achieved the performance results shown on
the next page under its current investment management arrangements.
Past performance is no guarantee of future results.
Calendar Year Total Returns -- Class C
More Recent Return
Information
--------------------
1/1/00-
9/30/00 5.06%
Highest and Lowest
Quarter Returns
(for periods shown
in the bar chart)
--------------------
Highest (4th Qtr.
'99) 45.70%
--------------------
Lowest (3rd Qtr.
'98) -25.78%
[GRAPH]
1990 -7.34%
1991 68.08%
1992 28.46%
1993 36.16%
1994 -4.74%
1995 41.43%
1996 11.54%
1997 -4.75%
1998 1.29%
1999 63.99%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years 10 Years (2/24/84)(/3/)
------------------------------------------------------------------------------------
Class C 62.99% 20.09% 20.55% 18.93%
------------------------------------------------------------------------------------
Class D 65.19% 20.99% 21.45% 19.86%
------------------------------------------------------------------------------------
Russell 2000 Index(/1/) 21.25% 16.69% 13.40% 12.49%
------------------------------------------------------------------------------------
Lipper Small-Cap Growth Fund Average(/2/) 61.78% 22.83% 18.12% 15.00%
------------------------------------------------------------------------------------
</TABLE>
(1) The Russell 2000 Index is a capitalization weighted broad
based index of 2,000 small capitalization U.S. stocks. It is
not possible to invest directly in the index.
(2) The Lipper Small-Cap Growth Funds Average is a total return
performance average of funds tracked by Lipper Analytical
Services, Inc. that invest primarily in companies with market
capitalizations of less than 250% of the dollar-weighted median
market capitalization of the S&P Small-Cap 600 Index. It does
not take into account sales charges.
(3) The Fund began operations on 2/24/84. Index comparisons begin
on 2/29/84.
3
<PAGE>
PIMCO Opportunity Fund (continued)
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class D shares of the Fund:
of the
Fund
Shareholder Fees (fees paid directly from your investment)None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
--------------------------------------------------------------------
Class D 0.65 0.25% 0.40% 1.30%
--------------------------------------------------------------------
(1) The Fund's administration agreement includes a plan for Class
D shares that has been adopted in conformity with the
requirements set forth in Rule 12b-1 under the Investment
Company Act of 1940. Up to 0.25% per year of the total
Administrative Fee paid under the administration agreement may
be Distribution and/or Service (12b-1) Fees. The Fund will pay
a total of 0.65% per year under the administration agreement
regardless of whether a portion or none of the 0.25%
authorized under the plan is paid under the plan. Please see
"Management of the Funds--Administrative Fees" for details.
The Fund intends to treat any fees paid under the plan as
"service fees" for purposes of applicable rules of the
National Association of Securities Dealers, Inc. (the "NASD").
To the extent that such fees are deemed not to be "service
fees," Class D shareholders may, depending on the length of
time the shares are held, pay more than the economic
equivalent of the maximum front-end sales charges permitted by
relevant rules of the NASD.
(2) Other Expenses reflects the portion of the Administrative Fee
paid by the class that is not reflected under Distribution
and/or Service (12b-1) Fees.
Examples. The Examples below are intended to help you compare
the cost of investing in Class D shares of the Fund with the
costs of investing in other mutual funds. The Examples assume
that you invest $10,000 in Class D shares for the time periods
indicated, and then redeem all your shares at the end of those
periods. The Examples also assume that your investment has a 5%
return each year, the reinvestment of all dividends and
distributions, and the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, the
Examples show what your costs would be based on these
assumptions.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $132 $412 $713 $1,568
--------------------------------------------------------------------
</TABLE>
4
<PAGE>
Changes to "Summary of Principal Risks"; "Management of the Funds";
"How Fund Shares are Priced"; "How to Buy and Sell Shares";
"Fund Distributions"; "Tax Consequences"; and "Characteristics and
Risks of Securities and Investment Techniques"
Disclosure for PIMCO Opportunity Fund for the sections of the
Prospectus listed above is incorporated by reference from the
corresponding sections of the Prospectus. Except as expressly set
forth herein or therein or as the context otherwise requires,
references to a "Fund" or the "Funds" in these sections are
deemed to refer to PIMCO Opportunity Fund.
PIMCO Advisors serves as Investment Adviser and Administrator
for the Fund. The Fund pays monthly advisory fees to PIMCO
Advisors at the annual rate of 0.65% of the average daily net
assets of the Fund. The Fund pays PIMCO Advisors monthly
administrative fees at the annual rate of 0.65% of the average
daily net assets attributable in the aggregate to the Fund's
Class D shares. As described in the Prospectus under "Management
of the Funds--12b-1 Plan for Class D Shares," the administration
agreement includes a plan adopted in conformity with Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act") which
provides for the payment of up to 0.25% of the 0.65%
Administrative Fee 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 "Annual Fund Operating
Expenses" table on the prior page shows the 0.65% Administrative
Fee rate under two separate columns entitled "Distribution
and/or Service (12b-1) Fees" and "Other Expenses."
Michael F. Gaffney of FIMCO Equity Advisors (which serves as
Sub-Adviser to the Fund) has served as the portfolio manager of
the Fund since March 1999. Information about PIMCO Advisors and
PIMCO Equity Advisors is set forth in the Prospectus under
"Management of the Funds." Mr. Gaffney is a Managing Director
of PIMCO Equity Advisors, where he manages the Opportunity Fund
and other small-cap products. Prior to joining PIMCO Advisors, he
was with Alliance Capital Management L.P. from 1993 to 1999,
serving in various capacities including as Senior Vice President
and Portfolio Manager.
The Fund intends to declare and distribute income dividends to
shareholders of record at least annually.
Changes to "Summary of Principal Risks"
The section of the Prospectus captioned "Summary of Principal Risks"
is amended as follows:
<PAGE>
1. The subsection captioned "Growth Securities Risk" is
revised to indicate that PIMCO Opportunity Fund is
particularly susceptible to these risks.
2. The subsection captioned "Smaller Company Risk" is revised
to indicate that PIMCO Opportunity Fund has significant exposure
to this risk because it may invest significantly in companies
with smaller market capitalizations.
Changes to "Characteristics and Risks of Securities and Investment
Techniques"
The section of the Prospectus captioned "Characteristics and Risks
of Securities and Investment Techniques" is amended as follows:
1. The disclosure for PIMCO Opportunity Fund in the subsection captioned
"Fixed Income Securities and Defensive Strategies" is the same as
the disclosure for PIMCO Innovation Fund.
2. The subsection captioned "Foreign Securities" is amended to
indicate that PIMCO Opportunity Fund may invest up to 15% of its
assets in foreign securities, and may invest in ADRs, EDRs and GDRs.
3. The subsection captioned "Foreign Currencies" is amended to
indicate that PIMCO Opportunity Fund may enter into forward
foreign currency exchange contracts to reduce the risks of
adverse changes in foreign exchange rates.
4. The subsection captioned "Derivatives" is amended to indicate
that PIMCO Opportunity Fund may purchase and sell (write)
call and put options on securities, securities indexes and
foreign currencies. PIMCO Opportunity Fund may also purchase
and sell futures contracts and options thereon with respect to
securities, securities indexes and foreign currencies.
5. The subsection captioned "Companies with Smaller Market
Capitalizations" is revised to indicate that PIMCO Opportunity
Fund has significant exposure to the risks discussed in
this section because it may invest significantly in companies
with small market capitalizations.
6
<PAGE>
6. The subsection captioned "Changes in Investment Objectives and
Policies" is revised by adding the following disclosure:
The investment objective of the Opportunity Fund may be changed
by the Board of Trustees without shareholder approval.
Financial Highlights
PIMCO Opportunity Fund did not offer Class D shares during the
periods indicated, and therefore Financial Highlights for the Fund
are not included.
7
<PAGE>
PIMCO FUNDS: MULTI-MANAGER SERIES
Supplement Dated [ ], 2000
to the
Prospectus for Class D Shares
Dated November 1, 2000
Disclosure Relating to PIMCO Small-Cap Value Fund
The following Fund Summary is added to the Prospectus.
1
<PAGE>
PIMCO Small-Cap Value Fund
--------------------------------------------------------------------------------
Principal Investment Fund Focus Approximate
Investments Objective Undervalued smaller Capitalization Range
and Seeks long-term capitalization Between $100 million
Strategies growth of capital common stocks and $1.5 billion
and income
Approximate Number Dividend Frequency
of Holdings At least annually
100
The Fund seeks to achieve its investment objective by normally
investing at least 65% of its assets in common stocks of companies
with market capitalizations of between $100 million and $1.5
billion at the time of investment and below average P/E ratios
relative to the market and their respective industry groups. To
achieve income, the Fund invests a portion of its assets in
income-producing (e.g., dividend-paying) common stocks.
The Fund's initial selection universe consists of approximately
4,500 stocks of companies within the Fund's capitalization range.
The portfolio managers screen this universe to identify
approximately 500 undervalued stocks representing approximately
160 industry groups. This screening process is based on a number
of valuation factors, including P/E ratios (calculated both with
respect to trailing operating earnings and forward earnings
estimates) and price-to-sales, price-to-book value, and price-to-
cash flow ratios. These factors are considered both on a relative
basis (compared to other stocks in the same industry group) and on
an absolute basis (compared to the overall market).
From this narrowed universe, the portfolio managers select
approximately 100 stocks for the Fund, each of which has close to
equal weighting in the portfolio. They select stocks based on a
quantitative analysis of factors including price momentum (based
on changes in stock price relative to changes in overall market
prices), earnings momentum (based on analysts' earnings per share
estimates and revisions to those estimates), relative dividend
yields and trading liquidity. The portfolio is also structured to
have a maximum weighting of no more than 10% in any one industry.
The portfolio managers may replace a stock if its market
capitalization becomes excessive, if its valuation exceeds the
average valuation of stocks represented in the S&P 500 Index, or
when a stock within the same industry group has a considerably
lower valuation than the Fund's current holding.
Under normal circumstances, the Fund intends to be fully
invested in common stocks (aside from certain cash management
practices). The Fund may temporarily hold up to 10% of its assets
in cash and cash equivalents for defensive purposes in response to
unfavorable market and other conditions. This would be
inconsistent with the Fund's investment objective and principal
strategies.
--------------------------------------------------------------------------------
Principal Risks
Among the principal risks of investing in the Fund, which could
adversely affect its net asset value, yield and total return, are:
. Market Risk . Liquidity Risk . Credit Risk
. Issuer Risk . Focused Investment Risk . Management Risk
. Value Securities
Risk
. Smaller Company
Risk
2
<PAGE>
PIMCO Small-Cap Value Fund (continued)
Performance The following shows summary performance information for the Fund
Information in a bar chart and an Average Annual Total Returns table. The
information provides some indication of the risks of investing in
the Fund by showing changes in its performance from year to year
and by showing how the Fund's average annual returns compare with
the returns of a broad-based securities market index and an index
of similar funds. The bar chart, the information to its right and
the Average Annual Total Returns table show performance of the
Fund's Institutional Class shares, which are offered in a
different prospectus. This is because the Fund did not offer Class
D shares during the periods shown. Although Class D and
Institutional Class shares would have similar annual returns
(because all the Fund's shares represent interests in the same
portfolio of securities), Class D performance would be lower than
Institutional Class performance because of the higher expenses
paid by Class D shares.
The Average Annual Total Returns table also shows estimated
historical performance for Class D shares. The estimated Class D
performance is based on the performance of the Fund's
Institutional Class shares, adjusted to reflect the actual
distribution and/or service (12b-1) fees and other expenses paid
by Class D shares. Past performance is no guarantee of future
results.
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
1/1/00-
9/30/00 10.93%
Highest and Lowest
Quarter Returns
(for periods shown
in the bar chart)
--------------------
Highest (2nd Qtr.
'99) 16.39%
--------------------
Lowest (3rd Qtr.
'98) -18.61%
[GRAPH]
1992 18.27%
1993 13.39%
1994 -4.07%
1995 24.98%
1996 27.22%
1997 34.47%
1998 -9.16%
1999 -6.40%
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year 5 Years (10/1/91)/(3)/
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class -6.40% 12.97% 11.98%
--------------------------------------------------------------------------------
Class D -6.78% 12.52% 11.52%
--------------------------------------------------------------------------------
Russell 2000 Index/(1)/ 21.25% 16.69% 14.97%
--------------------------------------------------------------------------------
Lipper Small-Cap Value Funds Average/(2)/ 5.87% 13.76% 13.08%
--------------------------------------------------------------------------------
</TABLE>
(1) The Russell 2000 Index is a capitalization weighted broad based index of
2,000 small capitalization U.S. stocks. It is not possible to invest
directly in the index.
(2) The Lipper Small-Cap Value Funds Average is a total return performance
average of funds tracked by Lipper Analytical Services, Inc. that invest
primarily in companies with market capitalizations of less than 250% of the
dollar-weighted median market capitalization of the S&P Small-Cap 600
Index. It does not take into account sales charges.
(3) The Fund began operations on 10/1/91. Index comparisons begin on 9/30/91.
3
<PAGE>
PIMCO Small-Cap Value Fund (continued)
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class D shares of the Fund:
of the
Fund
Shareholder Fees (fees paid directly from your investment)None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
--------------------------------------------------------------------
Class D 0.60 0.25% 0.40% 1.25%
--------------------------------------------------------------------
(1) The Fund's administration agreement includes a plan for Class
D shares that has been adopted in conformity with the
requirements set forth in Rule 12b-1 under the Investment
Company Act of 1940. Up to 0.25% per year of the total
Administrative Fee paid under the administration agreement may
be Distribution and/or Service (12b-1) Fees. The Fund will pay
a total of 0.65% per year under the administration agreement
regardless of whether a portion or none of the 0.25%
authorized under the plan is paid under the plan. Please see
"Management of the Funds--Administrative Fees" for details.
The Fund intends to treat any fees paid under the plan as
"service fees" for purposes of applicable rules of the
National Association of Securities Dealers, Inc. (the "NASD").
To the extent that such fees are deemed not to be "service
fees," Class D shareholders may, depending on the length of
time the shares are held, pay more than the economic
equivalent of the maximum front-end sales charges permitted by
relevant rules of the NASD.
(2) Other Expenses reflects the portion of the Administrative Fee
paid by the class that is not reflected under Distribution
and/or Service (12b-1) Fees.
Examples. The Examples below are intended to help you compare
the cost of investing in Class D shares of the Fund with the
costs of investing in other mutual funds. The Examples assume
that you invest $10,000 in Class D shares for the time periods
indicated, and then redeem all your shares at the end of those
periods. The Examples also assume that your investment has a 5%
return each year, the reinvestment of all dividends and
distributions, and the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, the
Examples show what your costs would be based on these
assumptions.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $127 $397 $686 $1,511
--------------------------------------------------------------------
</TABLE>
4
<PAGE>
Changes to "Summary of Principal Risks"; "Management of the Funds"; "How Fund
Shares are Priced"; "How to Buy and Sell Shares"; "Fund Distributions";
"Tax Consequences"; and "Characteristics and Risks of Securities and
Investment Techniques"
Disclosure for PIMCO Small-Cap Value Fund for the sections of
the Prospectus listed above is incorporated by reference from
the corresponding sections of the Prospectus. Except as
expressly set forth herein or therein or as the context
otherwise requires, references to a "Fund" or the "Funds" in
these sections and are deemed to refer to PIMCO Small-Cap Value
Fund.
PIMCO Advisors serves as Investment Adviser and Administrator
for the Fund. The Fund pays monthly advisory fees to PIMCO
Advisors at the annual rate of 0.60% of the average daily net
assets of the Fund. The Fund pays PIMCO Advisors monthly
administrative fees at the annual rate of 0.65% of the average
daily net assets attributable in the aggregate to the Fund's
Class D shares. As described in the Prospectus under "Management
of the Funds--12b-1 Plan for Class D Shares," the administration
agreement includes a plan adopted in conformity with Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act") which
provides for the payment of up to 0.25% of the 0.65%
Administrative Fee 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 "Annual Fund Operating
Expenses" table on the prior page shows the 0.65% Administrative
Fee rate under two separate columns entitled "Distribution
and/or Service (12b-1) Fees" and "Other Expenses." Information
about PIMCO Advisors is set forth in the Prospectus under
"Management of the Funds." NFJ Investment Group ("NFJ") serves as sub-
adviser to the PIMCO Small-Cap Value Fund. NFJ's address is 2121 San
Jacinto, Suite 1840, Dallas, Texas 75201. Information about NFJ and the
Fund's portfolio managers is provided below.
An affiliated sub-partnership of PIMCO Advisors, NFJ provides advisory
services to mutual funds and institutional accounts. NFJ Investment
Group, Inc., the predecessor investment adviser to NFJ, commenced
operations in 1989. Accounts managed by NFJ had combined assets as of
September 30, 2000 of approximately $1.8 billion.
The following individuals at NFJ share primary responsibility for the
Fund.
<TABLE>
<CAPTION>
Fund Portfolio Manager(s) Since Recent Professional Experience
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small-Cap Value Chris Najork 10/91* Managing Director and founding
partner of NFJ. He has 30 years'
experience encompassing equity
research and portfolio management.
Prior to the formation of NFJ in
1989, he was a senior vice
president, senior portfolio manager
and analyst at NationsBank, which he
joined in 1974.
Benno J. Fischer 10/91* Managing Director and founding
partner of NFJ. He has 32 years'
experience in portfolio management,
investment analysis and research.
Prior to the formation of NFJ in
1989, he was chief investment
officer (institutional and fixed
income), senior vice president and
senior portfolio manager at
NationsBank, which he joined in
1971. Prior to joining NationsBank,
Mr. Fischer was a securities analyst
at Chase Manhattan Bank and Clark,
Dodge.
Paul A. Magnuson 7/95 Principal at NFJ. He is a Portfolio
Manager and Senior Research Analyst
with 14 years' experience in equity
analysis and portfolio management.
Prior to joining NFJ in 1992, he was
an assistant vice president at
NationsBank, which he joined in
1985. Within the Trust Investment
Qualitative Services Division of
NationsBank, he was responsible for
equity analytics and structured
fund management.
</TABLE>
-------
* Since inception of the Fund.
The Fund intends to declare and distribute income dividends to
shareholders of record at least annually.
Changes to "Summary of Principal Risks"
The section of the Prospectus captioned "Summary of Principal Risks"
is amended as follows:
5
<PAGE>
1. The subsection captioned "Value Securities Risk" is revised to
indicate that PIMCO Small-Cap Value Fund is particularly susceptible
to these risks.
2. The subsection captioned "Smaller Company Risk" is revised to
indicate that PIMCO Small-Cap Value Fund has significant exposure
to this risk because it may invest significantly in companies with
small market capitalizations.
Changes to "Characteristics and Risks of Securities and Investment
Techniques"
The section of the Prospectus captioned "Characteristics and Risks
of Securities and Investment Techniques" is amended as follows:
1. The subsection captioned "Fixed Income Securities and Defensive
Strategies" is amended by adding the following disclosure:
Under normal circumstances, the Small-Cap Value Fund intends to
be fully invested in common stocks (aside from cash management
practices), except that the Fund may temporarily hold up to 10%
of its assets in cash and cash equivalents for defensive
purposes in response to unfavorable market and other conditions.
2. The subsection captioned "Companies with Smaller Market
Capitalizations" is revised to indicate that PIMCO Small-Cap Value
has significant exposure to the risks discussed in this section
because it may invest significantly in companies with small market
capitalizations.
6
<PAGE>
3. The subsection captioned "Changes in Investment Objectives and
Policies" is revised by adding the following disclosure:
The investment objective of the Small-Cap Value Fund is fundamental and
may not be changed by the Board of Trustees without shareholder approval.
Financial Highlights
PIMCO Small-Cap Value Fund did not offer Class D shares during the periods
indicated, and therefore Financial Highlights for the Fund are
not included.
7
<PAGE>
PIMCO FUNDS: MULTI-MANAGER SERIES
STATEMENT OF ADDITIONAL INFORMATION
November 1, 2000, as revised [ ], 2000
This Statement of Additional Information is not a prospectus, and should be
read in conjunction with the prospectuses of PIMCO Funds: Multi-Manager Series
(the "Trust"), as supplemented from time to time. Through six Prospectuses, the
Trust offers up to six classes of shares of each of its "Funds" and five classes
of shares of each of its "Portfolios" (each as defined herein). Class A, Class B
and Class C shares of certain Funds are offered through the "Class A, B and C
Prospectus," dated November 1, 2000. Class D shares of certain Funds are offered
through the "Class D Prospectus," dated November 1, 2000. Institutional and
Administrative Class shares of certain Funds are offered through two separate
prospectuses, the "Trust Institutional Prospectus," dated November 1, 2000, and
the "NFJ Institutional Prospectus," dated November 1, 2000 (together, the
"Institutional Prospectus"). Class A, Class B and Class C shares of the
Portfolios are offered through the "Retail Portfolio Prospectus," dated November
1, 2000, and Institutional and Administrative Class Shares of the Portfolios are
offered through the "Institutional Portfolio Prospectus," dated November 1,
2000. The aforementioned prospectuses are collectively referred to herein as the
"Prospectuses."
Audited financial statements for the Trust, as of June 30, 2000, including
notes thereto, and the reports of PricewaterhouseCoopers LLP thereon, are
incorporated herein by reference from the Trust's five June 30, 2000 Annual
Reports. Because the Portfolios invest a portion of their assets in series of
PIMCO Funds: Pacific Investment Management Series ("PIMS"), the PIMS Prospectus
for Institutional Class shares, dated September 29, 2000 and as from time to
time amended or supplemented (the "PIMS Prospectus"), and the PIMS Statement of
Additional Information, dated September 29, 2000 and as from time to time
amended or supplemented, are also incorporated herein by reference. See
"Investment Objectives and Policies--Investment Strategies of the Portfolios--
Incorporation by Reference" in this Statement of Additional Information. A copy
of the applicable Prospectus and the Annual Report (if any) corresponding to
such Prospectus, and the PIMCO Funds Shareholders' Guide for Class A, B and C
Shares (the "Guide"), which is a part of this Statement of Additional
Information, may be obtained free of charge at the addresses and telephone
number(s) listed below.
<TABLE>
<S> <C>
Institutional and Institutional Class A, B and C, Class D,
------------------------------- --------------------------
Portfolio Prospectuses, and Retail Portfolio Prospectuses,
----------------------- ----------------------------------
Annual Reports, and the PIMS Annual Reports, the Guide and
---------------------------- -----------------------------
Prospectus and Statement of Statement of Additional
--------------------------- ----------------------
Additional Information Information
---------------------- -----------
PIMCO Funds PIMCO Funds Distributors LLC
840 Newport Center Drive 2187 Atlantic Street
Suite 300 Stamford, Connecticut 06902
Newport Beach, California 92660 Telephone: Class A, B and C - 1-800-426-0107
Telephone: 1-800-927-4648 Class D - 1-888-87-PIMCO
1-800-987-4626 (PIMCO Retail Portfolio 1-800-426-0107
Infolink Audio Response Network)
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
THE TRUST................................................................. 1
INVESTMENT OBJECTIVES AND POLICIES........................................ 2
U.S. Government Securities........................................... 2
Borrowing............................................................ 2
Preferred Stock...................................................... 3
Corporate Debt Securities............................................ 3
High Yield Securities ("Junk Bonds")................................. 4
Loan Participations and Assignments.................................. 5
Participation on Creditors Committees................................ 6
Variable and Floating Rate Securities................................ 6
Mortgage-Related and Asset-Backed Securities......................... 6
Convertible Securities............................................... 11
Equity-Linked Securities............................................. 11
Foreign Securities................................................... 11
Foreign Currencies................................................... 14
Bank Obligations..................................................... 15
Commercial Paper..................................................... 16
Money Market Instruments............................................. 16
Derivative Instruments............................................... 16
When-Issued, Delayed Delivery and Forward Commitment Transactions.... 24
Warrants to Purchase Securities...................................... 25
Repurchase Agreements................................................ 25
Securities Loans..................................................... 25
Stocks of Small and Medium Capitalization Companies.................. 26
Illiquid Securities.................................................. 26
Inflation-Indexed Bonds.............................................. 27
Delayed Funding Loans and Revolving Credit Facilities................ 27
Event-Linked Bonds................................................... 28
Hybrid Instruments................................................... 28
Investment Strategies of the Portfolios - Incorporation by Reference. 29
INVESTMENT RESTRICTIONS................................................... 29
Fundamental Investment Restrictions.................................. 29
Non-Fundamental Investment Restrictions.............................. 33
MANAGEMENT OF THE TRUST................................................... 35
Trustees and Officers................................................ 35
Trustees' Compensation............................................... 38
Investment Adviser................................................... 39
Portfolio Management Agreements...................................... 42
Fund Administrator................................................... 45
DISTRIBUTION OF TRUST SHARES.............................................. 49
Distributor and Multi-Class Plan..................................... 49
Distribution and Servicing Plans for Class A, Class B and Class C
Shares.............................................................. 50
Payments Pursuant to Class A Plans................................... 54
Payments Pursuant to Class B Plans................................... 55
Payments Pursuant to Class C Plans................................... 57
Distribution and Administrative Services Plans for Administrative
Class Shares........................................................ 60
Payments Pursuant to the Administrative Plans........................ 62
Plan for Class D Shares.............................................. 63
-i-
<PAGE>
PAGE
----
Purchases, Exchanges and Redemptions................................. 65
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 67
Investment Decisions and Portfolio Transactions...................... 67
Brokerage and Research Services...................................... 68
Portfolio Turnover................................................... 70
NET ASSET VALUE........................................................... 71
TAXATION.................................................................. 72
Distributions........................................................ 72
Sales of Shares...................................................... 74
Backup Withholding................................................... 74
Options, Futures, Forward Contracts and Swap Agreements.............. 74
Foreign Currency Transactions........................................ 75
Foreign Taxation..................................................... 75
Original Issue Discount and Pay-In-Kind Securities................... 76
Other Taxation....................................................... 76
OTHER INFORMATION......................................................... 77
Capitalization....................................................... 77
Performance Information.............................................. 78
Calculation of Yield................................................. 79
Calculation of Total Return.......................................... 80
Compliance Efforts Related to the Euro............................... 95
Voting Rights........................................................ 95
Certain Ownership of Trust Shares.................................... 96
Custodian............................................................ 96
Codes of Ethics...................................................... 96
Independent Accountants.............................................. 96
Transfer and Shareholder Servicing Agents............................ 97
Legal Counsel........................................................ 97
Registration Statement............................................... 97
Financial Statements................................................. 97
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS.................................... 1
APPENDIX B
CERTAIN OWNERSHIP OF TRUST SHARES.................................... 1
PIMCO FUNDS SHAREHOLDERS' GUIDE FOR CLASS A, B AND C SHARES............... SG-1
-ii-
<PAGE>
THE TRUST
PIMCO Funds: Multi-Manager Series (the "Trust"), is an open-end management
investment company ("mutual fund") that currently consists of thirty-eight
separate investment series, although not all of these series currently offer
their shares to the public. Except for the Select Growth Fund, each of these
series is "diversified" within the meaning of the Investment Company Act of
1940, as amended (the "1940 Act"). The following twenty-four series (the
"Funds") invest directly in common stocks and other securities and instruments:
the Equity Income Fund, the Value Fund, the Renaissance Fund, the Tax-Efficient
Equity Fund, the Enhanced Equity Fund, the Growth Fund, the Mega-Cap Fund, the
Capital Appreciation Fund, the Mid-Cap Fund (f/k/a the "Mid-Cap Growth Fund"),
the Select Growth Fund (f/k/a the "Core Equity Fund"), the Growth & Income Fund
(f/k/a the "Mid-Cap Equity Fund"), the Target Fund, the Small-Cap Value Fund,
the Opportunity Fund, the Micro-Cap Fund (f/k/a the "Micro-Cap Growth Fund"),
the Innovation Fund, the Global Innovation Fund, the International Fund, the
Select International Fund (f/k/a the "International Growth Fund"),the Tax-
Efficient Structured Emerging Markets Fund, the Structured Emerging Markets
Fund, the NFJ Equity Income Fund, the NFJ Value Fund and the NFJ Value 25 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. Eleven other series of the Trust,the Healthcare Innovation, Telecom
Innovation, Electronics Innovation, Internet Innovation, Small-Cap Technology,
PIMCO/Allianz Select World, PIMCO/Allianz Europe Growth, PIMCO/Allianz New Asia,
PIMCO/Allianz Emerging Markets, Cadence Capital Appreciation and Cadence Mid-Cap
Funds, do not offer their shares to the public as of the date of this Statement
of Additional Information. The Trust may from time to time create additional
series offered through a new, revised or supplemented prospectus or private
placement memorandum and Statement of Additional Information.
The PIMCO Tax Exempt, International Developed, Emerging Markets, Balanced,
Precious Metals and Small-Cap Funds, which are referred to elsewhere in this
Statement of Additional Information, were formerly series of the Trust. The Tax
Exempt Fund reorganized with and into the Municipal Bond Fund of PIMCO Funds:
Pacific Investment Management Series ("PIMS"), an open-end series management
investment company advised by Pacific Investment Management Company LLC
("Pacific Investment Management"), in a transaction that took place on June 26,
1998. The Tax Exempt Fund was liquidated in connection with the transaction and
is no longer a series of the Trust. The International Developed and Emerging
Markets Funds reorganized with and into newly-formed series of Alleghany Funds
in a transaction that took place on April 30, 1999. The International Developed
and Emerging Markets Funds were liquidated in connection with the transaction
and are no longer series of the Trust. The Balanced Fund reorganized with and
into the Strategic Balanced Fund of PIMS in a transaction that took place on
September 17, 1999. The Balanced Fund was liquidated in connection with the
transaction and is no longer a series of the Trust. The Precious Metals Fund was
liquidated on March 3, 2000 and is no longer a series of the Trust. The
Small-Cap Fund (f/k/a the "Small-Cap Growth Fund") was liquidated on July 28,
2000 and is no longer a series of the Trust. The PIMCO Value 25 Fund is also
referred to in this Statement of Additional Information. The Value 25 Fund
transferred substantially all of its assets to the Value Fund in a transaction
that took place on March 3, 2000. As part of the transaction, the Value 25 Fund
exchanged substantially all of its assets for shares of the Value Fund, which
were then distributed to shareholders of the Value 25 Fund in complete
redemption of their interests in and liquidation of the Value 25 Fund. The Value
25 Fund was not dissolved in the transaction; instead, on or about April 3,
2000, the series constituting the Value 25 Fund was renamed the NFJ Value 25
Fund.
The Trust was organized as a Massachusetts business trust on August 24,
1990. On January 17, 1997, the Trust and PIMCO Advisors Funds, a separate trust,
were involved in a transaction in which certain series of PIMCO Advisors Funds
reorganized into series of the Trust. In connection with this transaction, the
Trust changed its name from PIMCO Funds: Equity Advisors Series to its current
name. Prior to being known as PIMCO Funds: Equity Advisors Series, the Trust was
named PIMCO Advisors Institutional Funds, PFAMCO Funds and PFAMCO Fund.
-1-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
In addition to the principal investment strategies and the principal risks
of the Funds and Portfolios described in the Prospectuses, each Fund may employ
other investment practices and may be subject to additional risks which are
described below. Because the following is a combined description of investment
strategies and risks for all the Funds and Portfolios, certain strategies and/or
risks described below may not apply to particular Funds and/or Portfolios.
Unless a strategy or policy described below is specifically prohibited by the
investment restrictions listed in the Prospectuses, under "Investment
Restrictions" in this Statement of Additional Information, or by applicable law,
a Fund or Portfolio may engage in each of the practices described below.
The 90/10 Portfolio, 60/40 Portfolio and 30/70 Portfolio invest all of
their assets in certain Funds and series of PIMS. PIMS is sometimes referred to
in the Prospectuses as PIMCO Funds: Pacific Investment Management Series. These
Funds and other series in which the Portfolios invest are referred to in this
Statement as "Underlying PIMCO Funds." By investing in Underlying PIMCO Funds,
the Portfolios may have an indirect investment interest in some or all of the
securities and instruments described below, depending upon how their assets are
allocated among the Underlying PIMCO Funds. The Portfolios may also have an
indirect investment interest in other securities and instruments utilized by the
Underlying PIMCO Funds which are series of PIMS. These securities and
instruments are described in the current PIMS prospectus for Institutional Class
and Administrative Class shares and in the PIMS Statement of Additional
Information. The PIMS prospectus and statement of additional information are
incorporated in this document by reference. See "Investment Strategies of the
Portfolios--Incorporation by Reference" below.
The Funds' sub-advisers, which are responsible for making investment
decisions for the Funds, are referred to in this section and the remainder of
this Statement of Additional Information as "Sub-Advisers." As discussed below
under "Management of the Trust--Investment Adviser," the PIMCO Equity Advisors
division of PIMCO Advisors is also referred to as a "Sub-Adviser."
U.S. Government Securities
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury securities
(e.g., STRIPs and CUBEs) are direct obligations of the U.S. Government.
Borrowing
Subject to the limitations described under "Investment Restrictions" below,
a Fund may be permitted to borrow for temporary purposes and/or for investment
purposes. Such a practice will result in leveraging of a Fund's assets and may
cause a Fund to liquidate portfolio positions when it would not be advantageous
to do so. This borrowing may be unsecured. Provisions of the 1940 Act require a
Fund to maintain continuous asset
-2-
<PAGE>
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. Any borrowings for temporary administrative purposes in excess of 5%
of the Fund's total assets must maintain continuous asset coverage. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, a Fund may be required to sell some of its portfolio holdings within
three days to reduce the debt and restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. Borrowing will tend to exaggerate the effect on net asset value of
any increase or decrease in the market value of a Fund's portfolio. Money
borrowed will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased. A Fund also may be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
From time to time, the Trust may enter into, and make borrowings for
temporary purposes related to the redemption of shares under, a credit agreement
with third-party lenders. Borrowings made under such a credit agreement will be
allocated among the Funds and Portfolios pursuant to guidelines approved by the
Board of Trustees.
In addition to borrowing for temporary purposes, a Fund may enter into
reverse repurchase agreements if permitted to do so under its investment
restrictions. A reverse repurchase agreement involves the sale of a portfolio-
eligible security by a Fund, coupled with its agreement to repurchase the
instrument at a specified time and price. The Fund will segregate assets
determined to be liquid by the Adviser or the Fund's Sub-Adviser in accordance
with procedures established by the Board of Trustees and equal (on a daily mark-
to-market basis) to its obligations under reverse repurchase agreements with
broker-dealers (but not banks). However, reverse repurchase agreements involve
the risk that the market value of securities retained by the Fund may decline
below the repurchase price of the securities sold by the Fund which it is
obligated to repurchase. Reverse repurchase agreements will be subject to the
Funds' limitations on borrowings as specified under "Investment Restrictions"
below.
Preferred Stock
All Funds may invest in preferred stock. Preferred stock is a form of
equity ownership in a corporation. The dividend on a preferred stock is a fixed
payment which the corporation is not legally bound to pay. Certain classes of
preferred stock are convertible, meaning the preferred stock is convertible into
shares of common stock of the issuer. By holding convertible preferred stock, a
Fund can receive a steady stream of dividends and still have the option to
convert the preferred stock to common stock.
Corporate Debt Securities
All Funds may invest in corporate debt securities and/or hold their assets
in these securities for cash management purposes. The investment return of
corporate debt securities reflects interest earnings and changes in the market
value of the security. The market value of a corporate debt obligation may be
expected to rise and fall inversely with interest rates generally. There also
exists the risk that the issuers of the securities may not be able to meet their
obligations on interest or principal payments at the time called for by an
instrument.
A Fund's investments in U.S. dollar or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities) which meet the
minimum ratings criteria set forth for the Fund, or, if unrated, are deemed to
be comparable in quality to corporate debt securities in which the Fund may
invest. The rate of return or return of principal on some debt obligations may
be linked or indexed to the level of exchange rates between the U.S. dollar and
a foreign currency or currencies.
-3-
<PAGE>
Among the corporate debt securities in which the Funds may invest are
convertible securities. A convertible debt security is a bond, debenture, note,
or other security that entitles the holder to acquire common stock or other
equity securities of the same or a different issuer. A convertible security
generally entitles the holder to receive interest paid or accrued until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to non-
convertible debt securities. Convertible securities rank senior to common stock
in a corporation's capital structure and, therefore, generally entail less risk
than the corporation's common stock.
A convertible security may be subject to redemption at the option of the
issuer at a predetermined price. If a convertible security held by a Fund is
called for redemption, the Fund would be required to permit the issuer to redeem
the security and convert it to underlying common stock, or would sell the
convertible security to a third party.
High Yield Securities ("Junk Bonds")
Certain of the Funds may invest in debt/fixed income securities of domestic
or foreign issuers that meet minimum ratings criteria set forth for a Fund, or,
if unrated, are of comparable quality in the opinion of the Fund's Sub-Adviser.
A description of the ratings categories used is set forth in the Appendix to
this Statement of Additional Information.
A security is considered to be below "investment grade" quality if it is
either (1) not rated in one of the four highest rating categories by one of the
Nationally Recognized Statistical Rating Organizations ("NRSROs") (i.e., rated
Ba or below by Moody's Investors Service, Inc. ("Moody's") or BB or below by
Standard & Poor's Ratings Services ("S&P")) or (2) if unrated, determined by the
relevant Sub-Adviser to be of comparable quality to obligations so rated.
Certain Funds, particularly the Growth & Income Fund, may invest a portion
of their assets in fixed income securities rated lower than Baa by Moody's or
lower than BBB by S&P but rated at least B by Moody's or S&P or, if not rated,
determined by the Sub-Adviser to be of comparable quality. In addition, certain
of these Funds may invest in convertible securities rated below B by Moody's or
S&P (or, if unrated, considered by the Sub-Adviser to be of comparable quality).
Securities rated lower than Baa by Moody's or lower than BBB by S&P are
sometimes referred to as "high yield" or "junk" bonds. Investors should consider
the risks associated with high yield securities before investing in these Funds.
Although each of the Funds that invests in high yield securities reserves the
right to do so at any time, as of the date of this Statement of Additional
Information, none of these Funds invest or has the present intention to invest
more than 5% of its assets in high yield securities, except that the Growth &
Income Fund may invest up to 10% of its assets in these securities. Investment
in high yield securities generally provides greater income and increased
opportunity for capital appreciation than investments in higher quality
securities, but it also typically entails greater price volatility as well as
principal and income risk. High yield securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. The market for these securities is relatively new, and
many of the outstanding high yield securities have not endured a major business
recession. A long-term track record on default rates, such as that for
investment grade corporate bonds, does not exist for this market. Analysis of
the creditworthiness of issuers of high yield securities may be more complex
than for issuers of higher quality debt/fixed income securities. Each Fund of
the Trust that may purchase high yield securities may continue to hold such
securities following a decline in their rating if in the opinion of the Adviser
or the 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.
-4-
<PAGE>
Analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities, and achievement of a
Fund's investment objective may, to the extent of its investments in high yield
securities, depend more heavily on the Sub-Adviser's creditworthiness analysis
than would be the case if the Fund were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of high yield securities are likely to be sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt/fixed income securities. If an issuer of high
yield securities defaults, in addition to risking payment of all or a portion of
interest and principal, the Funds investing in such securities may incur
additional expenses to seek recovery. In the case of high yield securities
structured as zero-coupon or pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes, and therefore tend to be
more volatile than securities which pay interest periodically and in cash. Even
though such securities do not pay current interest in cash, a Fund nonetheless
is required to accrue interest income on these investments and to distribute the
interest income on a current basis. Thus, a Fund could be required at times to
liquidate other investments in order to satisfy its distribution requirements.
Prices of high yield/high risk securities have been found to be less
sensitive to interest rate changes than more highly rated investments, but more
sensitive to economic downturns or individual corporate developments. The
secondary market on which high yield securities are traded may be less liquid
than the market for higher grade securities. Less liquidity in the secondary
trading market could adversely affect the price at which the Funds could sell a
high yield security, and could adversely affect the daily net asset value of the
shares. Lower liquidity in secondary markets could adversely affect the value of
high yield/high risk securities held by the Funds. While lower rated securities
typically are less sensitive to interest rate changes than higher rated
securities, the market prices of high yield/high risk securities structured as
"zero coupon" or "pay-in-kind" securities may be affected to a greater extent by
interest rate changes. See Appendix A to this Statement of Additional
Information for further information regarding high yield/high risk securities.
For instance, adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of high yield
securities, especially in a thinly traded market. When secondary markets for
high yield securities are less liquid than the market for higher grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
Debt securities are purchased and sold principally in response to current
assessments of future changes in business conditions and the levels of interest
rates on debt/fixed income securities of varying maturities, the availability of
new investment opportunities at higher relative yields, and current evaluations
of an issuer's continuing ability to meet its obligations in the future. The
average maturity or duration of the debt/fixed income securities in a Fund's
portfolio may vary in response to anticipated changes in interest rates and to
other economic factors. Securities may be bought and sold in anticipation of a
decline or a rise in market interest rates. In addition, a Fund may sell a
security and purchase another of comparable quality and maturity (usually, but
not always, of a different issuer) at approximately the same time to take
advantage of what are believed to be short-term differentials in values or
yields.
Loan Participations and Assignments
Certain Funds may invest in fixed- and floating-rate loans arranged through
private negotiations between an issuer of debt instruments and one or more
financial institutions ("lenders"). Generally, a Fund's investments in loans are
expected to take the form of loan participations and assignments of portions of
loans from third parties.
-5-
<PAGE>
Large loans to corporations or governments may be shared or syndicated
among several lenders, usually banks. A Fund may participate in such syndicates,
or can buy part of a loan, becoming a direct lender. Participations and
assignments involve special types of risk, including liquidity risk and the
risks of being a lender. If a Fund purchases a participation, it may only be
able to enforce its rights through the lender, and may assume the credit risk of
the lender in addition to the borrower. In assignments, a Fund's rights against
the borrower may be more limited than those held by the original lender.
Participation on Creditors Committees
A Fund may from time to time participate on committees formed by creditors
to negotiate with the management of financially troubled issuers of securities
held by the Fund. Such participation may subject a Fund to expenses such as
legal fees and may make the Fund an "insider" of the issuer for purposes of the
federal securities laws, and therefore may restrict the Fund's ability to trade
in or acquire additional positions in a particular security when it might
otherwise desire to do so. Participation by a Fund on such committees also may
expose the Fund to potential liabilities under the federal bankruptcy laws or
other laws governing the rights of creditors and debtors. A Fund would
participate on such committees only when the Adviser and the relevant Sub-
Adviser believe that such participation is necessary or desirable to enforce the
Fund's rights as a creditor or to protect the value of securities held by the
Fund.
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic adjustment in
the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.
Certain of the Funds may invest in floating rate debt instruments
("floaters"). The interest rate on a floater is a variable rate which is tied to
another interest rate, such as a money-market index or U.S. Treasury bill rate.
The interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide a Fund with a
certain degree of protection against rises in interest rates, but generally do
not allow the Fund to participate fully in appreciation resulting from any
general decline in interest rates.
Certain Funds may also invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floating rate security generally will exhibit greater
price volatility than a fixed rate obligation of similar credit quality. See
"Mortgage-Related and Asset-Backed Securities" below.
Mortgage-Related and Asset-Backed Securities
All Funds that may purchase debt securities for investment purposes may
invest in mortgage-related securities, and in other asset-backed securities
(unrelated to mortgage loans) that are offered to investors currently or in the
future. Mortgage-related securities are interests in pools of residential or
commercial mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. The value of some mortgage-
related or asset-backed securities in which the Funds invest may be particularly
sensitive to changes in prevailing interest rates, and, like other fixed income
investments, the ability of a Fund to successfully utilize these instruments may
depend in part upon the ability of the Sub-Adviser to forecast interest rates
and other economic factors correctly. See "Mortgage Pass-Through Securities"
below. Certain debt securities are also secured with collateral consisting of
mortgage-related securities. See "Collateralized Mortgage Obligations" below.
-6-
<PAGE>
Mortgage Pass-Through Securities. Mortgage Pass-Through Securities are
securities representing interests in "pools" of mortgage loans secured by
residential or commercial real property. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association ("GNMA")) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. Early repayment of principal on some mortgage-related
securities (arising from prepayments of principal due to sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Fund to a lower rate of return upon reinvestment of
principal. Also, if a security subject to prepayment has been purchased at a
premium, the value of the premium would be lost in the event of prepayment. Like
other fixed income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
are declining, the value of mortgage-related securities with prepayment features
may not increase as much as other fixed income securities. To the extent that
unanticipated rates of prepayment on underlying mortgages increase the effective
maturity of a mortgage-related security, the volatility of such security can be
expected to increase.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the GNMA) or guaranteed by agencies or instrumentalities of the
U.S. Government (in the case of securities guaranteed by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"). The principal governmental guarantor of mortgage-related securities
is the GNMA. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
(the "FHA"), or guaranteed by the Department of Veterans Affairs (the "VA").
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the FNMA and the FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/services which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks, and credit unions and mortgage bankers. Pass-
through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government. Instead, they are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a government-
sponsored corporation formerly owned by the twelve Federal Home Loan Banks and
now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full
-7-
<PAGE>
faith and credit of the U.S. Government. Instead, they are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may, in
addition, be the originators and/or services of the underlying mortgage loans as
well as the guarantors of the mortgage-related securities. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of these pools may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance and letters of credit. The insurance and guarantees are issued
by governmental entities, private insurers and the mortgage poolers. Such
insurance and guarantees, and the creditworthiness of the issuers thereof, will
be considered in determining whether a mortgage-related security meets the
Trust's investment quality standards. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. A Fund may buy mortgage-related securities without
insurance or guarantees if, through an examination of the loan experience and
practices of the originator/servicers and poolers, the Sub-Adviser determines
that the securities meet the Fund's quality standards. Although the market for
such securities is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable. A Fund will not purchase
mortgage-related securities or any other assets which in the Sub-Adviser's
opinion are illiquid if, as a result, more than 15% of the value of the Fund's
net assets (taken at market value at the time of investment) will be invested in
illiquid securities.
Mortgage-related securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to a Fund's
industry concentration restrictions, see "Investment Restrictions," by virtue of
the exclusion from that test available to all U.S. Government securities. In the
case of privately issued mortgage-related securities, the Funds take the
position that mortgage-related securities do not represent interests in any
particular "industry" or group of industries. The assets underlying such
securities may be represented by a portfolio of first lien residential mortgages
(including both whole mortgage loans and mortgage participation interests) or
portfolios of mortgage pass-through securities issued or guaranteed by GNMA,
FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn
be insured or guaranteed by the FHA or the VA. In the case of private issue
mortgage-related securities whose underlying assets are neither U.S. Government
securities nor U.S. Government-insured mortgages, to the extent that real
properties securing such assets may be located in the same geographical region,
the security may be subject to a greater risk of default than other comparable
securities in the event of adverse economic, political or business developments
that may affect such region and, ultimately, the ability of residential
homeowners to make payments of principal and interest on the underlying
mortgages.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semi-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
-8-
<PAGE>
certificates ("Collateral"). The Collateral is pledged to a third party trustee
as security for the Bonds. Principal and interest payments from the Collateral
are used to pay principal on the Bonds in the order A, B, C, Z. The Series A, B,
and C Bonds all bear current interest. Interest on the Series Z Bond is accrued
and added to principal and a like amount is paid as principal on the Series A,
B, or C Bond currently being paid off. When the Series A, B, and C Bonds are
paid in full, interest and principal on the Series Z Bond begin to be paid
currently. With some CMOs, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.
CMOs that are issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities will be considered U.S. Government securities by a
Fund, while other CMOs, even if collateralized by U.S. Government securities,
will have the same status as other privately issued securities for purposes of
applying a Fund's diversification tests.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semi-annually, as opposed to monthly. The amount of principal payable on each
semi-annual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semi-annual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCS. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Commercial Mortgage-Backed Securities. Commercial Mortgage-Backed
Securities include securities that reflect an interest in, and are secured by,
mortgage loans on commercial real property. The market for commercial mortgage-
backed securities developed more recently and in terms of total outstanding
principal amount of issues is relatively small compared to the market for
residential single-family mortgage-backed securities. Many of the risks of
investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. 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.
-9-
<PAGE>
CMO Residuals. CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
IO class of stripped mortgage-backed securities. See "Other Mortgage-Related
Securities--Stripped Mortgage-Backed Securities." In addition, if a series of a
CMO includes a class that bears interest at an adjustable rate, the yield to
maturity on the related CMO residual will also be extremely sensitive to changes
in the level of the index upon which interest rate adjustments are based. As
described below with respect to stripped mortgage-backed securities, in certain
circumstances a Fund may fail to recoup some or all of its initial investment in
a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has developed fairly recently and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not,
have been registered under the Securities Act of 1933, as amended (the "1933
Act"). CMO residuals, whether or not registered under the 1933 Act, may be
subject to certain restrictions on transferability, and may be deemed "illiquid"
and subject to a Fund's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on a Fund's yield
to maturity from these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the 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
-10-
<PAGE>
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.
Convertible Securities
Many of the Funds may invest in convertible securities. A Fund's Sub-
Adviser will select convertible securities to be purchased by the Fund based
primarily upon its evaluation of the fundamental investment characteristics and
growth prospects of the issuer of the security. As a fixed income security, a
convertible security tends to increase in market value when interest rates
decline and to decrease in value when interest rates rise. While convertible
securities generally offer lower interest or dividend yields than non-
convertible fixed income securities of similar quality, their value tends to
increase as the market value of the underlying stock increases and to decrease
when the value of the underlying stock decreases.
Certain Funds may invest in so-called "synthetic convertible securities,"
which are composed of two or more different securities whose investment
characteristics, taken together, resemble those of convertible securities. For
example, a Fund may purchase a non-convertible debt security and a warrant or
option. The synthetic convertible differs from the true convertible security in
several respects. Unlike a true convertible security, which is a single security
having a unitary market value, a synthetic convertible comprises two or more
separate securities, each with its own market value. Therefore, the "market
value" of a synthetic convertible is the sum of the values of its fixed income
component and its convertible component. For this reason, the values of a
synthetic convertible and a true convertible security may respond differently to
market fluctuations.
Equity-Linked Securities
Each of the Select International, Structured Emerging Markets and Tax-
Efficient Structured Emerging Markets Funds may invest up to 15% of its assets
in equity-linked securities. The International Fund may invest up to 5% of its
assets in equity-linked securities. Equity-linked securities are privately
issued securities whose investment results are designed to correspond generally
to the performance of a specified stock index or "basket" of stocks, or
sometimes a single stock. To the extent that a Fund invests in an equity-linked
security whose return corresponds to the performance of a foreign securities
index or one or more foreign stocks, investing in equity-linked securities will
involve risks similar to the risks of investing in foreign equity securities.
See "Foreign Securities" in this Statement of Additional Information. In
addition, the Funds bear the risk that the issuer of an equity-linked security
may default on its obligations under the security. Equity-linked securities may
be considered illiquid and thus subject to the Funds' restrictions on
investments in illiquid securities.
Foreign Securities
The Structured Emerging Markets, Tax-Efficient Structured Emerging Markets,
Select International, International and Global Innovation Funds may invest in
U.S. dollar or foreign currency-denominated corporate debt securities of foreign
issuers; foreign equity securities, including preferred securities of foreign
issuers; certain foreign bank obligations; and U.S. dollar- or foreign currency-
denominated obligations of foreign
-11-
<PAGE>
governments or their subdivisions, agencies and instrumentalities, international
agencies and supranational entities. The Structured Emerging Markets,
Tax-Efficient Structured Emerging Markets, Select International, International
and Global Innovation Funds may also invest in common stocks issued by foreign
companies. The Equity Income, Value, Renaissance, Select Growth, Growth &
Income, Growth, Target, Opportunity, and Innovation Funds each may invest up to
15% of their respective assets in securities which are traded principally in
securities markets outside the United States (Eurodollar certificates of deposit
are excluded for purposes of these limitations), and may invest without limit in
securities of foreign issuers that are traded in U.S. securities markets
(including American Depository Receipts ("ADRs"). The Tax-Efficient Equity and
Enhanced Equity Funds may invest in common stock of foreign issuers if included
in the index from which the Funds' stocks are selected.
Each of the Funds may invest in ADRs. The Equity Income, Value,
Renaissance, Growth, Target, Select Growth, Growth & Income, Opportunity,
Innovation, Structured Emerging Markets, Tax-Efficient Structured Emerging
Markets, Select International, International and Global Innovation 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 involvement in the economy; less government supervision
and regulation of the securities markets and participants in those markets;
controls on foreign investment and limitations on repatriation of invested
capital and on the Fund's ability to exchange local currencies for U.S. dollars;
unavailability of currency hedging techniques in certain emerging market
countries; the fact that companies in emerging market countries may be smaller,
less seasoned and newly organized companies; the difference in, or lack of,
auditing and financial reporting standards, which may result in unavailability
of material information about issuers; the risk that it may be more difficult to
obtain and/or enforce a judgment in a court outside the United States; and
greater price volatility, substantially less liquidity and significantly smaller
market capitalization of securities markets. In addition, a number of emerging
market countries restrict, to various degrees, foreign investment in securities,
and high rates of inflation and rapid fluctuations in inflation rates have had,
and may continue to have, negative effects on the economies and securities
markets of certain emerging market countries. Also, any change in the leadership
or politics of emerging market countries, or the countries that exercise a
significant influence over those countries,
-12-
<PAGE>
may halt the expansion of or reverse the liberalization of foreign investment
policies now occurring and adversely affect existing investment opportunities.
A Fund's investments in foreign currency denominated debt obligations and
hedging activities will likely produce a difference between its book income and
its taxable income. This difference may cause a portion of the Fund's income
distributions to constitute returns of capital for tax purposes or require the
Fund to make distributions exceeding book income to qualify as a regulated
investment company for federal tax purposes.
Special Risks of Investing in Russian and Other Eastern European
Securities. The International, Global Innovation, Select International, Tax-
Efficient Structured Emerging Markets and Structured Emerging Markets Funds may
each 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 "share extracts" from the
register or, in certain limited circumstances, by formal share certificates.
However, there is no central registration system for shareholders and these
services are carried out by the companies themselves or by registrars located
throughout Russia. The share registrars are controlled by the issuer of the
securities, and investors are provided with few legal rights against such
registrars. These registrars are not necessarily subject to effective state
supervision nor are they licensed with any
-13-
<PAGE>
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 Equity Income, Value, Renaissance, Select Growth, Growth & Income,
Growth, Target, Opportunity, Innovation,International, Select International,
Structured Emerging Markets, Tax-Efficient Structured Emerging Markets and
Global Innovation Funds invest directly in foreign currencies and may enter into
forward foreign currency exchange contracts to reduce the risks of adverse
changes in foreign exchange rates. In addition, the Structured Emerging Markets,
Tax-Efficient Structured Emerging Markets, International, Select International,
and Global Innovation 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, Global Innovation, Select International, 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, Global Innovation, Select International, Structured
Emerging Markets and Tax-Efficient Structured Emerging Markets Funds will be
subject to the additional risk that the relative value of currencies will be
different than anticipated by the particular Fund's Sub-Adviser. A Fund may use
one currency (or a basket of currencies) to hedge against adverse changes in the
value of another currency (or a basket of currencies) when exchange rates
between the two currencies are positively correlated. A Fund will segregate
assets determined to be liquid by the Adviser or a Sub-Adviser in accordance
with procedures established by the Board of Trustees to cover forward currency
contracts entered into for non-
-14-
<PAGE>
hedging purposes. The Funds may also use foreign currency futures contracts and
related options on currencies for the same reasons for which forward foreign
currency exchange contracts are used.
Special Risks Associated with the Introduction of the Euro. The
introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the European Economic and Monetary Union
presents unique uncertainties for European securities in the markets in which
they trade and with respect to the operation of the Funds that invest in
securities denominated in European currencies and other European securities. The
introduction of the euro is resulting in the redenomination of European debt and
equity securities over a period of time. Uncertainties raised by the
introduction of the euro include whether the payment and operational systems of
banks and other financial institutions will function correctly, whether clearing
and settlement payment systems developed for the new currency will be suitable,
the valuation and legal treatment of outstanding financial contracts after
January 1, 1999 that refer to existing currencies rather than the euro, and
possible adverse accounting or tax consequences that may arise from the
transition to the euro. These or other factors could cause market disruptions
and could adversely affect the value of securities and foreign currencies held
by the Funds.
Bank Obligations
Bank obligations in which the Funds may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are generally 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 Equity Income, Value, Renaissance, Growth, Target, Select Growth,
Growth & Income, Opportunity, Innovation, International, Structured Emerging
Markets, Tax-Efficient Structured Emerging Markets, Select International and
Global Innovation 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.
-15-
<PAGE>
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 Equity Income, Value, Renaissance,
Growth, Target, Select Growth, Growth & Income, Opportunity, Innovation,
Structured Emerging Markets, Tax-Efficient Structured Emerging Markets,
International, Select International and Global Innovation Funds, foreign
currency-denominated obligations of domestic or foreign issuers which, at the
time of investment, are (i) rated "P-1" or "P-2" by Moody's or "A-1" or "A-2" or
better by S&P, (ii) issued or guaranteed as to principal and interest by issuers
or guarantors having an existing debt security rating of "A" or better by
Moody's or "A" or better by S&P, or (iii) securities which, if not rated, are,
in the opinion of the Sub-Adviser, of an investment quality comparable to rated
commercial paper in which the Fund may invest. The rate of return on commercial
paper may be linked or indexed to the level of exchange rates between the U.S.
dollar and a foreign currency or currencies.
Money Market Instruments
Each of the Funds may invest at least a portion of its assets in the
following kinds of money market instruments: (1) short-term U.S. Government
securities; (2) certificates of deposit, bankers' acceptances and other bank
obligations rated in the two highest rating categories by at least two NRSROs,
or, if rated by only one NRSRO, in such agency's two highest grades, or, if
unrated, determined to be of comparable quality by the Adviser or a Sub-Adviser.
Bank obligations must be those of a bank that has deposits in excess of $2
billion or that is a member of the Federal Deposit Insurance Corporation. A Fund
may invest in obligations of U.S. branches or subsidiaries of foreign banks
("Yankee dollar obligations") or foreign branches of U.S. banks ("Eurodollar
obligations"); (3) commercial paper rated in the two highest rating categories
by at least two NRSROs, or, if rated by only one NRSRO, in such agency's two
highest grades, or, if unrated, determined to be of comparable quality by the
Adviser or a Sub-Adviser; (4) corporate obligations with a remaining maturity of
397 days or less whose issuers have outstanding short-term debt obligations
rated in the highest rating category by at least two NRSROs, or, if rated by
only one NRSRO, in such agency's highest grade, or, if unrated, determined to be
of comparable quality by the Adviser or a Sub-Adviser; and (5) repurchase
agreements with domestic commercial banks or registered broker-dealers.
Derivative Instruments
The following describes certain derivative instruments and products in
which certain Funds may invest and risks associated therewith.
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.
-16-
<PAGE>
Options on Securities and Indexes. As described under "Characteristics and
Risks of Securities and Investment Techniques--Derivatives" in the Prospectuses,
certain Funds may purchase and sell both put and call options on equity, fixed
income or other securities or indexes in standardized contracts traded on
foreign or domestic securities exchanges, boards of trade, or similar entities,
or quoted on National Association of Securities Dealers Automated Quotations
("NASDAQ") or on a regulated foreign over-the-counter market, and agreements,
sometimes called cash puts, which may accompany the purchase of a new issue of
bonds from a dealer. Among other reasons, a Fund may purchase put options to
protect holdings in an underlying or related security against a decline in
market value, and may purchase call options to protect against increases in the
prices of securities it intends to purchase pending its ability to invest in
such securities in an orderly manner.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect features of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.)
A Fund will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or other assets determined to be liquid by
the Sub-Adviser in accordance with procedures established by the Board of
Trustees in such amount are segregated) upon conversion or exchange of other
securities held by the Fund. For a call option on an index, the option is
covered if the Fund segregates assets determined to be liquid by the Adviser or
a Sub-Adviser in accordance with procedures established by the Board of Trustees
in an amount equal to the contract value of the index. A call option is also
covered if the Fund holds a call on the same security or index as the call
written where the exercise price of the call held is (i) equal to or less than
the exercise price of the call written, or (ii) greater than the exercise price
of the call written, provided the difference is segregated by the Fund in assets
determined to be liquid by the Adviser or a Sub-Adviser in accordance with
procedures established by the Board of Trustees. A put option on a security or
an index is "covered" if the Fund segregates assets determined to be liquid by
the Sub-Adviser in accordance with procedures established by the Board of
Trustees equal to the exercise price. A put option is also covered if the Fund
holds a put on the same security or index as the put written where the exercise
price of the put held is (i) equal to or greater than the exercise price of the
put written, or (ii) less than the exercise price of the put written, provided
the difference is segregated by the Fund in assets determined to be liquid by
the Adviser or a Sub-Adviser in accordance with procedures established by the
Board of Trustees.
If an option written by a Fund expires unexercised, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by a Fund expires unexercised, the Fund realizes a
capital loss equal to the premium paid. Prior to the earlier of exercise or
expiration, an exchange-traded option may be closed out by an offsetting
purchase or sale of an option of the same series (type, exchange, underlying
security or index, exercise price, and expiration). In addition, a Fund may sell
put or call options it has previously purchased, which could result in a net
gain or loss depending on whether the amount realized on the sale is more or
less than the premium and other transaction costs paid on the put or call option
which is sold. There can be no assurance, however, that a closing purchase or
sale transaction can be effected when the Fund desires.
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
-17-
<PAGE>
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 Equity Income, Value, Renaissance, Growth, Select Growth,
Growth & Income, Target, Opportunity, Innovation, International, Select
International and Global Innovation Funds may enter into over-the-counter
("OTC") options transactions only with primary dealers in U.S. Government
securities and only pursuant to agreements that will assure that the relevant
Fund will at all times have the right to repurchase the option written by it
from the dealer at a specified formula price. Over-the-counter options in which
certain Funds may invest differ from traded options in that they are two-party
contracts, with price and other terms negotiated between buyer and seller, and
generally do not have as much market liquidity as exchange-traded options. The
Funds may be required to treat as illiquid over-the-counter options purchased
and securities being used to cover certain written over-the-counter options, and
they will treat the amount by which such formula price exceeds the intrinsic
value of the option (i.e., the amount, if any, by which the market price of the
underlying security exceeds the exercise price of the option) as an illiquid
investment.
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes, during
the option's life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the premium and the
exercise price of the call but, as long as its obligation as a writer continues,
has retained the risk of loss should the price of the underlying security
decline. The writer of an option has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver the underlying security at the exercise price. If a put or call option
purchased by the Fund is not sold when it has remaining value, and if the market
price of the underlying security remains equal to or greater than the exercise
price (in the case of a put), or remains less than or equal to the exercise
price (in the case of a call), the Fund will lose its entire investment in the
option. Also, where a put or call option on a particular security is purchased
to hedge against price movements in a related security, the price of the put or
call option may move more or less than the price of the related security.
Furthermore, if trading restrictions or suspensions are imposed on the options
markets, a Fund may be unable to close out a position. Similarly, if
restrictions on exercise were imposed, the Fund might be unable to exercise an
option it has purchased. Except to the extent that a call option on an index
written by the Fund is covered by an option on the same index purchased by the
Fund, movements in the index may result in a loss to the Fund; however, such
losses may be mitigated by changes in the value of the Fund's securities during
the period the option was outstanding.
For each of the International, Select International, Renaissance, Growth,
Target, Opportunity,Global Innovation and Innovation Funds, in the case of a
written call option on a securities index, the Fund will own corresponding
securities whose historic volatility correlates with that of the index.
-18-
<PAGE>
Foreign Currency Options. The Equity Income, Global Innovation, Growth,
Innovation, International, Select International, Growth & Income, Opportunity,
Renaissance, Select Growth, Structured Emerging Markets, Target, Tax-Efficient
Structured Emerging Markets and Value Funds may buy or sell put and call options
on foreign currencies as a hedge against changes in the value of the U.S. dollar
(or another currency) in relation to a foreign currency in which a Fund's
securities may be denominated. In addition, each of the Funds that may buy or
sell foreign currencies may buy or sell put and call options on foreign
currencies either on exchanges or in the over-the-counter market. A put option
on a foreign currency gives the purchaser of the option the right to sell a
foreign currency at the exercise price until the option expires. A call option
on a foreign currency gives the purchaser of the option the right to purchase
the currency at the exercise price until the option expires. Currency options
traded on U.S. or other exchanges may be subject to position limits which may
limit the ability of a Fund to reduce foreign currency risk using such options.
Futures Contracts and Options on Futures Contracts. Certain Funds may use
interest rate, foreign currency or index futures contracts. The Equity Income,
Global Innovation, Growth, Innovation, International, Select International,
Growth & Income, Opportunity, Renaissance, Select Growth, Structured Emerging
Markets, Target, Tax-Efficient Structured Emerging Markets and Value Funds may
invest in foreign exchange futures contracts and options thereon ("futures
options") that are traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system as an adjunct to
their securities activities. The Equity Income, Global Innovation, Growth,
Innovation, International, Select International, Growth & Income, Opportunity,
Renaissance, Select Growth, Structured Emerging Markets, Target, Tax-Efficient
Structured Emerging Markets and Value Funds may purchase and sell futures
contracts on various securities indexes ("Index Futures") and related options
for hedging purposes and for investment purposes. A Fund's purchase and sale of
Index Futures is limited to contracts and exchanges which have been approved by
the Commodity Futures Trading Commission ("CFTC"). Each of the International,
Global Innovation, Select International, Structured Emerging Markets and
Tax-Efficient Structured Emerging Markets Funds may invest to a significant
degree in Index Futures on stock indexes and related options (including those
which may trade outside of the United States) as an alternative to purchasing
individual stocks in order to adjust the Fund's exposure to a particular market.
These Funds may invest in Index Futures and related options when a Sub-Adviser
believes that there are not enough attractive securities available to maintain
the standards of diversification and liquidity set for a Fund pending investment
in such securities if or when they do become available. Through the use of Index
Futures and related options, a Fund may diversify risk in its portfolio without
incurring the substantial brokerage costs which may be associated with
investment in the securities of multiple issuers. A Fund may also avoid
potential market and liquidity problems which may result from increases in
positions already held by the Fund.
An interest rate, foreign currency or index futures contract provides for
the future sale by one party and purchase by another party of a specified
quantity of a financial instrument, foreign currency or the cash value of an
index at a specified price and time. An Index Future is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to
the difference between the value of a securities index ("Index") at the close of
the last trading day of the contract and the price at which the index contract
was originally written. Although the value of an Index might be a function of
the value of certain specified securities, no physical delivery of these
securities is made. A unit is the value of the relevant Index from time to time.
Entering into a contract to buy units is commonly referred to as buying or
purchasing a contract or holding a long position in an Index. Index Futures
contracts can be traded through all major commodity brokers. A Fund's purchase
and sale of Index Futures is limited to contracts and exchanges which have been
approved by the CFTC. A Fund will ordinarily be able to close open positions on
the futures exchange on which Index Futures are then traded at any time up to
and including the expiration day. As described below, a Fund will be required to
segregate initial margin in the name of the futures broker upon entering into an
Index Future. Variation margin will be paid to and received from the broker on a
daily basis as the contracts are marked to market. For example, when a Fund has
purchased an Index Future and 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,
-19-
<PAGE>
the position would be less valuable and the Fund would be required to make a
variation margin payment to the broker.
A Fund may close open positions on the futures exchanges on which Index
Futures are traded at any time up to and including the expiration day. All
positions which remain open at the close of the last business day of the
contract's life are required to settle on the next business day (based upon the
value of the relevant index on the expiration day), with settlement made with
the appropriate clearing house. Because the specific procedures for trading
foreign stock Index Futures on futures exchanges are still under development,
additional or different margin requirements as well as settlement procedures may
be applicable to foreign stock Index Futures at the time a Fund purchases such
instruments. Positions in Index Futures may be closed out by a Fund only on the
futures exchanges upon which the Index Futures are then traded.
The following example illustrates generally the manner in which Index
Futures operate. The Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock Exchange.
The S&P 100 Index assigns relative weightings to the common stocks included in
the Index, and the Index fluctuates with changes in the market values of those
common stocks. In the case of the S&P 100 Index, contracts are to buy or sell
100 units. Thus, if the value of the S&P 100 Index were $180, one contract would
be worth $18,000 (100 units x $180). The Index Future specifies that no delivery
of the actual stocks making up the Index will take place. Instead, settlement in
cash must occur upon the termination of the contract, with the settlement being
the difference between the contract price and the actual level of the Index at
the expiration of the contract. For example, if a Fund enters into a futures
contract to buy 100 units of the S&P 100 Index at a specified future date at a
contract price of $180 and the S&P 100 Index is at $184 on that future date, the
Fund will gain $400 (100 units x gain of $4). If the Fund enters into a futures
contract to sell 100 units of the Index at a specified future date at a contract
price of $180 and the S&P 100 Index is at $182 on that future date, the Fund
will lose $200 (100 units x loss of $2).
A public market exists in futures contracts covering a number of Indexes as
well as financial instruments and foreign currencies, including but not limited
to: the S&P 500; the S&P Midcap 400; the Nikkei 225; the NYSE composite; U.S.
Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S.
Treasury bills; 90-day commercial paper; bank certificates of deposit;
Eurodollar certificates of deposit; the Australian dollar; the Canadian dollar;
the British pound; the German mark; the Japanese yen; the French franc; the
Swiss franc; the Mexican peso; and certain multinational currencies, such as the
European Currency Unit ("ECU"). It is expected that other futures contracts in
which the Funds may invest will be developed and traded in the future.
Certain Funds may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities and
indexes (discussed above). A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the holder acquires a short position and
the writer is assigned the opposite long position.
A Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or in the case of futures options, for which an established
over-the-counter market exists.
When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to segregate a specified amount of assets determined to be liquid by
the Adviser or a Sub-Adviser in accordance with procedures established by the
Board of Trustees ("initial margin"). The margin required for a futures contract
is set by the exchange on which the contract is traded and may be modified
during the term of the contract. Margin requirements on foreign exchanges may be
different than U.S. exchanges. The initial margin is in the nature of a
performance bond or good faith deposit on the futures contract which is returned
to the Fund upon termination of the contract, 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
-20-
<PAGE>
the exchange on which it is traded. Each day the Fund pays or receives cash,
called "variation margin," equal to the daily change in value of the futures
contract. This process is known as "marking to market." Variation margin does
not represent a borrowing or loan by a Fund but is instead a settlement between
the Fund and the broker of the amount one would owe the other if the futures
contract expired. In computing daily net asset value, each Fund will mark to
market its open futures positions.
A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (i.e.,
with the same exchange, underlying security or index, and delivery month). If an
offsetting purchase price is less than the original sale price, the Fund
realizes a capital gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund realizes a capital gain, or if it is less, the Fund realizes a
capital loss. Any transaction costs must also be included in these calculations.
Limitations on Use of Futures and Futures Options. The Funds may only enter
into futures contracts or futures options which are standardized and traded on a
U.S. or foreign exchange or board of trade, or similar entity, or quoted on an
automated quotation system. The Funds may enter into positions in futures
contracts and related options for "bona fide hedging" purposes (as such term is
defined in applicable regulations of the CFTC), for example, to hedge against
changes in interest rates, foreign currency exchange rates or securities prices.
In addition, certain Funds may utilize futures contracts for investment
purposes. For instance, the International, Global Innovation, Select
International, 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).
-21-
<PAGE>
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. Alterna tively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will segregate (and
mark-to-market on a daily basis) assets determined to be liquid by the Adviser
or a Sub-Adviser in accordance with procedures established by the Board of
Trustees that equal the purchase price of the futures contract, less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund.
Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. Some of the risk may be
caused by an imperfect correlation between movements in the price of the futures
contract and the price of the security or other investment being hedged. The
hedge will not be fully effective where there is such imperfect correlation.
Also, an incorrect correlation could result in a loss on both the hedged
securities in a Fund and the hedging vehicle, so that the portfolio return might
have been greater had hedging not been attempted. For example, if the price of
the futures contract moves more than the price of the hedged security, a Fund
would experience either a loss or gain on the future which is not completely
offset by movements in the price of the hedged securities. In addition, there
are significant differences between the securities and futures markets that
could result in an imperfect correlation between the markets, causing a given
hedge not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. To compensate for imperfect correlations, a Fund
may purchase or sell futures contracts in a greater dollar amount than the
hedged securities if the volatility of the hedged securities is historically
greater than the volatility of the futures contracts. Conversely, a Fund may
purchase or sell fewer contracts if the volatility of the price of the hedged
securities is historically less than that of the futures contracts. The risk of
imperfect correlation generally tends to diminish as the maturity date of the
futures contract approaches. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends. Also, suitable hedging transactions may not be available in all
circumstances.
Additionally, the price of Index Futures may not correlate perfectly with
movement in the relevant index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and futures markets.
Second, the deposit requirements in the futures market are less onerous than
margin requirements in the securities market, and as a result, the futures
market may attract more speculators than does the securities market. Increased
participation by speculators in the futures market may also cause temporary
price distortions. In addition, trading hours for foreign stock Index Futures
may not correspond perfectly to hours of trading on the foreign exchange to
which a particular foreign stock Index Future relates. This may result in a
disparity between the price of Index Futures and the value of the relevant index
due to the lack of continuous arbitrage between the Index Futures price and the
value of the underlying index.
-22-
<PAGE>
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. The value of some derivative
instruments in which the Funds may invest may be particularly sensitive to
changes in prevailing interest rates, and, like the other investments of the
Funds, the ability of a Fund to successfully utilize these instruments may
depend in part upon the ability of the Sub-Adviser to forecast interest rates
and other economic factors correctly. If the Sub-Adviser incorrectly forecasts
such factors and has taken positions in derivative instruments contrary to
prevailing market trends, the Funds could be exposed to risk of loss. In
addition, a Fund's use of such instruments may cause the Fund to realize higher
amounts of short-term capital gains (generally taxed to shareholders at ordinary
income tax rates) than if the Fund had not used such instruments.
Swap Agreements. The Tax-Efficient Equity, Structured Emerging Markets and
Tax-Efficient Structured Emerging Markets Funds may enter into equity index swap
agreements for purposes of attempting to gain exposure to the stocks making up
an index of securities in a market without actually purchasing those stocks.
Swap agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are calculated
with respect to a "notional amount," i.e., the return on or increase in value of
a particular dollar amount invested at a particular interest rate, or in a
"basket" of securities representing a particular index.
Most swap agreements entered into by the Funds calculate the obligations of
the parties to the agreement on a "net basis." Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Fund's current obligations under a swap
-23-
<PAGE>
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 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.
-24-
<PAGE>
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.
Repurchase Agreements
For the purposes of maintaining liquidity and achieving income, each Fund
may enter into repurchase agreements with domestic commercial banks or
registered broker/dealers. A repurchase agreement is a contract under which a
Fund would acquire a security for a relatively short period (usually not more
than one week) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (representing the Fund's
cost plus interest). In the case of repurchase agreements with broker-dealers,
the value of the underlying securities (or collateral) will be at least equal at
all times to the total amount of the repurchase obligation, including the
interest factor. The Fund bears a risk of loss in the event that the other party
to a repurchase agreement defaults on its obligations and the Fund is delayed or
prevented from exercising its rights to dispose of the collateral securities.
This risk includes the risk of procedural costs or delays in addition to a loss
on the securities if their value should fall below their repurchase price. The
Adviser and the Sub-Advisers, as appropriate, will monitor the creditworthiness
of the counter parties.
Securities Loans
Subject to certain conditions described in the Prospectuses and below, each
of the Equity Income, Value, NFJ Equity Income, NFJ Value, NFJ Value 25, Tax-
Efficient Equity, Enhanced Equity, Mega-Cap, Capital Appreciation, Mid-Cap,
Small-Cap Value, Select Growth, Growth & Income, Target, Micro-Cap, Structured
Emerging Markets and Tax-Efficient Structured Emerging Markets Funds may make
secured loans of its portfolio securities to brokers, dealers and other
financial institutions amounting to no more than 33% of its total assets, and
each of the Renaissance, Growth, Opportunity, Innovation, International, Select
International, and Global Innovation Funds may make such loans amounting to no
more than 25% of its total assets. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. However, such loans will be made only to broker-dealers that are
believed by the Adviser or the Sub-Advisers to be of relatively high credit
standing. Securities loans are made to broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral consisting of U.S.
Government securities, cash or cash equivalents (negotiable certificates of
deposit, bankers' acceptances or letters of credit) maintained on a daily mark-
to-market basis in an amount at least equal at all times to the market value of
the securities lent. The borrower pays to the lending Fund an amount equal to
any dividends or interest received on the securities lent. The Fund may invest
only the cash collateral received in interest-bearing, short-term securities or
receive a fee from the borrower. In the case of cash collateral, the Fund
typically pays a rebate to the lender. Although voting rights or rights to
consent with respect to the loaned securities pass to the borrower, the Fund
retains the right to call the loans and obtain the return of the securities
loaned at any time on reasonable notice, and it will do so in order that the
securities may be voted by the Fund if the holders of such securities are asked
to vote upon or consent to matters materially affecting the investment. The Fund
may also call such loans in order to sell the securities involved. Each Fund's
performance will continue to reflect changes in the value of the securities
loaned and will also reflect the receipt of either interest, through investment
of cash collateral by the Fund in permissible investments, or a fee, if the
collateral is U.S. Government securities.
-25-
<PAGE>
Stocks of Small and Medium Capitalization Companies
Certain of the Funds may invest in common stock of companies with market
capitalizations that are small compared to those of other publicly traded
companies. Generally, small market capitalization is considered to be less than
$1.5 billion and large market capitalization is considered to be more than $5
billion. Investments in larger companies present certain advantages in that such
companies generally have greater financial resources, more extensive research
and development, manufacturing, marketing and service capabilities, and more
stability and greater depth of management and technical personnel. Investments
in smaller, less seasoned companies may present greater opportunities for growth
but also may involve greater risks than customarily are associated with more
established companies. The securities of smaller companies may be subject to
more abrupt or erratic market movements than larger, more established companies.
These companies may have limited product lines, markets or financial resources,
or they may be dependent upon a limited management group. Their securities may
be traded in the over-the-counter market or on a regional exchange, or may
otherwise have limited liquidity. As a result of owning large positions in this
type of security, a Fund is subject to the additional risk of possibly having to
sell portfolio securities at disadvantageous times and prices if redemptions
require the Fund to liquidate its securities positions. In addition, it may be
prudent for a Fund with a relatively large asset size to limit the number of
relatively small positions it holds in securities having limited liquidity in
order to minimize its exposure to such risks, to minimize transaction costs, and
to maximize the benefits of research. As a consequence, as a Fund's asset size
increases, the Fund may reduce its exposure to illiquid small capitalization
securities, which could adversely affect performance.
Many of the Funds may also invest in stocks of companies with medium market
capitalizations. Whether a U.S. issuer's market capitalization is medium is
determined by reference to the capitalization for all issuers whose equity
securities are listed on a United States national securities exchange or which
are reported on NASDAQ. Issuers with market capitalizations within the range of
capitalization of companies included in the S&P Mid Cap 400 Index may be
regarded as being issuers with medium market capitalizations. Such investments
share some of the risk characteristics of investments in stocks of companies
with small market capitalizations described above, although such companies tend
to have longer operating histories, broader product lines and greater financial
resources, and their stocks tend to be more liquid and less volatile than those
of smaller capitalization issuers.
Illiquid Securities
Each Fund may invest in securities that are illiquid so long as no more
than 15% of the net assets of the Fund (taken at market value at the time of
investment) would be invested in such securities. Certain illiquid securities
may require pricing at fair value as determined in good faith under the
supervision of the Board of Trustees. A Sub-Adviser may be subject to
significant delays in disposing of illiquid securities, and transactions in
illiquid securities may entail registration expenses and other transaction costs
that are higher than those for transactions in liquid securities.
The term "illiquid securities" for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which a Fund has valued the securities. Illiquid
securities are considered to include, among other things, written over-the-
counter options, securities or other liquid assets being used as cover for such
options, repurchase agreements with maturities in excess of seven days, certain
loan participation interests, fixed time deposits which are not subject to
prepayment or provide for withdrawal penalties upon prepayment (other than
overnight deposits), securities that are subject to legal or contractual
restrictions on resale (such as privately placed debt securities), and other
securities which legally or in the Adviser's or a Sub-Adviser's opinion may be
deemed illiquid (not including securities issued pursuant to Rule 144A under the
Securities Act of 1933 and certain commercial paper that the Adviser or a Sub-
Adviser has determined to be liquid under procedures approved by the Board of
Trustees).
-26-
<PAGE>
Inflation-Indexed Bonds
Certain Funds may invest in inflation-indexed bonds, which are fixed income
securities whose value is periodically adjusted according to the rate of
inflation. Two structures are common. The U.S. Treasury and some other issuers
utilize a structure that accrues inflation into the principal value of the bond.
Most other issuers pay out the Consumer Price Index ("CPI") accruals as part of
a semiannual coupon.
Inflation-indexed securities issued by the U.S. Treasury have maturities of
approximately five, ten or thirty years, although it is possible that securities
with other maturities will be issued in the future. The U.S. Treasury securities
pay interest on a semi-annual basis equal to a fixed percentage of the
inflation-adjusted principal amount. For example, if a Fund purchased an
inflation-indexed bond with a par value of $1,000 and a 3% real rate of return
coupon (payable 1.5% semi-annually), and the rate of inflation over the first
six months was 1%, the mid-year par value of the bond would be $1,010 and the
first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If
inflation during the second half of the year resulted in the whole year's
inflation equaling 3%, the end-of-year par value of the bond would be $1,030 and
the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment rate measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the current
market value of the bonds is not guaranteed and will fluctuate. A Fund may also
invest in other inflation-related bonds which may or may not provide a similar
guarantee. If a guarantee of principal is not provided, the adjusted principal
value of the bond repaid at maturity may be less than the original principal
amount.
The value of inflation-indexed bonds is expected to change in response to
changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if the rate of inflation rises at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increase at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the
Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated monthly
by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in
the cost of living, made up of components such as housing, food, transportation
and energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index calculated by that government.
There can be no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.
Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.
Delayed Funding Loans and Revolving Credit Facilities
The Funds may also enter into, or acquire participations in, delayed
funding loans and revolving credit facilities. Delayed funding loans and
revolving credit facilities are borrowing arrangements in which the lender
-27-
<PAGE>
agrees to make loans up to a maximum amount upon demand by the borrower during a
specified term. A revolving credit facility differs from a delayed funding loan
in that as the borrower repays the loan, an amount equal to the repayment may be
borrowed again during the term of the revolving credit facility. These
commitments may have the effect of requiring a Fund to increase its investment
in a company at a time when it might not otherwise decide to do so (including a
time when the company's financial condition makes it unlikely that such amounts
will be repaid).
The Funds may acquire a participation interest in delayed funding loans or
revolving credit facilities from a bank or other financial institution. See
"Loan Participations and Assignments." The terms of the participation require a
Fund to make a pro rata share of all loans extended to the borrower and entitles
a Fund to a pro rata share of all payments made by the borrower. Delayed funding
loans and revolving credit facilities usually provide for floating or variable
rates of interest. To the extent that a Fund is committed to advance additional
funds, it will at all times segregate assets, determined to be liquid by the
Adviser or a Sub-Adviser in accordance with procedures established by the Board
of Trustees, in an amount sufficient to meet such commitments.
Event-Linked Bonds
The Funds may invest in "event-linked bonds." Event-linked bonds, which are
sometimes referred to as "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" event, such as a hurricane or an
earthquake. They may be issued by government agencies, insurance companies,
reinsurers, special purpose corporations or other on-shore or off-shore
entities. If a trigger event causes losses exceeding a specific amount in the
geographic region and time period specified in a bond, a Fund investing in the
bond may lose a portion or all of its principal invested in the bond. If no
trigger event occurs, the Fund will recover its principal plus interest. For
some event-linked bonds, the trigger event or losses may be based on company
wide losses, index-portfolio losses, industry indices or readings of scientific
instruments rather than specified actual losses. Often the event-linked 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, event- linked bonds may also expose a Fund to certain
unanticipated risks including but not limited to issuer (credit) default,
adverse regulatory or jurisdictional interpretations and adverse tax
consequences.
Event-linked bonds are a relatively new type of financial instrument. As
such, there is no significant trading history of these securities, and there can
be no assurance that a liquid market in these instruments will develop. See
"Characteristics and Risks of Securities and Investment Techniques--Illiquid
Securities" in the Class A, B and C, Class D and Institutional Prospectuses.
Lack of a liquid market may impose the risk of higher transaction costs and the
possibility that a Fund may be forced to liquidate positions when it would not
be advantageous to do so. Event-linked bonds are typically rated, and the Fund
will only invest in event-linked bonds that meet the credit quality requirements
for the Fund.
Hybrid Instruments
The Funds may invest in "hybrid" or indexed securities. A hybrid instrument
can combine the characteristics of securities, futures, and options. For
example, the principal amount or interest rate of a hybrid could be tied
(positively or negatively) to the price of some commodity, currency or
securities index or another interest rate (each a "benchmark"). The interest
rate or (unlike most fixed income securities) the principal amount payable at
maturity of a hybrid security may be increased or decreased, depending on
changes in the value of the benchmark.
Hybrids can be used as an efficient means of pursuing a variety of
investment goals, including currency hedging, duration management, and increased
total return. Hybrids may not bear interest or pay dividends. The value of a
hybrid or its interest rate may be a multiple of a benchmark and, as a result,
may be leveraged and move (up or down) more steeply and rapidly than the
benchmark. These benchmarks may be sensitive to economic and political events,
such as commodity shortages and currency devaluations, which cannot be readily
-28-
<PAGE>
foreseen by the purchaser of a hybrid. Under certain conditions, the redemption
value of a hybrid could be zero. Thus, an investment in a hybrid may entail
significant market risks that are not associated with a similar investment in a
traditional, U.S. dollar-denominated bond that has a fixed principal amount and
pays a fixed rate or floating rate of interest. The purchase of hybrids also
exposes a Fund to the credit risk of the issuer of the hybrids. These risks may
cause significant fluctuations in the net asset value of a Fund. Accordingly, no
Fund will invest more than 5% of its assets (taken at market value at the time
of investment) in hybrid instruments.
Certain issuers of structured products such as hybrid instruments may be
deemed to be investment companies as defined in the 1940 Act. As a result, a
Fund's investments in these products will be subject to limits applicable to
investments in investment companies and may be subject to restrictions contained
in the 1940 Act.
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 and are incorporated into this document by reference. The
PIMS documents may 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, Select
International, and Global Innovation 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:
(1) each of the above-mentioned Funds may borrow money to the maximum
----
extent permitted by law, including without limitation (i) borrowing from banks
or entering into reverse repurchase agreements, or employing similar investment
techniques, and pledging its assets in connection therewith, if immediately
after each borrowing and continuing thereafter, there is asset coverage of 300%,
and (ii) entering into reverse repurchase agreements and transactions in
options, futures, options on futures, and forward foreign currency contracts,
except that, with respect to the Innovation Fund only, this fundamental
----
restriction is as follows: the Innovation Fund may not 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) none of the above-mentioned Funds may 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
-29-
<PAGE>
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) none of the above-mentioned Funds may 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) none of the above-mentioned Funds may purchase or sell real estate,
----
although it may purchase securities of issuers which deal in real estate,
including securities of real estate investment trusts, and may purchase
securities which are secured by interests in real estate;
(5) none of the above-mentioned Funds may acquire more than 10% of the
----
voting securities of any issuer, both with respect to any such Fund and to the
Funds to which this policy relates, in the aggregate;
(6) none of the above-mentioned Funds may concentrate more than 25% of the
----
value of its total assets in any one industry, except that the Innovation and
Global Innovation Funds will each concentrate more than 25% of its assets in
companies which use innovative technologies to gain a strategic, competitive
advantage in their industry as well as companies that provide and service those
technologies;
(7) none of the above-mentioned Funds may purchase or sell commodities or
----
commodity contracts except that the Funds may purchase and sell financial
futures contracts and related options;
(8) none of the above-mentioned Funds may 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); and
(9) none of the above-mentioned Funds may 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
that 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.
Notwithstanding the provisions of fundamental investment restrictions (1)
and (9) above, each of the above-mentioned Funds 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 requirements set forth above.
The investment objective of each of the above-referenced Funds and the
Mega-Cap, Tax-Efficient Equity, Tax-Efficient Structured Emerging Markets,
Select Growth, Growth & Income, NFJ Equity Income, NFJ Value and NFJ Value 25
Funds is non-fundamental and may be changed with respect to each such Fund by
the Trustees without shareholder approval.
Except as otherwise set forth below, the investment restrictions set forth
below are fundamental policies of each of the Equity Income, Value, Tax-
Efficient Equity, Enhanced Equity, Mega-Cap, Capital Appreciation, Mid-Cap,
Small-Cap Value, Select Growth, Growth & Income, Micro-Cap, Structured Emerging
Markets, Tax-Efficient Structured Emerging Markets, NFJ Equity Income, NFJ Value
and NFJ Value 25 Funds, and may not be changed with respect to any such Fund
without shareholder approval by vote of a majority of the outstanding shares of
that Fund. The investment objective of each of these Funds (with the exception
of the Mega-Cap, Tax-Efficient Equity, Tax-Efficient Structured Emerging
Markets, Select Growth, Growth & Income, NFJ Equity Income, NFJ Value and NFJ
Value 25 Funds) is also fundamental and may not be changed without such
shareholder approval. Under the following restrictions:
-30-
<PAGE>
(1) none of the above-mentioned Funds may 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) none of the above-mentioned Funds (except for the Select Growth Fund)
----
may 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 (this fundamental
investment restriction does not apply to the Select Growth Fund);
(3) none of the above-mentioned Funds (except for the Select Growth Fund)
----
may 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 (this fundamental investment
restriction does not apply to the Select Growth Fund);
(4) none of the above-mentioned Funds may 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) none of the above-mentioned Funds may 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) none of the above-mentioned Funds may 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) each of the above-mentioned Funds may borrow money to the maximum
----
extent permitted by law, including without limitation (i) borrowing from banks
or entering into reverse repurchase agreements, or employing similar investment
techniques, and pledging its assets in connection therewith, if immediately
after each borrowing and continuing thereafter, there is asset coverage of 300%,
and (ii) entering into reverse repurchase agreements and transactions in
options, futures, options on futures, and forward foreign currency contracts,
except that, with respect to the Mid-Cap Fund only, this fundamental investment
----
restriction is as follows: the Mid-Cap Fund may not borrow money, or pledge,
mortgage or hypothecate its assets, except that a Fund may (i) borrow from banks
or enter into reverse repurchase agreements, or employ similar investment
techniques, and pledge its assets in connection therewith, but only if
immediately after each borrowing and continuing thereafter, there is asset
coverage of 300% and (ii) enter into reverse repurchase agreements and
transactions in options, futures, options on futures, and forward foreign
currency contracts as described in the Prospectuses and in this Statement of
Additional Information (the deposit of assets in escrow in connection with the
writing of covered put and call options and the purchase of securities on a
when-issued or delayed delivery basis and collateral arrangements with respect
to initial or variation margin deposits for futures contracts, options on
futures contracts, and forward foreign currency contracts will not be deemed to
be pledges of such Fund's assets);
(8) none of the above-mentioned Funds may 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
-31-
<PAGE>
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) none of the above-mentioned Funds may 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; and
(10) none of the above-mentioned Funds may 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, each of the above-mentioned Funds 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 requirements set forth above.
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:
(1) none of the Portfolios may 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) none of the Portfolios may 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) none of the Portfolios may 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) none of the Portfolios may 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) each of the Portfolios may borrow money to the maximum extent
----
permitted by law, including without limitation (i) borrowing from banks or
entering into reverse repurchase agreements, or employing similar investment
techniques, and pledging its assets in connection therewith if immediately after
each borrowing and continuing thereafter, there is asset coverage of 300%, and
(ii) entering into reverse repurchase agreements and transactions in options,
futures, options on futures, and forward foreign currency contracts.
(6) none of the above-mentioned Portfolios may 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
-32-
<PAGE>
borrowing policies, and except that 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) none of the Portfolios may 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; and
(8) none of the Portfolios act as an underwriter of securities of other
----
issuers, except to the extent that in connection with the disposition of
portfolio securities, it may be deemed to be an underwriter under the federal
securities laws.
Notwithstanding the provisions of fundamental investment restrictions (5)
and (6) above, a Portfolio may borrow money for temporary administrative
purposes. To the extent that borrowings for temporary administrative purposes
exceed 5% of the total assets of a Portfolio, such excess shall be subject to
the 300% asset coverage requirement of fundamental investment restriction (5).
Notwithstanding any other fundamental investment restriction or policy,
each Portfolio may invest some or all of its assets in a single registered open-
end investment company or a series thereof. Unless specified above, any
fundamental investment restriction or policy of any such registered open-end
investment company or series thereof shall not be considered a fundamental
investment restriction or policy of a Portfolio investing therein.
The investment objective of each of the Portfolios is non-fundamental and
may be changed with respect to each such Portfolio by the Trustees without
shareholder approval.
Non-Fundamental Investment Restrictions
Each Fund (but not any Portfolio) is also subject to the following non-
fundamental restrictions and policies (which may be changed without shareholder
approval) and, unless otherwise indicated, may not:
(1) invest in (a) securities which at the time of such investment are not
readily marketable, (b) securities the disposition of which is restricted under
federal securities laws, (c) repurchase agreements maturing in more than seven
days, (d) OTC options (to the extent described above under "Derivative
Instruments -- OTC Options"), and (e) IO/PO SMBS (as described above under
"Mortgage-Related and Asset-Backed Securities -- Stripped Mortgage - Backed
Securities") if, as a result, more than 15% of a Fund's net assets, taken at
current value, would then be invested in securities described in (a), (b), (c),
(d) and (e) above. For the purpose of this restriction, securities subject to a
7-day put option or convertible into readily saleable securities or commodities
are not included with subsections (a) or (b);
(2) purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities. (For this
purpose, the deposit or payment by a Fund of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.);
(3) make short sales of securities or maintain a short position for the
account of a Fund unless at all times when a short position is open such Fund
owns an equal amount of such securities or owns or has the right to acquire
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;
-33-
<PAGE>
(4) with respect to the Renaissance, Growth, Target, Opportunity,
Innovation, International, Select International, and Global Innovation 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;
(5) 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;
(6) 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; or
(7) 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).
(8) borrow money, except for temporary administrative purposes as provided
above and as provided in the fundamental investment restrictions set forth
above.
The Trust has not adopted any non-fundamental investment restrictions or
policies for the 90/10 Portfolio, 60/40 Portfolio or 30/70 Portfolio.
Unless otherwise indicated, all limitations applicable to a Fund's or
Portfolio's investments apply only at the time a transaction is entered into.
Any subsequent change in a rating assigned by any rating service to a security
(or, if unrated, deemed to be of comparable quality), or change in the
percentage of a Fund's or Portfolio's assets invested in certain securities or
other instruments resulting from market fluctuations or other changes in a
Fund's or Portfolio's total assets will not require the Fund or Portfolio to
dispose of an investment until the Adviser or Sub-Adviser determines that it is
practicable to sell or close out the investment without undue market or tax
consequences to the Fund or Portfolio. In the event that ratings services assign
different ratings to the same security, the Adviser 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.
-34-
<PAGE>
MANAGEMENT OF THE TRUST
Trustees and Officers
The business of the Trust is managed under the direction of the Trust's
Board of Trustees. Subject to the provisions of the Trust's Declaration of
Trust, its By-Laws and Massachusetts law, the Trustees have all powers necessary
and convenient to carry out this responsibility, including the election and
removal of the Trust's officers.
The Trustees and officers of the Trust, their ages, and a description of
their principal occupations during the past five years are listed below. Except
as shown, each Trustee's and officer's principal occupation and business
experience for the last five years have been with the employer(s) indicated,
although in some cases the Trustee may have held different positions with such
employer(s). Unless otherwise indicated, the business address of the persons
listed below is 840 Newport Center Drive, Suite 300, Newport Beach, California
92660.
Position(s) With the Principal Occupation(s)
-------------------- -----------------------
Name, Address and Age Trust During the Past Five Years
--------------------- ----- --------------------------
E. Philip Cannon Trustee Proprietor, Cannon &
3838 Olympia Company, an affiliate of
Houston, TX 77019 Inverness Management LLC,
Age 60 a private equity
investment firm; Trustee
of PIMS, PIMCO Variable
Insurance Trust ("PVIT")
and PIMCO Commercial
Mortgage Securities Trust,
Inc. ("PCM"). Formerly,
Headmaster, St. John's
School, Houston, Texas;
Trustee of PIMCO Advisors
Funds ("PAF") and Cash
Accumulation Trust
("CAT"); General Partner,
J.B. Poindexter & Co.,
Houston, Texas, a private
equity investment firm;
and Partner, Iberia
Petroleum Company, an oil
and gas production company.
Donald P. Carter Trustee Formerly, Trustee of PAF
434 Stable Lane and CAT; Chairman,
Lake Forest, IL 60045 Executive Vice President
Age 73 and Director, Cunningham &
Walsh, Inc., Chicago, an
advertising agency;
Chairman and Director,
Moduline Industries, Inc.,
a manufacturer of
commercial windows and
curtain walls.
Gary A. Childress Trustee Private investor.
11 Longview Terrace Formerly, Chairman and
Madison, CT 06443 Director, Bellefonte Lime
Age 66 Company, Inc., a calcitic
lime producer, and partner
in GenLime, L.P., a
dolomitic lime producer,
which filed a petition in
bankruptcy within the last
five years. Formerly,
Trustee of PAF and CAT.
Richard L. Nelson Trustee President, Nelson
8 Cherry Hills Lane Financial Consultants;
Newport Beach, CA 92660 Director, Wynn's
Age 70 International, Inc., a
building supplies company;
and Trustee, Pacific
Select Fund. Formerly,
Partner, Ernst & Young.
-35-
<PAGE>
Position(s) With the Principal Occupation(s)
-------------------- -----------------------
Name, Address and Age Trust During the Past Five Years
--------------------- ----- --------------------------
Kenneth M. Poovey* Trustee Managing Director and
1345 Avenue of the Americas Chief Executive Officer of
New York, NY 10150 the U.S. Equity Division
Age 68 of PIMCO Advisors
Lyman W. Porter Trustee Professor of Management at
2639 Bamboo Street the University of
Newport Beach, CA 92660 California, Irvine; and
Age 70 Trustee, Pacific Select
Fund.
Alan Richards Trustee Retired Chairman of E.F.
7381 Elegans Place Hutton Insurance Group;
Carlsbad, CA 92009 Former Director of E.F.
Age 70 Hutton and Company, Inc.;
Chairman of IBIS Capital,
LLC, a reverse mortgage
company; Director,
Inspired Arts, Inc.;
Former Director of Western
National Corporation, a
life insurance holding
company.
W. Bryant Stooks Trustee President, Bryant
9701 E. Happy Valley Rd. Investments, Ltd.;
# 15 Director, American Agritec
Scottsdale, AZ 85255 LLC, a manufacturer of
Age 60 hydrophonics products; and
Director, Valley Isle
Excursions, Inc., a tour
operator. Formerly,
Trustee of PAF and CAT,
President, Senior Vice
President, Director and
Chief Executive Officer,
Archirodon Group Inc., an
international construction
firm; Partner, Arthur
Andersen & Co.
Gerald M. Thorne Trustee Director, VPI Inc., a
5 Leatherwood Lane plastics company, and
Savannah, GA 31414 American Orthodontics
Age 62 Corp. Formerly, Trustee
of PAF and CAT; Director,
Kaytee, Inc., a birdseed
company; President and
Director, Firstar National
Bank of Milwaukee;
Chairman, President and
Director, Firstar National
Bank of Sheboygan;
Director, Bando-McGlocklin,
a small business investment
company.
Stephen J. Treadway* Trustee, President Managing Director, PIMCO
2187 Atlantic Street and Chief Executive Advisors; Chairman and
Stamford, CT 06902 Officer President, PIMCO Funds
Age 53 Distributors LLC ("PFD");
Chairman, Municipal
Advantage 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.
-36-
<PAGE>
Position(s) With the Principal Occupation(s)
-------------------- -----------------------
Name, Address and Age Trust During the Past Five Years
--------------------- ----- --------------------------
Newton B. Schott, Jr. Vice President and Director, Executive Vice
2187 Atlantic Street Secretary President, Chief
Stamford, CT 06902 Administrative Officer,
Age 58 General Counsel and
Secretary, PFD; Executive
Vice 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
Advantage Fund, Inc.,
Municipal Partners Fund,
Inc. and Municipal
Partners Fund II, Inc.
Formerly, Vice President
and Clerk of PAF and CAT.
Jeffrey M. Sargent Senior Vice President Senior Vice President and
Age 37 Manager Shareholder
Services and Fund
Administration, Pacific
Investment Management;
Senior Vice President of
PIMS, PVIT and PCM.
Formerly Vice President,
Pacific Investment
Management.
John P. Hardaway Treasurer Senior Vice President and
Age 43 Manager of Investment
Operations Accounting,
Pacific Investment
Management; Treasurer,
PIMS, PVIT and PCM.
Formerly, Vice President,
Pacific Investment
Management.
Joseph D. Hattesohl Assistant Treasurer Vice President and Manger
Age 36 of Financial Reporting and
Taxation, Pacific
Investment Management;
Assistant Treasurer, PIMS,
PVIT and PCM. Formerly,
Manager of Fund Taxation,
Pacific Investment
Management.
Garlin G. Flynn Assistant Secretary Specialist, Pacific
Age 54 Investment Management;
Secretary, PIMS, PVIT and
PCM. Formerly, Senior
Fund Administrator,
Pacific Investment
Management; Senior Mutual
Fund Analyst, PIMCO
Advisors Institutional
Services.
* Trustee is an "interested person" of the Trust (as defined in Section
2(a)(19) of the 1940 Act).
-37-
<PAGE>
Trustees' Compensation
Trustees, other than those affiliated with PIMCO Advisors, a Sub-Adviser,
or Pacific Investment Management, receive an annual retainer of $47,000, plus
$2,000 for each Board of Trustees meeting attended ($1,000 if the meeting is
attended by telephone), and $1,000 for each Audit and Performance Committee
meeting attended, plus reimbursement of related expenses. Each Audit and
Performance Committee member receives an additional annual retainer of $2,000,
the Chairman of the Audit and Performance Committees receives an additional
annual retainer of $2,000, the Chairman of the Independent Trustees receives an
additional annual retainer of $6,000, and each Vice Chairman of the Independent
Trustees receives an additional annual retainer of $3,000. If in the judgment of
the Independent Trustees, it is necessary or appropriate for any Independent
Trustee, including the Chairman, to perform services in connection with
extraordinary Fund activities or circumstances, the Trustee shall be compensated
for such services at the rate of $2,000 per day, plus reimbursement of
reasonable expenses. Trustees do not currently receive any pension or retirement
benefits from the Trust or the Fund Complex (see below). The Trust has adopted a
deferred compensation plan for the Trustees, which went into place during 1997,
which permits the Trustees to defer their receipt of compensation from the
Trust, at their election, in accordance with the terms of the plan.
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, 2000:
(1) (2) (3)
Total
Aggregate Compensation
Compensation from from Trust and
Name of Trustee Trust Fund Complex/1/
--------------- ----- ---------------
E. Philip Cannon/2/ $ 65,000 $ 84,250
Donald P. Carter $ 74,000 $ 74,000
Gary A. Childress $ 64,000 $ 64,000
Richard L. Nelson $ 67,000 $ 115,500
Lyman W. Porter/2/ $ 65,000 $ 113,500
Alan Richards $ 70,000 $ 118,500
Joel Segall/3/ $ 33,500 $ 33,500
W. Bryant Stooks $ 65,000 $ 65,000
Gerald M. Thorne/2/ $ 65,000 $ 65,000
-------------
/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), Pacific
Select Fund (for Messrs. Nelson, Porter, and Richards) and PIMS, PVIT and PCM
(for Mr. Cannon) for the twelve-month period ended June 30, 2000. As of May 16,
2000, Mr. Cannon also began serving as Trustee of PIMS, PVIT, and PCM and
received compensation for the period ended June 30, 2000. By virtue of having
PIMCO Advisors or an affiliate of PIMCO Advisors as investment adviser, the
Trust, PIMS, PVIT, PCM and Pacific Select Fund were considered to be part of the
same "Fund Complex" for these purposes.
/2/ The Trust has adopted a deferred compensation plan (the "Plan") which
went into place during fiscal 1997. Of the amounts listed in column (2), the
following Trustees elected to have the following amounts deferred from the Trust
and all investment companies in the Fund Complex, respectively: Cannon -
$65,000, $84,250; Porter - $65,000, $65,000; and Thorne - $65,000, $65,000.
/3/ Mr. Segall retired as a Trustee in December 1999.
-38-
<PAGE>
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 Advisors sole general partner is
Pacific-Allianz Partners LLC. Pacific-Allianz Partners LLC is a Delaware limited
liability company with two members, Allianz GP Sub LLC, a Delaware limited
liability company, and Pacific Asset Management LLC, a Delaware limited
liability company. Allianz GP Sub LLC is a wholly-owned subsidiary of Allianz of
America, Inc., which is a wholly-owned subsidiary of Allianz AG. Pacific Asset
Management LLC is a wholly-owned subsidiary of Pacific Life Insurance Company,
which is a wholly-owned subsidiary of Pacific Mutual Holding Company.
The general partner of PIMCO Advisors has substantially delegated its
management and control of PIMCO Advisors to an Executive Committee. The
Executive Committee of PIMCO Advisors is comprised of Joachim Faber, Udo Frank,
Kenneth M. Poovey, William S. Thompson, Jr. and Marcus Riess.
PIMCO Advisors is located at 800 Newport Center Drive, Newport Beach,
California 92660. PIMCO Advisors and its subsidiary partnerships had
approximately $272 billion of assets under management as of September 30, 2000.
Agreement with Allianz AG
-------------------------
On May 5, 2000 the general partners of PIMCO Advisors closed the
transactions contemplated by the Implementation and Merger Agreement dated as of
October 31, 1999 ("Implementation Agreement"), as amended March 3, 2000, with
Allianz of America, Inc., Pacific Asset Management LLC, PIMCO Partners, LLC,
PIMCO Holding LLC, PIMCO Partners, G.P., and other parties to the Implementation
Agreement. As a result of completing these transactions, PIMCO Advisors is now
majority-owned indirectly by Allianz AG, with subsidiaries of Pacific Life
Insurance Company retaining a significant minority interest. Allianz AG is a
German based insurer. Pacific Life Insurance Company is a Newport Beach,
California based insurer.
In connection with the closing, Allianz of America entered into a put/call
arrangement for the possible disposition of Pacific Life's indirect interest in
PIMCO Advisors. The put option held by Pacific Life will allow it to require
Allianz of America, on the last business day of each calendar quarter following
the closing, to purchase at a formula-based price all of the PIMCO Advisors'
units owned directly or indirectly by Pacific Life. The call option held by
Allianz of America will allow it, beginning January 31, 2003 or upon a change in
control of Pacific Life, to require Pacific Life to sell or cause to be sold to
Allianz of America, at the same formula-based price, all of the PIMCO Advisors'
units owned directly or indirectly by Pacific Life.
Allianz AG's address is Koniginstrasse 28, D-80802, Munich, Germany.
Pacific Life's address is 700 Newport Center Drive, Newport Beach, CA 92660.
Advisory Agreement
------------------
PIMCO Advisors, subject to the supervision of the Board of Trustees, is
responsible for providing advice and guidance with respect to the Funds and
Portfolios and for managing, either directly or through others selected by the
Adviser, the investments of the Funds and Portfolios. PIMCO Advisors also
furnishes to the Board of Trustees periodic reports on the investment
performance of each Fund and Portfolio. As more fully discussed below, for all
of the Funds except the Equity Income, Value, Growth, Target, Opportunity,
Innovation, Global Innovation, Renaissance, International, Select Growth, and
Growth & Income Funds, PIMCO Advisors has engaged affiliates to serve as Sub-
Advisers. PIMCO Advisors has engaged an unaffiliated firm to serve as Sub-
Adviser to the International Fund. The PIMCO Equity Advisors division ("PIMCO
Equity Advisors") of PIMCO Advisors manages the investment portfolios of the
Equity Income, Value, Growth, Target, Opportunity, Innovation, Global
Innovation, Renaissance, Select Growth,and Growth & Income Funds. Acting in this
capacity,
-39-
<PAGE>
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 selects the Underlying Funds in which the 90/10 Portfolio,
the 60/40 Portfolio and the 30/70 Portfolio invest. PIMCO Advisors' Asset
Allocation Committee is responsible for determining how the assets of the
Portfolios are allocated and reallocated from time to time among the Underlying
PIMCO Funds selected by PIMCO Advisors. The Portfolios do not pay any fees to
PIMCO Advisors in return for these services under the Advisory Agreement. The
Portfolios do, however, indirectly pay a proportionate share of the advisory
fees paid to PIMCO Advisors and Pacific Investment Management by the Underlying
PIMCO Funds in which the Portfolios invest.
Under the terms of the Advisory Agreement, PIMCO Advisors is obligated to
manage the Funds and the Portfolios in accordance with applicable laws and
regulations. The investment advisory services of PIMCO Advisors to the Trust
are not exclusive under the terms of the Advisory Agreement. PIMCO Advisors is
free to, and does, render investment advisory services to others.
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 vote
of a majority of the outstanding voting shares of the Trust (or with respect to
a particular Fund or Portfolio, by the vote of a majority of the outstanding
voting shares of such Fund or Portfolio), or by the Adviser, on 60 days' written
notice to the other party and will terminate automatically in the event of its
assignment. In addition, the Advisory Agreement may be terminated with regard to
the Renaissance, Growth, Target, Opportunity, Innovation and International Funds
by vote of a majority of the Trustees who are not interested persons of the
Trust, on 60 days' written notice to PIMCO Advisors.
The Adviser currently receives a monthly investment advisory fee from each
Fund at the following annual rates (based on the average daily net assets of the
particular Funds):
<TABLE>
<CAPTION>
Fund Advisory
---- Fee Rate
--------
<S> <C>
Equity Income, Value, Tax-Efficient Equity, Mega-Cap, Capital Appreciation,
Mid-Cap, NFJ Equity Income, NFJ Value, Structured Emerging Markets,
Tax-Efficient Structured Emerging Markets and Enhanced Equity Funds .45%
Growth and NFJ Value 25 Funds .50%
International and Target Funds .55%
Small-Cap Value, Renaissance, Select Growth and Growth & Income Funds .60%
Opportunity and Innovation Funds .65%
Select International .75%
Global Innovation 1.00%
Micro-Cap Fund 1.25%
</TABLE>
-40-
<PAGE>
For the fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998
the Funds paid the Adviser (or its predecessor) the following amounts under the
Advisory Contract:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 6/30/00 6/30/99 6/30/98
---- ------- ------- -------
<S> <C> <C> <C>
Equity Income Fund $ 699,003 $ 892,889 $ 795,252
Value Fund 908,711 1,043,826 951,140
Small-Cap Value Fund 1,978,580 2,215,048 1,395,130
Select Growth Fund/(1)/ 19,736 413,258 504,760
Growth & Income Fund 32,475 74,646 53,956
Capital Appreciation Fund 4,180,797 5,057,813 3,627,790
Mid-Cap Fund/(1)/ 4,608,685 3,926,642 2,622,029
Micro-Cap Fund/(1)/ 2,795,758 3,035,025 2,759,876
Small-Cap Fund/(1)/ 578,387 574,447 411,785
Enhanced Equity Fund 276,178 238,001 199,467
Emerging Markets Fund/(1)/ N/A N/A 349,026
International Developed Fund/(1)/ N/A N/A 653,050
Balanced Fund/(1)/ 70,407 311,190 300,049
Renaissance Fund 3,279,586 3,771,388 3,010,051
Growth Fund 13,317,691 10,728,640 9,329,701
Target Fund 9,095,743 5,837,985 6,607,151
Opportunity Fund 3,486,462 3,171,024 5,172,363
Innovation Fund 21,684,203 4,453,888 2,028,712
International Fund 811,923 753,828 922,680
Select International Fund* 96,976 58,010 24,756
Precious Metals Fund/(1)/ 72,414 125,947 165,918
Tax Exempt Fund/(1)/ N/A N/A 144,515
Value 25 Fund/(1)/ 8,626 7,550 N/A
Tax-Efficient Equity Fund 227,081 56,985 N/A
Structured Emerging Markets Fund 210,237 156,322 N/A
Tax-Efficient Structured Emerging
Markets Fund 399,399 212,327 N/A
Mega-Cap Fund 13,449 N/A N/A
Global Innovation Fund 158,353 N/A N/A
NFJ Value Fund 542 N/A N/A
NFJ Equity Income Fund 11,300 N/A N/A
NFJ Value 25 Fund N/A N/A N/A
60/40 Portfolio N/A N/A N/A
30/70 Portfolio N/A N/A N/A
90/10 Portfolio N/A N/A N/A
----------- ----------- -----------
TOTAL $69,022,702 $47,116,679 $42,029,157
</TABLE>
--------------
* Amounts for the year ended June 30, 1998 are for the period 12/31/97 through
6/30/98.
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
-41-
<PAGE>
Portfolio Management Agreements
PIMCO Equity Advisors manages the investment portfolios of the Growth,
Target, Opportunity, Innovation, Renaissance, Select Growth, Equity Income,
Value, and Growth & Income 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 Blairlogie Capital Management ("Blairlogie"), which
advises the International Fund. The Adviser currently has eight subsidiaries,
the following four of which manage one or more of the Funds: PIMCO/Allianz
Investment Advisors LLC ("PAIA"), Parametric Portfolio Associates
("Parametric"), Cadence Capital Management ("Cadence") and NFJ Investment Group
("NFJ"). On April 30, 1999, the Adviser sold all of its ownership interest in
Blairlogie. See "Blairlogie" below.
Shareholders of each Fund (except the Innovation, Mid-Cap and Micro-Cap
Funds) have approved a proposal permitting PIMCO Advisors to enter into new or
amended sub-advisory agreements with one or more sub-advisers with respect to
each Fund without obtaining shareholder approval of such agreements, subject to
the conditions of an exemptive order that has been granted by the Securities and
Exchange Commission. One of the conditions requires the Board of Trustees to
approve any such agreement. In addition, the exemptive order prohibits PIMCO
Advisors from entering into sub-advisory agreements with affiliates of PIMCO
Advisors without shareholder approval, unless such affiliates are substantially
wholly-owned by PIMCO Advisors. PIMCO Advisors has the ultimate responsibility
to oversee the Sub-Advisers and to recommend their hiring, termination and
replacement.
PIMCO Equity Advisors
---------------------
PIMCO Equity Advisors, a division of PIMCO Advisors, acts as the
Sub-Adviser and provides investment advisory services to the Equity Income,
Value, Growth, Target, Opportunity, Innovation, Global Innovation, Renaissance,
Select Growth, and Growth & Income Funds. PIMCO Equity Advisors' address is 1345
Avenue of the Americas, 50th Floor, New York, NY 10105. Additional information
about PIMCO Advisors, including information regarding investment advisory fees
paid to PIMCO Advisors by the Equity Income, Value, Growth, Target, Opportunity,
Innovation, Renaissance, Select Growth, Growth & Income, and Global Innovation
Funds is provided above under "Investment Adviser." Prior to March 6, 1999,
Columbus Circle Investors ("Columbus Circle"), a former subsidiary partnership
of the Adviser, served as Sub-Adviser to the Growth, Target, Opportunity and
Innovation Funds. Columbus Circle served as Sub-Adviser to the Renaissance Fund
until May 7, 1999, and it served as Sub-Adviser to the Select Growth and Growth
& Income Funds until July 1, 1999. On July 1, 1999, the Adviser sold all of its
ownership interest in Columbus Circle to certain of Columbus Circle's employees.
Prior to May 8, 2000, NFJ served as Sub-Adviser to the Equity Income and Value
Funds. PIMCO Equity Advisors served as the Sub-Adviser to the Select
International Fund prior to November 1, 2000. Prior to July 1, 1999, Columbus
Circle served as the Sub-Adviser to the Select International Fund.
PAIA
----
Pursuant to a Portfolio Management Agreement between the Adviser and PAIA,
PAIA is the Sub-Adviser and provides investment advisory services to the Select
International Fund. For the services provided to the Fund, the Adviser (not the
Trust) pays PAIA a monthly fee at the annual rate of .55% based on the average
daily net assets of the Select International Fund.
PAIA is organized as a limited liability company with PIMCO Advisors as its
sole member. The address of PAIA is 1345 Avenue of the Americas, 50th floor, New
York, NY 10105. PAIA commenced operations during the fourth quarter of 2000.
-42-
<PAGE>
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., which commenced operations in 1987. Parametric has
two partners: PIMCO Advisors as the supervisory partner, and Parametric
Management Inc. as the managing partner. The predecessor investment adviser to
Parametric commenced operations in 1987. Parametric is located at 7310 Columbia
Center, 701 Fifth Avenue, Seattle, Washington 98104-7090. Parametric provides
investment management services to a number of institutional accounts, including
employee benefit plans, college endowment funds and foundations. Accounts
managed by Parametric had combined assets, as of September 30, 2000, of
approximately $4.4 billion.
Cadence
-------
Pursuant to a Portfolio Management Agreement between the Adviser and
Cadence, Cadence provides investment advisory services to the Mega-Cap, Capital
Appreciation, Mid-Cap and Micro-Cap Funds. For the services provided, the
Adviser (not the Trust) pays Cadence a monthly fee for each Fund at the
following annual rates (based on the average daily net assets of the particular
Fund): .35% for the Mega-Cap Fund, .35% for the Capital Appreciation Fund, .35%
for the Mid-Cap Fund, and 1.15% for the Micro-Cap Fund.
Cadence is an investment management firm organized as a general
partnership. Cadence is the successor investment adviser to Cadence Capital
Management Corporation, which commenced operations in 1988. Cadence has two
partners: PIMCO Advisors as the supervisory partner, and Cadence Capital
Management Inc. as the managing partner. Cadence is located at Exchange Place,
53 State Street, Boston, Massachusetts 02109. Cadence provides investment
management services to a number of institutional accounts, including employee
benefit plans, college endowment funds and foundations. Accounts managed by
Cadence had combined assets, as of September 30, 2000, of approximately $6.8
billion.
NFJ
---
Pursuant to a Portfolio Management Agreement between the Adviser and NFJ,
NFJ provides investment advisory services to the Small-Cap Value, NFJ Value 25,
NFJ Value and NFJ Equity Income Funds. For the services provided, the Adviser
(not the Trust) pays NFJ a monthly fee for each Fund at the following annual
rates (based on the average daily net assets of the particular Fund): .40% for
the NFJ Value 25 Fund, .50% for the Small-Cap Value Fund, .35% for the NFJ
Equity Income Fund and .35% for the NFJ Value Fund.
NFJ is an investment management firm organized as a general partnership.
NFJ is the successor investment adviser to NFJ Investment Group, Inc., which
commenced operations in 1989. NFJ has two partners: PIMCO Advisors as the
supervisory partner, and NFJ Management Inc. as the managing partner. NFJ is
located at 2121 San Jacinto, Suite 1840, Dallas, Texas 75201. NFJ provides
investment management services to a number of institutional accounts, including
employee benefit plans, college endowment funds and foundations. Accounts
managed by NFJ had combined assets, as of September 30, 2000, of approximately
$1.8 billion.
-43-
<PAGE>
Blairlogie
----------
Pursuant to a Portfolio Management Agreement between the Adviser and
Blairlogie, Blairlogie provides investment advisory services to the
International Fund. For the services provided, the Adviser (not the Trust) pays
Blairlogie a monthly fee for the Fund at the annual rate of .40% based on the
average daily net assets of the International Fund.
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., which commenced
operations in 1992. Blairlogie is an indirect majority-owned subsidiary of the
Alleghany Corporation. The Alleghany Corporation is engaged through its
subsidiaries in the businesses of title insurance, reinsurance, other financial
services and industrial minerals. Blairlogie is located at 125 Princes Street,
4th Floor, Edinburgh EH2 4AD, Scotland. Blairlogie provides investment
management services to a number of institutional accounts, including employee
benefit plans, college endowment funds and foundations. Accounts managed by
Blairlogie had combined assets, as of September 30, 2000, of approximately $1
billion.
Until April 30, 1999, Blairlogie was an affiliate of the Adviser. On April
30, 1999, the Adviser sold all of its ownership interests in Blairlogie to
subsidiaries of the Alleghany Corporation (the "Blairlogie Transaction"), and
therefore Blairlogie is no longer affiliated with the Adviser.
In connection with the Blairlogie Transaction, the Emerging Markets and
International Developed Funds (the "Transferred Funds") transferred all of their
assets and liabilities to newly formed series of Alleghany Funds managed by
Blairlogie. The Transferred Funds were liquidated in connection with the
Blairlogie Transaction and are no longer series of the Trust.
For the fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998,
the amount of portfolio management fees paid by the Adviser (or its predecessor)
to the applicable Sub-Adviser (or its predecessor) for each of the Funds was as
follows:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
6/30/00 6/30/99 6/30/98
------- ------- -------
<S> <C> <C> <C>
Equity Income Fund $ 186,339 $ 694,469 $ 618,529
Value Fund 613,460 811,864 739,776
Small-Cap Value Fund 1,648,817 1,845,873 1,162,608
Select Growth Fund/(1)/ N/A 340,758 416,205
Growth & Income Fund N/A 62,797 45,391
Capital Appreciation Fund 3,251,731 3,933,855 2,821,614
Mid-Cap Fund/(1)/ 3,584,533 3,054,054 2,039,356
Micro-Cap Fund/(1)/ 2,590,845 2,794,415 2,539,086
Small-Cap Fund/(1)/ 520,548 517,002 370,606
Enhanced Equity Fund 214,805 185,113 155,141
Emerging Markets Fund/(1)/ N/A 133,867 307,963
International Developed Fund/(1)/ N/A 509,210 544,208
Balanced Fund/(1)/ 46,920 212,316 212,532
Renaissance Fund N/A 2,033,332 1,906,366
Growth Fund N/A 4,727,674 6,344,197
Target Fund N/A 2,563,818 4,324,681
Opportunity Fund N/A 1,682,634 3,819,591
Innovation Fund N/A 1,325,219 1,186,016
International Fund 590,489 540,637 671,040
Select International Fund N/A 27,298 11,650
</TABLE>
-44-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Precious Metal Fund/(1)/ 42,241 73,469 96,785
Value 25 Fund/(1)/ 6,891 6,021 N/A
Tax-Efficient Equity Fund 176,618 44,322 N/A
Structured Emerging Markets Fund 163,518 121,584 N/A
Tax-Efficient Structured Emerging Markets Fund 310,643 165,144 N/A
Tax Exempt Fund/(1)/ N/A N/A 144,515
Mega-Cap Fund 10,460 N/A N/A
Global Innovation Fund N/A N/A N/A
NFJ Value Fund 422 N/A N/A
NFJ Equity Income Fund 8,789 N/A N/A
NFJ Value 25 Fund N/A N/A N/A
----------- ----------- -----------
TOTAL $14,268,069 $28,406,745 $30,477,856
</TABLE>
----------
*Amounts for the year ended June 30, 1998 are for the period 12/31/97 through
6/30/98.
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
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 Class A, Class B,
and and Class C Class D
Fund or Portfolio Administrative Shares* Shares**
----------------- Classes* ------- --------
--------
<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 .65%
.35% of amounts in excess of $2.5 billion
Select Growth Fund .25% .40% of the first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
</TABLE>
-45-
<PAGE>
<TABLE>
<CAPTION>
Institutional Class A, Class B,
and and Class C Class D
Fund or Portfolio Administrative Shares* Shares**
----------------- Classes* ------- --------
--------
<S> <C> <C> <C>
Growth & Income Fund .25% .50% of the first $2.5 billion .75%
.45% of amounts in excess of $2.5 billion
NFJ Value 25 Fund .25% N/A N/A
Mega-Cap Fund .25% N/A N/A
Capital Appreciation Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Mid-Cap Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Micro-Cap Fund .25% N/A N/A
Enhanced Equity Fund .25% N/A N/A
Renaissance Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Growth Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Target Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Opportunity Fund .25% .40% of first $2.5 billion .65%
.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
Global Innovation Fund .40% .60% of first $2.5 billion .85%
.55% of amounts in excess of $2.5 billion
Tax-Efficient Structured .50% N/A N/A
Emerging Markets Fund
Structured Emerging .50% N/A N/A
Markets Fund
NFJ Equity Income .25% N/A N/A
NFJ Value .25% N/A N/A
Select International Fund .50% .70% of the first $2.5 billion .95%
.65% of amounts in excess of $2.5 billion
90/10 Portfolio .10%*** .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
60/40 Portfolio .10%*** .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
</TABLE>
-46-
<PAGE>
<TABLE>
<CAPTION>
Institutional Class A, Class B,
and and Class C Class D
Fund or Portfolio Administrative Shares* Shares**
----------------- Classes* ------- --------
--------
<S> <C> <C> <C>
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
Class D Administrative Fee rate as reimbursement for expenses in respect of
activities that may be deemed to be primarily intended to result in the sale of
Class D shares.
*** The Administrative Fee for Institutional and Administrative Class shares of
each Portfolio reflects a fee waiver currently in effect. In the absence of this
waiver, the Administrative Fee rate for Institutional and Administrative Class
shares of each Portfolio would be 0.15% per annum.
(1) The Administrator has contractually agreed to waive, reduce or reimburse its
Administrative Fee for each class of shares for each of these Funds in an amount
that, in essence, is equal to such Fund's organizational expenses and
disinterested Trustees' expenses (as defined below) attributed to that class.
Except for the expenses paid by the Administrator, the Trust bears all
costs of its operations. The Trust is responsible for the following expenses:
(i) salaries and other compensation of any of the Trust's executive officers and
employees who are not officers, directors, stockholders, or employees of PIMCO
Advisors, Pacific Investment Management, or their subsidiaries or affiliates;
(ii) taxes and governmental fees; (iii) brokerage fees and commissions and other
portfolio transaction expenses; (iv) costs of borrowing money, including
interest expenses; (v) fees and expenses of the Trustees who are not "interested
persons" of PIMCO Advisors, any Sub-Adviser, or the Trust, and any counsel
retained exclusively for their benefit ("disinterested Trustees' expenses");
(vi) extraordinary expenses, including costs of litigation and indemnification
expenses; (vii) expenses which are capitalized in accordance with generally
accepted accounting principals; and (viii) any expenses allocated or allocable
to a specific class of shares ("Class-specific expenses").
Class-specific expenses include distribution and/or service fees payable
with respect to the Class A, Class B, Class C, Class D or Administrative Class
shares and administrative fees as described above, and may include certain other
expenses as permitted by the Trust's Amended and Restated Multi-Class Plan (the
"Multi-Class Plan") adopted pursuant to Rule 18f-3 under the 1940 Act, which is
subject to review and approval by the Trustees. It is not presently anticipated
that any expenses other than distribution and/or service fees and administrative
fees will be allocated on a class-specific basis.
The 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 and International 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."
-47-
<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, 2000, June 30, 1999 and June 30, 1998,
the aggregate amount of the administration fees paid by the Funds and Portfolios
was as follows (Class D shares were not offered prior to April 8, 1998):
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 6/30/00 6/30/99 6/30/98
---- ------- ------- -------
<S> <C> <C> <C>
Equity Income Fund $ 463,388 $ 579,501 $ 487,106
Value Fund 678,205 778,004 720,965
Small-Cap Value Fund 1,232,827 1,373,378 850,182
Select Growth Fund/(1)/ 11,113 181,254 221,386
Growth & Income Fund 12,856 29,621 21,411
Capital Appreciation Fund 2,654,312 3,129,528 2,144,151
Mid-Cap Fund/(1)/ 3,040,667 2,641,971 1,722,412
Micro-Cap Fund/(1)/ 559,152 607,005 551,975
Small-Cap Fund/(1)/ 144,597 143,612 102,410
Enhanced Equity Fund 153,432 132,223 110,815
Emerging Markets Fund/(1)/ N/A N/A 208,654
International Developed
Fund/(1)/ N/A N/A 555,314
Balanced Fund/(1)/ 50,287 220,148 186,627
Renaissance Fund 2,184,805 2,513,413 2,006,144
Growth Fund 10,491,542 8,581,473 7,463,761
Target Fund 6,594,163 4,244,469 4,805,201
Opportunity Fund 2,117,069 1,950,916 3,182,992
Innovation Fund 12,859,854 2,740,592 1,248,438
International Fund 926,817 877,968 1,090,440
Select International Fund* 58,068 34,123 14,562
Precious Metals Fund/(1)/ 12,554 94,460 124,438
Tax Exempt Fund/(1)/ N/A N/A 193,724
Value 25 Fund/(1)/ 1622 5,790 N/A
Tax-Efficient Equity Fund 174,436 49,326 N/A
Structured Emerging Markets Fund 233,597 173,691 N/A
Tax-Efficient Structured Emerging Markets Fund 443,776 235,919 N/A
Mega-Cap Fund 7,472 N/A N/A
Global Innovation Fund 99,521 N/A N/A
NFJ Value Fund 301 N/A N/A
NFJ Equity Income Fund 6,278 N/A N/A
NFJ Value 25 Fund N/A N/A N/A
60/40 Portfolio 65,448 20,123 N/A
30/70 Portfolio 29,149 10,422 N/A
90/10 Portfolio 60,246 14,344 N/A
----------- ----------- -----------
TOTAL $45,367,554 $31,363,276 $28,013,108
</TABLE>
*Amounts for the year ended June 30, 1998 are for the period from 12/31/97
through 6/30/98.
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
-48-
<PAGE>
DISTRIBUTION OF TRUST SHARES
Distributor and Multi-Class Plan
PIMCO Funds Distributors LLC (the "Distributor") serves as the principal
underwriter of each class of the Trust's shares pursuant to a distribution
contract (the "Distribution Contract") with the Trust. The Distributor is a
wholly-owned subsidiary of PIMCO Advisors. The Distributor, located at 2187
Atlantic Street, Stamford, Connecticut 06902, is a broker-dealer registered with
the Securities and Exchange Commission. The Distribution Contract is terminable
with respect to a Fund, Portfolio or class of shares without penalty, at any
time, by the Fund, Portfolio or class by not more than 60 days' nor less than 30
days' written notice to the Distributor, or by the Distributor upon not more
than 60 days' nor less than 30 days' written notice to the Trust. The
Distributor is not obligated to sell any specific amount of Trust shares.
The Distribution Contract will continue in effect with respect to each Fund
and Portfolio, and each class of shares thereof, for successive one-year
periods, provided that each such continuance is specifically approved (i) by the
vote of a majority of the entire Board of Trustees or by the majority of the
outstanding shares of the Fund, Portfolio or class, and (ii) by a majority of
the Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust and who have no direct or indirect interest financial interest in the
Distribution Contract or the Distribution and/or Servicing Plans described
below, by vote cast in person at a meeting called for the purpose. If the
Distribution Contract is terminated (or not renewed) with respect to one or more
Funds, Portfolios or classes, it may continue in effect with respect to any
Fund, Portfolio or class as to which it has not been terminated (or has been
renewed).
The Trust currently offers up to six classes of shares of each of the
Funds: Class A, Class B, Class C, Class D, Institutional Class and
Administrative Class shares. The Trust currently offers Class A, Class B, Class
C, Institutional Class and Administrative Class shares of each Portfolio.
Class A, Class B and Class C shares of the Trust are offered through firms
("participating brokers") which are members of the National Association of
Securities Dealers, Inc. ("NASD"), and which have dealer agreements with the
Distributor, or which have agreed to act as introducing brokers for the
Distributor ("introducing brokers").
Class D shares are generally offered to clients of financial service firms,
such as broker-dealers or registered investment advisers, with which the
Distributor has an agreement for the use of PIMCO Funds: Multi-Manager Series in
particular investment products, programs or accounts for which a fee may be
charged.
Institutional Class shares are offered primarily for direct investment by
investors such as pension and profit sharing plans, employee benefit trusts,
endowments, foundations, corporations, and high net worth individuals
(Institutional Class shares may also be offered through certain financial
intermediaries that charge their customers transaction or other fees with
respect to the customers' investments in the Funds). Administrative Class shares
are offered primarily through employee benefit plan alliances, broker- dealers,
and other intermediaries, and each Fund pays service or distribution fees to
such entities for services they provide to Administrative Class shareholders.
Under the Trust's Multi-Class Plan, shares of each class of each Fund and
Portfolio represent an equal pro rata interest in the Fund or Portfolio and,
generally, have identical voting, dividend, liquidation, and other rights
preferences, powers, restrictions, limitations, qualifications and terms and
conditions, except that: (a) each class has a different designation; (b) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its distribution or service arrangements; and (c) each class
has separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class.
-49-
<PAGE>
Each class of shares bears any class specific expenses allocated to such
class, such as expenses related to the distribution and/or shareholder servicing
of such class. In addition, each class may, at the Trustees' discretion, also
pay a different share of other expenses, not including advisory or custodial
fees or other expenses related to the management of the Trust's assets, if these
expenses are actually incurred in a different amount by that class, or if the
class receives services of a different kind or to a different degree than the
other classes. All other expenses are allocated to each class on the basis of
the net asset value of that class in relation to the net asset value of the
particular Fund. Each class may have a differing sales charge structure, and
differing exchange and conversion features.
Contingent Deferred Sales Charge and Initial Sales Charge
As described in the Class A, B and C Prospectus and the Retail Portfolio
Prospectus under the caption "Investment Options (Class A, B and C Shares)," a
contingent deferred sales charge is imposed upon certain redemptions of Class A,
Class B and Class C shares. No contingent deferred sales charge is currently
imposed upon redemptions of Class D, Institutional Class or Administrative Class
shares. Because contingent deferred sales charges are calculated on a series-
by-series basis, shareholders should consider whether to exchange shares of one
Fund or Portfolio for shares of another Fund or Portfolio prior to redeeming an
investment if such an exchange would reduce the contingent deferred sales charge
applicable to such redemption.
During the fiscal years ended June 30, 2000, June 30, 1999 and June 30,
1998, the Distributor received the following aggregate amounts in contingent
deferred sales charges on Class A shares, Class B shares and Class C shares of
the Funds and the Portfolios:
Year Year Year
Ended Ended Ended
Class 6/30/00 6/30/99 6/30/98
----- ------- ------- -------
Class A $ 171,399 $ 5,341 $ 2,273
Class B 2,328,986 2,063,747 945,353
Class C 612,618 618,030 480,061
As described in the Class A, B and C Prospectus and the Retail Portfolio
Prospectus under the caption "Investment Options (Class A, B and C Shares),"
Class A shares of the Trust are sold pursuant to an initial sales charge, which
declines as the amount of the purchase reaches certain defined levels. For the
fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998, the
Distributor received an aggregate of $16,118,114, $7,013,745 and $4,878,434,
respectively, and retained an aggregate of $2,703,541, $904,586 and $506,878,
respectively, in initial sales charges paid by Class A shareholders of the
Trust.
Distribution and Servicing Plans for Class A, Class B and Class C Shares
As stated in the Class A, B and C Prospectus and the Retail Portfolio
Prospectus under the caption "Investment Options -- Class A, B and C Shares--
Distribution and Servicing (12b-1) Plans," Class A, Class B and Class C shares
of the Trust are continuously offered through participating brokers which are
members of the NASD and which have dealer agreements with the Distributor, or
which have agreed to act as introducing brokers.
Pursuant to separate Distribution and Servicing Plans for Class A, Class B
and Class C shares (the "Retail Plans"), the Distributor receives (i) in
connection with the distribution of Class B and Class C shares of the Trust,
certain distribution fees from the Trust, and (ii) in connection with personal
services rendered to Class A, Class B and Class C shareholders of the Trust and
the maintenance of shareholder accounts, certain servicing fees from the Trust.
Subject to the percentage limitations on these distribution and servicing fees
set forth below,
-50-
<PAGE>
the distribution and servicing fees may be paid with respect to services
rendered and expenses borne in the past with respect to Class A, Class B and
Class C shares as to which no distribution and servicing fees were paid on
account of such limitations.
The Distributor makes distribution and servicing payments to participating
brokers and servicing payments to certain banks and other financial
intermediaries in connection with the sale of Class B and Class C shares and
servicing payments to participating brokers, certain banks and other financial
intermediaries in connection with the sale of Class A shares. In the case of
Class A shares, these parties are also compensated based on the amount of the
front-end sales charge reallowed by the Distributor, except in cases where Class
A shares are sold without a front-end sales charge (although the Distributor may
pay brokers additional compensation in connection with sales of Class A shares
without a sales charge). In the case of Class B shares, participating brokers
and other financial intermediaries are compensated by an advance of a sales
commission by the Distributor. In the case of Class C shares, part or all of the
first year's distribution and servicing fee is generally paid at the time of
sale. Pursuant to the Distribution Agreement, with respect to each Fund's or
Portfolio's Class A, Class B and Class C shares, the Distributor bears various
other promotional and sales related expenses, including the cost of printing and
mailing prospectuses to persons other than current shareholders.
Class A Servicing Fees
----------------------
As compensation for services rendered and expenses borne by the Distributor
in connection with personal services rendered to Class A shareholders of the
Trust and the maintenance of Class A shareholder accounts, the Trust pays the
Distributor servicing fees up to the annual rate of .25% (calculated as a
percentage of each Fund's or Portfolio's average daily net assets attributable
to Class A shares).
Class B and Class C Distribution and Servicing Fees
---------------------------------------------------
As compensation for services rendered and expenses borne by the Distributor
in connection with the distribution of Class B and Class C shares of the Trust,
and in connection with personal services rendered to Class B and Class C
shareholders of the Trust and the maintenance of Class B and Class C shareholder
accounts, the Trust pays the Distributor servicing and distribution fees up to
the annual rates set forth below (calculated as a percentage of each Fund's or
Portfolio's average daily net assets attributable to Class B and Class C shares,
respectively):
Servicing Distribution
Fee Fee
----------- ----------------
All Funds and Portfolios .25% .75%
The Retail Plans were adopted pursuant to Rule 12b-1 under the 1940 Act and
are of the type known as "compensation" plans. This means that, although the
Trustees of the Trust are expected to take into account the expenses of the
Distributor and its predecessors in their periodic review of the Retail Plans,
the fees are payable to compensate the Distributor for services rendered even if
the amount paid exceeds the Distributor's expenses.
The distribution fee applicable to Class B and Class C shares may be spent
by the Distributor on any activities or expenses primarily intended to result in
the sale of Class B or Class C shares, respectively, including compensation to,
and expenses (including overhead and telephone expenses) of, financial
consultants or other employees of the Distributor or of participating or
introducing brokers who engage in distribution of Class B or Class C shares,
printing of prospectuses and reports for other than existing Class B or Class C
shareholders, advertising, and preparation, printing and distributions of sales
literature. The servicing fee, which is applicable to Class A, Class B and
Class C shares of the Trust, may be spent by the Distributor on personal
services rendered to shareholders of the Trust and the maintenance of
shareholder accounts, including compensation to, and expenses (including
telephone and overhead expenses) of, financial consultants or other employees of
-51-
<PAGE>
participating or introducing brokers, certain banks and other financial
intermediaries who aid in the processing of purchase or redemption requests or
the processing of dividend payments, who provide information periodically to
shareholders showing their positions in a Fund's or Portfolio's shares, who
forward communications from the Trust to shareholders, who render ongoing advice
concerning the suitability of particular investment opportunities offered by the
Trust in light of the shareholders' needs, who respond to inquiries from
shareholders relating to such services, or who train personnel in the provision
of such services. Distribution and servicing fees may also be spent on interest
relating to unreimbursed distribution or servicing expenses from prior years.
Many of the Distributor's sales and servicing efforts involve the Trust as
a whole, so that fees paid by Class A, Class B or Class C shares of any Fund or
Portfolio may indirectly support sales and servicing efforts relating to the
other Funds' or Portfolios' shares of the same class. In reporting its expenses
to the Trustees, the Distributor itemizes expenses that relate to the
distribution and/or servicing of a single Fund's or Portfolio's shares, and
allocates other expenses among the Funds or Portfolios based on their relative
net assets. Expenses allocated to each Fund or Portfolio are further allocated
among its classes of shares annually based on the relative sales of each class,
except for any expenses that relate only to the sale or servicing of a single
class. The Distributor may make payments to brokers (and with respect to
servicing fees only, to certain banks and other financial intermediaries) of up
to the following percentages annually of the average daily net assets
attributable to shares in the accounts of their customers or clients:
All Funds and Portfolios/(1)/
Servicing Distribution
Fee Fee
---------- -------------
Class A .25% N/A
Class B /(2)/ .25% None
Class C (purchased before July 1, 1991) .25% None
Class C/(3)/ (purchased on or after July 1, .25% .65%
1991)
1. Applies, in part, to Class A, Class B and Class C shares of the Trust
issued to former shareholders of PIMCO Advisors Funds in connection with
the reorganizations/mergers of series of PIMCO Advisors Funds as/with Funds
of the Trust in transactions which took place on January 17, 1997
2. Payable only with respect to shares outstanding for one year or more.
3. Payable only with respect to shares outstanding for one year or more except
in the case of shares for which no payment is made to the party at the time
of sale.
The Distributor may from time to time pay additional cash bonuses or other
incentives to selected participating brokers in connection with the sale or
servicing of Class A, Class B and Class C shares of the Funds or Portfolios. On
some occasions, such bonuses or incentives may be conditioned upon the sale of a
specified minimum dollar amount of the shares of a Fund or Portfolio and/or all
of the Funds or Portfolios together or a particular class of shares, during a
specific period of time. The Distributor currently expects that such additional
bonuses or incentives will not exceed .50% of the amount of any sale. In its
capacity as administrator for the Funds and Portfolios, PIMCO Advisors may pay
participating brokers and other intermediaries for sub-transfer agency and other
services.
If in any year the Distributor's expenses incurred in connection with the
distribution of Class B and Class C shares and, for Class A, Class B and Class C
shares, in connection with the servicing of shareholders and the maintenance of
shareholder accounts, exceed the distribution and/or servicing fees paid by the
Trust, the Distributor would recover such excess only if the Retail Plan with
respect to such class of shares continues to be in effect in some later year
when such distribution and/or servicing fees exceed the Distributor's expenses.
-52-
<PAGE>
The Trust is not obligated to repay any unreimbursed expenses that may exist at
such time, if any, as the relevant Retail Plan terminates.
Each Retail Plan may be terminated with respect to any Fund or Portfolio to
which the Plan relates by vote of a majority of the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Plan or the
Distribution Contract ("disinterested Retail Plan Trustees"), or by vote of a
majority of the outstanding voting securities of the relevant class of that Fund
or Portfolio. Any change in any Retail Plan that would materially increase the
cost to the class of shares of any Fund or Portfolio to which the Plan relates
requires approval by the affected class of shareholders of that Fund or
Portfolio. The Trustees review quarterly written reports of such costs and the
purposes for which such costs have been incurred. Each Retail Plan may be
amended by vote of the Trustees, including a majority of the disinterested
Retail Plan Trustees, cast in person at a meeting called for the purpose. As
long as the Retail Plans are in effect, selection and nomination of those
Trustees who are not interested persons of the Trust shall be committed to the
discretion of such disinterested Trustees.
The Retail Plans will continue in effect with respect to each Fund and
Portfolio, and each class of shares thereof, for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the disinterested Retail Plan Trustees and (ii) by the vote of a
majority of the entire Board of Trustees cast in person at a meeting called for
the purpose of voting on such approval.
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.
-53-
<PAGE>
Payments Pursuant to Class A Plans
For the fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998,
the Trust paid the Distributor an aggregate of $4,791,777, $2,635,864 and
$2,017,316, respectively, pursuant to the Class A Retail Plan. Such payments
were allocated among the operational Funds and Portfolios as follows:
Year Ended Year Ended Year Ended
Fund 06/30/00 06/30/99 06/30/98
---- -------- -------- --------
Equity Income Fund $ 35,417 $ 37,477 $ 20,227
Value Fund 48,672 51,171 46,720
Small-Cap Value Fund 281,899 226,167 91,688
Select Growth Fund/(1)/ 2,930 N/A N/A
Growth & Income Fund N/A N/A N/A
Capital Appreciation Fund 211,691 224,084 75,035
Mid-Cap Fund/(1)/ 344,881 251,954 72,631
Micro-Cap Fund/(1)/ N/A N/A N/A
Small-Cap Fund/(1)/ N/A N/A N/A
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund/(1)/ N/A N/A 697
International Developed Fund/(1)/ N/A N/A 2,903
Balanced Fund/(1)/ 5,099 23,696 12,278
Renaissance Fund 188,955 214,100 130,230
Growth Fund 584,296 464,918 403,013
Target Fund 575,532 347,814 394,300
Opportunity Fund 336,308 338,303 531,993
Innovation Fund 2,086,704 406,854 164,089
International Fund 37,673 29,153 42,700
Select International Fund N/A N/A N/A
Precious Metals Fund/(1)/ 6,974 8,880 13,370
Tax Exempt Fund/(1)/ N/A N/A 15,442
Value 25 Fund/(1)/ 1,014 1,189 N/A
Tax-Efficient Equity Fund 20,413 7,937 N/A
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund 13,809 N/A N/A
NFJ Value Fund N/A N/A N/A
NFJ Equity Income Fund N/A N/A N/A
NFJ Value 25 Fund N/A N/A N/A
60/40 Portfolio 6,127 1,312 N/A
30/70 Portfolio 1,092 348 N/A
90/10 Portfolio 2,291 504 N/A
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
During the fiscal year ended June 30, 2000, 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, $3,966,313, 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), $810,030. These totals,
allocated among (i) compensation and (ii) sales material and other expenses for
each Fund and Portfolio, were as follows:
-54-
<PAGE>
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
------------ -------- -----
<S> <C> <C> <C>
Equity Income Fund $ 29,396 $ 6,021 $ 35,417
Value Fund 40,398 8,274 48,672
Small-Cap Value Fund 233,976 47,923 281,899
Select Growth Fund/(1)/ 2,432 498 2,930
Growth & Income Fund N/A N/A N/A
Capital Appreciation Fund 175,704 35,967 211,691
Mid-Cap Fund/(1)/ 286,251 58,630 344,881
Micro-Cap Fund/(1)/ N/A N/A N/A
Small-Cap Fund /(1)/ N/A N/A N/A
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund/(1)/ N/A N/A N/A
International Developed Fund/(1)/ N/A N/A N/A
Balanced Fund/(1)/ N/A N/A N/A
Renaissance Fund 156,833 32,122 188,955
Growth Fund 484,966 99,330 584,296
Target Fund 477,692 97,840 575,532
Opportunity Fund 279,136 57,172 336,308
Innovation Fund 1,731,964 354,740 2,086,704
International Fund 31,269 6,404 37,673
Select International Fund N/A N/A N/A
Precious Metals Fund/(1)/ N/A N/A N/A
Tax Exempt Fund/(1)/ N/A N/A N/A
Value 25 Fund/(1)/ N/A N/A N/A
Tax-Efficient Equity Fund 16,943 3,470 20,413
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging
Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund 11,461 2,348 13,809
NFJ Value N/A N/A N/A
NFJ Equity Income N/A N/A N/A
NFJ Value 25 N/A N/A N/A
60/40 Portfolio 5,085 1,042 6,127
30/70 Portfolio 906 186 1,092
90/10 Portfolio 1,902 389 2,291
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
Payments Pursuant to Class B Plans
For the fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998,
the Trust paid the Distributor an aggregate of $17,229,175, $7,649,186 and
$4,549,168, respectively, pursuant to the Class B Retail Plan. Such payments
were allocated among the operational Funds and Portfolios as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 6/30/00 6/30/99 6/30/98
---- ------- ------- -------
<S> <C> <C> <C>
Equity Income Fund $ 170,658 $ 174,783 $ 80,992
Value Fund 310,938 332,761 311,768
Small-Cap Value Fund 727,720 984,479 611,536
Select Growth Fund/(1)/ 2,205 N/A N/A
</TABLE>
-55-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Growth & Income Fund N/A N/A N/A
Capital Appreciation Fund 580,680 483,520 165,015
Mid-Cap Fund/(1)/ 817,029 834,091 528,760
Micro-Cap Fund/(1)/ N/A N/A N/A
Small-Cap Fund/(1)/ N/A N/A N/A
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund/(1)/ N/A N/A 4,696
International Developed Fund/(1)/ N/A N/A 21,969
Balanced Fund/(1)/ 26,925 109,348 42,373
Renaissance Fund 1,057,065 1,133,814 603,997
Growth Fund 1,683,442 996,276 660,761
Target Fund 1,333,509 703,506 727,857
Opportunity Fund 139,441 428 N/A
Innovation Fund 10,061,312 1,707,917 629,537
International Fund 96,371 84,644 85,359
Select International Fund N/A N/A N/A
Precious Metals Fund/(1)/ 7,022 40,742 41,484
Tax Exempt Fund/(1)/ N/A N/A 33,064
Value 25 Fund/(1)/ 5,929 3,700 N/A
Tax-Efficient Equity Fund 95,696 28,316 N/A
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund 35,130 N/A N/A
NFJ Value Fund N/A N/A N/A
NFJ Equity Income Fund N/A N/A N/A
NFJ Value 25 Fund N/A N/A N/A
60/40 Portfolio 38,706 15,370 N/A
30/70 Portfolio 17,569 8,250 N/A
90/10 Portfolio 21,828 7,240 N/A
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
During the fiscal year ended June 30, 2000, 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, $14,267,118; preparing,
printing and distributing sales material and advertising (including preparing,
printing and distributing prospectuses to non-shareholders), and other expenses
(including data processing, legal and operations), $2,916,209. These totals,
allocated among (i) compensation and (ii) sales material and other expenses for
each Fund and Portfolio, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
------------ -------- -----
<S> <C> <C> <C>
Equity Income Fund $ 141,646 $ 29,012 $ 170,658
Value Fund 258,079 52,859 310,938
Small-Cap Value Fund 604,008 123,712 727,720
Select Growth Fund/(1)/ 1,830 375 2,205
Growth & Income Fund N/A N/A N/A
Capital Appreciation Fund 481,964 98,716 580,680
Mid-Cap Fund/(1)/ 678,134 138,895 817,029
Micro-Cap Fund/(1)/ N/A N/A N/A
Small-Cap Fund/(1)/ N/A N/A N/A
</TABLE>
-56-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund/(1)/ N/A N/A N/A
International Developed Fund/(1)/ N/A N/A N/A
Balanced Fund/(1)/ N/A N/A N/A
Renaissance Fund 877,364 179,701 1,057,065
Growth Fund 1,397,257 286,185 1,683,442
Target Fund 1,106,812 226,697 1,333,509
Opportunity Fund 115,736 23,705 139,441
Innovation Fund 8,350,889 1,710,423 10,061,312
International Fund 79,988 16,383 96,371
Select International Fund N/A N/A N/A
Precious Metals Fund/(1)/ N/A N/A N/A
Tax Exempt Fund/(1)/ N/A N/A N/A
Value 25 Fund/(1)/ N/A N/A N/A
Tax-Efficient Equity Fund 79,428 16,268 95,696
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging
Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund 29,158 5,972 35,130
NFJ Value Fund N/A N/A N/A
NFJ Equity Income Fund N/A N/A N/A
NFJ Value 25 Fund N/A N/A N/A
60/40 Portfolio 32,126 6,580 38,706
30/70 Portfolio 14,582 2,987 17,569
90/10 Portfolio 18,117 3,711 21,828
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
Payments Pursuant to Class C Plans
For the fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998,
the Trust paid the Distributor an aggregate of $61,852,931, $43,907,220 and
$42,819,673, respectively, pursuant to the Class C Retail Plan. Such payments
were allocated among the operational Funds and Portfolios as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 6/30/00 6/30/99 6/30/98
---- ------- ------- -------
<S> <C> <C> <C>
Equity Income Fund $ 187,033 $ 230,353 $ 139,875
Value Fund 649,647 779,730 784,829
Small-Cap Value Fund 867,478 1,113,794 814,232
Select Growth Fund/(1)/ 4,463 N/A N/A
Growth & Income Fund N/A N/A N/A
Capital Appreciation Fund 779,541 748,698 392,705
Mid-Cap Fund/(1)/ 1,000,626 1,225,691 951,993
Micro-Cap Fund/(1)/ N/A N/A N/A
Small-Cap Fund/(1)/ N/A N/A N/A
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund/(1)/ N/A N/A 14,813
International Developed Fund/(1)/ N/A N/A 40,459
Balanced Fund/(1)/ 27,921 110,967 41,412
Renaissance Fund 3,638,619 4,288,538 3,887,867
Growth Fund 22,300,270 18,591,740 16,386,591
</TABLE>
-57-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Target Fund 12,772,126 8,510,832 9,707,945
Opportunity Fund 3,689,475 3,521,632 5,829,510
Innovation Fund 14,373,504 3,440,411 1,834,958
International Fund 1,010,972 1,083,209 1,421,443
Select International Fund N/A N/A N/A
Precious Metals Fund/(1)/ 64,702 133,650 181,565
Tax Exempt Fund/(1)/ N/A N/A 389,476
Value 25 Fund/(1)/ 6,258 4,980 N/A
Tax-Efficient Equity Fund 142,363 50,345 N/A
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund 67,185 N/A N/A
NFJ Value Fund N/A N/A N/A
NFJ Equity Income Fund N/A N/A N/A
NFJ Value 25 Fund N/A N/A N/A
60/40 Portfolio 100,301 29,671 N/A
30/70 Portfolio 50,881 16,395 N/A
90/10 Portfolio 119,566 26,585 N/A
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
During the fiscal year ended June 30, 2000, 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, $51,255,862; 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), $10,486,767. These totals,
allocated among (i) compensation and (ii) sales material and other expenses for
each Fund and Portfolio, were as follows:
<TABLE>
<CAPTION>
Sales Material
Compensation and Other Expenses Total
------------ ------------------ -----
<S> <C> <C> <C>
Equity Income Fund $ 155,273 $ 31,796 $ 187,033
Value Fund 539,207 110,440 649,647
Small-Cap Value Fund 720,007 147,471 867,478
Select Growth Fund/(1)/ 3,704 759 4,463
Growth & Income Fund N/A N/A N/A
Capital Appreciation Fund 647,019 132,522 779,541
Mid-Cap Fund/(1)/ 830,520 170,106 1,000,626
Micro-Cap Fund/(1)/ N/A N/A N/A
Small-Cap Fund/(1)/ N/A N/A N/A
Enhanced Equity Fund N/A N/A N/A
Emerging Markets Fund/(1)/ N/A N/A N/A
International Developed Fund/(1)/ N/A N/A N/A
Balanced Fund/(1)/ N/A N/A N/A
Renaissance Fund 3,020,054 618,565 3,638,619
Growth Fund 18,509,224 3,791,046 22,300,270
Target Fund 10,600,865 2,171,261 12,772,126
Opportunity Fund 3,062,264 627,211 3,689,475
Innovation Fund 11,930,008 2,443,496 14,373,504
International Fund 839,107 171,865 1,010,972
Select International Fund N/A N/A N/A
Precious Metals Fund/(1)/ N/A N/A N/A
</TABLE>
-58-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Tax Exempt Fund/(1)/ N/A N/A N/A
Value 25 Fund/(1)/ N/A N/A N/A
Tax-Efficient Equity Fund 118,161 24,202 142,363
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured
Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund 55,764 11,421 67,185
NFJ Value Fund N/A N/A N/A
NFJ Equity Income Fund N/A N/A N/A
NFJ Value 25 Fund N/A N/A N/A
60/40 Portfolio 83,250 17,051 100,301
30/70 Portfolio 42,231 8,650 50,881
90/10 Portfolio 99,240 20,326 119,566
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
From time to time, expenses of principal underwriters incurred in
connection with the distribution of Class B and Class C shares of the Funds and
Portfolios, and in connection with the servicing of Class A, Class B and Class C
shareholders of the Funds and Portfolios and the maintenance of Class A, Class B
and Class C shareholder accounts, may exceed the distribution and/or servicing
fees collected by the Distributor. As of June 30, 2000, such expenses were
approximately $24,611,000 in excess of payments under the Class A Plan,
$53,678,000 in excess of payments under the Class B Plan and $3,917,000 in
excess of payments under the Class C Plan.
The allocation of such excess (on a pro rata basis) among the Funds and
Portfolios listed below as of June 30, 2000 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Fund/(1)/ N/A N/A N/A
Capital Appreciation Fund $ 944,000 $ 1,223,000 $ 98,000
Emerging Markets Fund/(1)/ N/A N/A N/A
Equity Income Fund 172,000 515,000 306,000
Growth Fund 8,378,000 5,475,000 (7,328,000)
Innovation Fund 1,790,000 31,501,000 6,464,000
International Developed Fund/(1)/ N/A N/A N/A
International Fund 786,000 379,000 1,377,000
Mid-Cap Fund 1,878,000 1,776,000 267,000
Opportunity Fund 3,524,000 408,000 (6,163,000)
Precious Metals Fund/(1)/ N/A N/A N/A
Renaissance Fund 1,564,000 3,160,000 934,000
Small-Cap Value Fund 1,077,000 3,046,000 341,000
Target Fund 4,243,000 4,192,000 6,769,000
Value Fund 320,000 632,000 329,000
Value 25 Fund/(1)/ N/A N/A N/A
Tax-Efficient Equity Fund 29,000 267,000 36,000
Select Growth Fund 1,000 61,000 31,000
Global Innovation Fund (85,000) 857,000 346,000
60/40 Portfolio (3,000) 102,000 39,000
30/70 Portfolio (1,000) 32,000 16,000
90/10 Portfolio (6,000) 52,000 55,000
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
-59-
<PAGE>
The allocation of such excess (on a pro rata basis) among the Funds and
Portfolios, calculated as a percentage of net assets of each Fund listed below
as of June 30, 2000, was as follows:
Fund Class A Class B Class C
-----------------------------------------------------------------------------
Balanced Fund/(1)/ N/A N/A N/A
Capital Appreciation Fund 1.03% 1.85% 0.12%
Emerging Markets Fund/(1)/ N/A N/A N/A
Equity Income Fund 1.51% 3.98% 2.19%
Growth Fund 3.27% 2.56% -0.30%
Innovation Fund 0.13% 1.88% 0.28%
International Developed Fund/(1)/ N/A N/A N/A
International Fund 6.36% 3.72% 1.51%
Mid-Cap Fund 1.20% 2.00% 0.26%
Opportunity Fund 2.41% 1.45% -1.54%
Precious Metals Fund/(1)/ N/A N/A N/A
Renaissance Fund 2.23% 3.52% 0.30%
Small-Cap Value Fund 0.94% 5.49% 0.49%
Target Fund 1.40% 1.88% 0.40%
Value Fund 1.68% 2.35% 0.61%
Value 25 Fund/(1)/ N/A N/A N/A
Tax-Efficient Equity Fund 0.31% 2.47% 0.23%
Global Innovation Fund -0.27% 3.42% 0.74%
Select Growth Fund 0.01% 2.97% 0.75%
60/40 Portfolio -0.14% 2.31% 0.37%
30/70 Portfolio -0.30% 1.93% 0.44%
90/10 Portfolio -0.52% 1.99% 0.34%
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
Distribution and Administrative Services Plans for Administrative Class Shares
The Trust has adopted an Administrative Services Plan with respect to the
Administrative Class shares of each Fund and Portfolio. The Trust also has
adopted an Administrative Distribution Plan (together with the Administrative
Services Plan, the "Administrative Plans") with respect to the Administrative
Class shares of each Fund and Portfolio.
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.
-60-
<PAGE>
Under the terms of the Administrative Services Plan, the Trust is permitted to
reimburse, out of the assets attributable to the Administrative Class shares of
each Fund or Portfolio, in an amount up to 0.25% on an annual basis of the
average daily net assets of that class, financial intermediaries that provide
certain administrative services for Administrative Class shareholders. Such
services may include, but are not limited to, the following: receiving,
aggregating and processing shareholder orders; furnishing shareholder sub-
accounting; providing and maintaining elective shareholder services such as
check writing and wire transfer services; providing and maintaining pre-
authorized investment plans; communicating periodically with shareholders;
acting as the sole shareholder of record and nominee for shareholders;
maintaining accounting records for shareholders; answering questions and
handling correspondence from shareholders about their accounts; and performing
similar account administrative services.
The same entity may be the recipient of fees under both the Administrative
Distribution Plan and the Administrative Services Plan, but may not receive fees
under both plans with respect to the same assets. Fees paid pursuant to either
Plan may be paid for shareholder services and the maintenance of shareholder
accounts, and therefore may constitute "service fees" for purposes of applicable
rules of the National Association of Securities Dealers, Inc. Each Plan has
been adopted in accordance with the requirements of Rule 12b-1 under the 1940
Act and will be administered in accordance with the provisions of that rule,
except that shareholders will not have the voting rights set forth in Rule 12b-1
with respect to the Administrative Services Plan that they will have with
respect to the Administrative Distribution Plan.
Each Administrative Plan provides that it may not be amended to increase
materially the costs which Administrative Class shareholders may bear under the
Plan without the approval of a majority of the outstanding voting securities of
the Administrative Class, and by vote of a majority of both (i) the Trustees of
the Trust and (ii) those Trustees ("disinterested Administrative Plan Trustees")
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
who have no direct or indirect financial interest in the operation of the Plan
or any agreements related to it, cast in person at a meeting called for the
purpose of voting on the Plan and any related amendments.
Each Administrative Plan provides that it may not take effect until approved by
vote of a majority of both (i) the Trustees of the Trust and (ii) the
disinterested Administrative Plan Trustees. The Administrative Distribution Plan
further provides that it may not take effect unless approved by the vote of a
majority of the outstanding voting securities of the Administrative Class.
Each Administrative Plan provides that it shall continue in effect so long as
such continuance is specifically approved at least annually by the Trustees and
the disinterested Administrative Plan Trustees. Each Administrative Plan
provides that any person authorized to direct the disposition of monies paid or
payable by a class pursuant to the Plan or any related agreement shall provide
to the Trustees, and the Board shall review at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made.
Each Administrative Plan is a "reimbursement plan," which means that fees are
payable to the relevant financial intermediary only to the extent necessary to
reimburse expenses incurred pursuant to such plan. Each Administrative Plan
provides that expenses payable under the Plan may be carried forward for
reimbursement for up to twelve months beyond the date in which the expense is
incurred, subject to the limit that not more than 0.25% of the average daily net
assets of Administrative Class shares may be used in any month to pay expenses
under the Plan. Each Administrative Plan requires that Administrative Class
shares incur no interest or carrying charges.
Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that some, if not
all, of the fees paid pursuant to both Administrative Plans will qualify as
"service fees" and therefore will not be limited by NASD rules.
-61-
<PAGE>
Institutional and Administrative Class shares of the Trust may also be offered
through certain brokers and financial intermediaries ("service agents") that
have established a shareholder servicing relationship with the Trust on behalf
of their customers. The Trust pays no compensation to such entities other than
service and/or distribution fees paid with respect to Administrative Class
shares. Service agents may impose additional or different conditions than the
Trust on the purchase, redemption or exchanges of Trust shares by their
customers. Service agents may also independently establish and charge their
customers transaction fees, account fees and other amounts in connection which
purchases, sales and redemption of Trust shares in addition to any fees charged
by the Trust. Each service agent is responsible for transmitting to its
customers a schedule of any such fees and information regarding any additional
or different conditions regarding purchases and redemptions. Shareholders who
are customers of service agents should consult their service agents for
information regarding these fees and conditions.
Payments Pursuant to the Administrative Plans
For the fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998, the
Trust paid qualified service providers an aggregate of $1,683,179, $1,120,693
and $502,216, respectively, pursuant to the Administrative Services Plan and the
Administrative Distribution Plan.
Of these aggregate totals, $1,162,901, $602,519 and $362,416, respectively, were
paid pursuant to the Administrative Services Plan and/or the Administrative
Distribution Plan for the Funds and Portfolios listed below and were allocated
among the operational Funds and Portfolios as Follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 6/30/00 6/30/99 6/30/98
---- ------- ------- -------
<S> <C> <C> <C>
Equity Income Fund $ 24,783 $ 29,362 $ 25,885
Value Fund 55,635 39,528 11,304
Small-Cap Value Fund 41,793 40,618 22,930
Select Growth Fund/(1)/ 81 176,827 211,557
Growth & Income Fund 12,856 7,757 1,846
Capital Appreciation Fund 514,299 N/A N/A
Mid-Cap Fund/(1)/ 291,586 234,913 64,116
Micro-Cap Fund/(1)/ 10,865 7,665 8,918
Enhanced Equity Fund 66,909 41,681 9,207
International Developed Fund/(1)/ N/A N/A 6,653
Renaissance Fund 1,650 507 N/A
Growth Fund 33,347 1,939 N/A
Target Fund 16,549 1,725 N/A
Opportunity Fund 18,470 633 N/A
Innovation Fund 70 N/A N/A
International Fund 41,751 17,126 N/A
Tax-Efficient Equity Fund 43,164 2,213 N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A N/A N/A
Select International Fund N/A N/A N/A
NFJ Value Fund N/A N/A N/A
NFJ Equity Income Fund 1,866 N/A N/A
NFJ Value 25 Fund N/A N/A N/A
60/40 Portfolio 28 9 N/A
30/70 Portfolio 26 9 N/A
90/10 Portfolio 29 9 N/A
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
-62-
<PAGE>
The additional portions of the aggregate totals, $520,278, $518,174 and
$139,800, respectively, were paid pursuant to the Administrative Services Plan
only for the Capital Appreciation, Emerging Markets and Small-Cap Funds, and
were allocated among these Funds as follows (The Capital Appreciation and Small-
Cap Funds did not adopt the Administrative Distribution Plan until March 3,
2000; the Emerging Markets Fund did not adopt such plan prior to its
liquidation):
Year Ended Year Ended Year Ended
Fund 6/30/00 6/30/99 6/30/98
---- ------- ------- -------
Capital Appreciation Fund $514,299 $514,736 $137,462
Emerging Markets Fund/(1)/ N/A N/A 1,802
Small-Cap Fund/(1)/ 5,979 3,438 536
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
The remaining Funds did not make payments under either Administrative Plan.
The Administrative Plans were not in effect in prior fiscal years.
Plan for Class D Shares
As described above under "Management of the Trust--Fund Administrator," the
Trust's Administration Agreement includes a plan (the "Class D Plan") adopted in
conformity with Rule 12b-1 under the 1940 Act which provides for the payment of
up to .25% of the Class D administrative fees as reimbursement for expenses in
respect of activities that may be deemed to be primarily intended to result in
the sale of Class D shares.
Specifically, the Administration Agreement provides that the Administrator
shall provide in respect of Class D shares (either directly or by procuring
through other entities, including various financial services firms such as
broker-dealers and registered investment advisers ("Service Organizations"))
some or all of the following services and facilities in connection with direct
purchases by shareholders or in connection with products, programs or accounts
offered by such Service Organizations ("Special Class D Services"): (i)
facilities for placing orders directly for the purchase of a Fund's Class D
shares and tendering a Fund's Class D shares for redemption; (ii) advertising
with respect to a Fund's Class D shares; (iii) providing information about the
Funds; (iv) providing facilities to answer questions from prospective investors
about the Funds; (v) receiving and answering correspondence, including requests
for prospectuses and statements of additional information; (vi) preparing,
printing and delivering prospectuses and shareholder reports to prospective
shareholders; (vii) assisting investors in applying to purchase Class D shares
and selecting dividend and other account options; and (viii) shareholder
services provided by a Service Organization that may include, but are not
limited to, the following functions: receiving, aggregating and processing
shareholder orders; furnishing shareholder sub-accounting; providing and
maintaining elective shareholder services such as check writing and wire
transfer services; providing and maintaining pre-authorized investment plans;
communicating periodically with shareholders; acting as the sole shareholder of
record and nominee for shareholders; maintaining accounting records for
shareholders; answering questions and handling correspondence from shareholders
about their accounts; issuing confirmations for transactions by shareholders;
performing similar account administrative services; providing such shareholder
communications and recordkeeping services as may be required for any program for
which the Service Organization is a sponsor that relies on Rule 3a-4 under the
1940 Act; and providing such other similar services as may reasonably be
requested to the extent the Service Organization is permitted to do so under
applicable statutes, rules, or regulations.
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.
-63-
<PAGE>
The Trust and the Administrator understand that some or all of the Special
Class D Services provided pursuant to the Administration Agreement may be deemed
to represent services primarily intended to result in the sale of Class D
shares. The Administration Agreement includes the Class D Plan to account for
this possibility. The Administration Agreement provides that any portion of the
fees paid thereunder in respect of Class D shares representing reimbursement for
the Administrator's and the Distributor's expenditures and internally allocated
expenses in respect of Class D Services of any Fund shall not exceed the rate of
0.25% per annum of the average daily net assets of such Fund attributable to
Class D shares.
In accordance with Rule 12b-1 under the 1940 Act, the Class D Plan may not
be amended to increase materially the costs which Class D shareholders may bear
under the Plan without the approval of a majority of the outstanding Class D
shares, and by vote of a majority of both (i) the Trustees of the Trust and (ii)
those Trustees ("disinterested Class D Plan Trustees") who are not "interested
persons" of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to it, cast in person at a meeting called for the purpose of voting on
the Plan and any related amendments. The Class D Plan may not take effect until
approved by vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Class D Plan Trustees. In addition, the Class D Plan may not
take effect unless it is approved by the vote of a majority of the outstanding
Class D shares and it shall continue in effect only so long as such continuance
is specifically approved at least annually by the Trustees and the disinterested
Class D Plan Trustees.
With respect to the Class D Plan, the Administration Agreement requires the
Administrator to present reports as to out-of-pocket expenditures and internal
expense allocations of the Administrator and the Distributor at least quarterly
and in a manner that permits the disinterested Class D Plan Trustees to
determine that portion of the Class D administrative fees paid thereunder which
represents reimbursements in respect of Special Class D Services.
Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to the Class D Plan will qualify as "service
fees" and therefore will not be limited by NASD rules.
For the fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998,
the Trust paid qualified service providers an aggregate of $120,680, $22,580 and
$353, respectively, pursuant to the Class D Plan. Such payments were allocated
among the Funds as follows:
Year Ended Year Ended Year Ended
Fund 6/30/00 6/30/99 6/30/98
---- ------- ------- -------
Capital Appreciation Fund $ 999 $ 581 $ 56
Mid-Cap Fund/(1)/ 1,183 606 63
Equity Income Fund 249 325 56
Renaissance Fund 1,002 309 63
Value Fund 120 252 53
Tax-Efficient Equity Fund 538 1,843 N/A
Innovation Fund 116,504 18,664 61
Growth Fund 11 N/A N/A
Select Growth Fund 6 N/A N/A
Target Fund 1 N/A N/A
Global Innovation Fund 67 N/A N/A
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
The Portfolios do not offer Class D shares.
-64-
<PAGE>
Purchases, Exchanges and Redemptions
Purchases, exchanges and redemptions of the Trust's shares are discussed in
the Class A, B and C Prospectus, the Class D Prospectus and the Retail Portfolio
Prospectus under the headings "Investment Options -- Class A, B and C Shares"
and "How to Buy and Sell Shares," and in the Institutional Prospectus and the
Institutional Portfolio Prospectus under the headings ""Investment Options --
Institutional Class and Administrative Class Shares" and "Purchases, Redemptions
& Exchanges."
Certain clients of the Adviser or a Sub-Adviser whose assets would be
eligible for purchase by one or more of the Funds may purchase shares of the
Trust with such assets. Assets so purchased by a Fund will be valued in
accordance with procedures adopted by the Board of Trustees.
One or more classes of shares of the Funds and Portfolios may not be
qualified or registered for sale in all States. Prospective investors should
inquire as to whether shares of a particular Fund or Portfolio, or class of
shares thereof, are available for offer and sale in their State of domicile or
residence. Shares of a Fund or Portfolio may not be offered or sold in any State
unless registered or qualified in that jurisdiction, unless an exemption from
registration or qualification is available.
As described and subject to any limits in the Class A, B and C Prospectus,
the Class D Prospectus and the Retail Portfolio Prospectus under the caption
"How to Buy and Sell Shares-- Exchanging Shares," and in the Institutional
Prospectus and the Institutional Portfolio Prospectus under the caption
"Purchases, Redemptions and Exchanges--Exchange Privilege," a shareholder may
exchange shares of any Fund or Portfolio for shares of the same class of any
other Fund or Portfolio of the Trust that is available for investment, or any
series of PIMS, on the basis of their respective net asset values. The original
purchase date(s) of shares exchanged for purposes of calculating any contingent
deferred sales charge will carry over to the investment in the new Fund or
Portfolio. For example, if a shareholder invests in Class C shares of one Fund
and 6 months later (when the contingent deferred sales charge upon redemption
would normally be 1%) exchanges his shares for Class C shares of another Fund,
no sales charge would be imposed upon the exchange, but the investment in the
other Fund would be subject to the 1% contingent deferred sales charge until one
year after the date of the shareholder's investment in the first Fund as
described in the Class A, B and C Prospectus and the Retail Portfolio Prospectus
under "Alternative Purchase Arrangements." With respect to Class B or Class C
shares, or Class A shares subject to a contingent deferred sales charge, if less
than all of an investment is exchanged, any portion of the investment
attributable to capital appreciation and/or reinvested dividends or capital
gains distributions will be exchanged first, and thereafter any portions
exchanged will be from the earliest investment made in the Fund or Portfolio
from which the exchange was made. For federal income tax purposes, an exchange
is treated as a sale of shares and generally results in a capital gain or loss.
Orders for exchanges accepted prior to the close of regular trading on the
New York Stock Exchange on any day the Trust is open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after the close of regular
trading on the New York Stock Exchange on any business day will be executed at
the respective net asset values determined at the close of the next business
day.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to adopt a policy of terminating the exchange privilege of any
shareholder who makes more than a specified number of exchanges in a 12 month
period or in any calendar year. For example, the Trust currently limits the
number of "round trip" exchanges an investor may make. An investor makes a
"round trip" exchange when the investor purchases shares of a particular Fund or
Portfolio, subsequently exchanges those shares for shares of a different Fund or
Portfolio and then exchanges back into the originally purchased Fund or
Portfolio. The Trust has the right to refuse any exchange for any investor who
completes (by making the exchange back into the shares of the originally
purchased Fund or Portfolio) more than six round trip exchanges in any twelve-
month period. Although the Trust has no current intention of
-65-
<PAGE>
terminating or modifying the exchange privilege other than as set forth in the
preceding sentence, it reserves the right to do so as described in the
Prospectuses.
Redemptions of Fund shares may be suspended when trading on the New York
Stock Exchange is restricted or during an emergency which makes it impracticable
for the Funds or Portfolios to dispose of their securities or to determine
fairly the value of their net assets, or during any other period as permitted by
the Securities and Exchange Commission for the protection of investors. Under
these and other unusual circumstances, the Trust may suspend redemptions or
postpone payments for more than seven days, as permitted by law.
The Trust is committed to paying in cash all requests for redemptions by
any shareholder of record of the Funds and Portfolios, limited in amount with
respect to each shareholder during any 90-day period to the lesser of (i)
$250,000, or (ii) 1% of the net asset value of the Trust at the beginning of
such period. Although the Trust will normally redeem all shares for cash, it may
redeem amounts in excess of the lesser of (i) or (ii) above by payment in kind
of securities held by the particular Fund or Portfolio. When shares are redeemed
in kind, the redeeming shareholder should expect to incur transaction costs upon
the disposition of the securities received in the distribution.
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time, due to shareholder
redemption, the shares in the account do not have a value of at least a
specified amount, the minimums of which are set forth in the applicable
Prospectus or in the Guide. An investor will be notified that the value of the
account is less than the minimum and allowed at least 30 days to bring the value
of the account up to at least the specified amount before the redemption is
processed. The Trust's Agreement and Declaration of Trust, as amended and
restated (the "Declaration of Trust"), also authorizes the Trust to redeem
shares under certain other circumstances as may be specified by the Board of
Trustees. The Funds and Portfolios may also charge periodic account fees for
accounts that fall below minimum balances as described in the Prospectuses.
Fund Reimbursement Fees
Investors in Institutional Class and Administrative Class shares of the
Structured Emerging Markets and Tax-Efficient Structured Emerging Markets Funds
are subject to a fee (a "Fund Reimbursement Fee"), both at the time of purchase
and at the time of redemption, equal to 1.00% of the net asset value of the
shares purchased or redeemed. Fund Reimbursement Fees are deducted automatically
from the amount invested or the amount to be received in connection with a
redemption; the fees are not paid separately. Fund Reimbursement Fees are paid
to and retained by the Funds to defray certain costs described below and no
portion of such fees are paid to or retained by the Adviser, the Distributor or
the Sub-Adviser. Fund Reimbursement Fees are not sales loads or contingent
deferred sales charges. Reinvestment of dividends and capital gains
distributions paid to shareholders by the Funds are not subject to Fund
Reimbursement Fees, but redemptions of shares acquired by such reinvestments are
subject to Fund Reimbursement Fees.
The purpose of Fund Reimbursement Fees is to defray the costs associated
with investing the proceeds of the sale of shares to investors (in the case of
purchases) or the costs associated with the sale of portfolio securities to
satisfy redemption requests (in the case of redemptions), thus insulating
existing shareholders from such costs. The amount of a Fund Reimbursement Fee
represents the Sub-Adviser's estimate of the costs reasonably anticipated to be
incurred by the Funds in connection with the purchase or sale of portfolio
securities, including international stocks, associated with an investor's
purchase or redemption proceeds. These costs include brokerage costs, market
impact costs (i.e., the increase in market prices which may result when a Fund
purchases or sells thinly traded stocks), and the effect of "bid/asked" spreads
in international markets. Transaction costs incurred when purchasing or selling
stocks of companies in foreign countries, and particularly emerging market
countries, may be significantly higher than those in more developed countries.
This is due, in part, to less competition among brokers, underutilization of
technology on the part of foreign exchanges and brokers, the lack of less
-66-
<PAGE>
expensive investment options (such as derivative instruments) and lower levels
of liquidity in foreign and underdeveloped markets.
On July 1, 1998, the Structured Emerging Markets and Tax-Efficient
Structured Emerging Markets Funds commenced investment operations immediately
following a transaction (the "Parametric Transaction") in which each Fund issued
Institutional Class shares to unit holders of the Parametric Portfolio
Associates Emerging Markets Trust, a separate account managed by Parametric (the
"EM Trust"), in exchange for the EM Trust's assets. The EM Trust's unit holders
were divided into two categories: participants who pay taxes ("Taxable
Participants") and participants that are non-taxable entities ("Non-Taxable
Participants" and, together with the Taxable Participants, the "Participants").
Assets in the EM Trust equal in value to the value of the Taxable Participants'
participation in the EM Trust were transferred to the Tax-Efficient Structured
Emerging Markets Fund in exchange for Institutional Class shares of that Fund.
Assets in the EM Trust equal in value to the value of the Non-Taxable
Participants' participation in the EM Trust were transferred to the Structured
Emerging Markets Fund in exchange for Institutional Class shares of that Fund.
The Participants' interests in the EM Trust were then terminated and
Institutional Class shares of the Tax-Efficient Structured Emerging Markets Fund
were distributed to the Taxable Participants and Institutional Class shares of
the Structured Emerging Markets Fund were distributed to the Non-Taxable
Participants, in each case in proportion to each Participant's interest in the
EM Trust. After the completion of the Parametric Transaction, the portfolio
securities which were owned by the EM Trust became portfolio securities of the
Funds (allocated to the Funds on a substantially pro-rata basis), to be held or
sold as Parametric deems appropriate.
Portfolio securities transferred to the Funds pursuant to the Parametric
Transaction will have the same tax basis as they had when held by the EM Trust.
Such securities have "built-in" capital gains if their market value at the time
of the Parametric Transaction was greater than their tax basis (other securities
may have "built-in" capital losses for tax purposes if their market value at the
time of the Parametric Transaction was less than their tax basis). Built-in
capital gains realized upon the disposition of these securities will be
distributed to all Fund shareholders who are shareholders of record on the
record date for the distribution, even if such shareholders were not
Participants in the EM Trust prior to the Parametric Transaction. This means
that investors purchasing Fund shares after the date of this Prospectus may be
required to pay taxes on distributions that economically represent a return of a
portion of the amount invested. For further information, see "Taxation--
Distributions" below.
In connection with the Parametric Transaction, the Participants in the EM
Trust will not be subject to Fund Reimbursement Fees with respect to any shares
of these Funds they acquired through June 30, 1998, and will not be subject to
Fund Reimbursement Fees upon the subsequent redemption (including any redemption
in connection with an exchange) of any shares acquired by any such Participant
through June 30, 1998. Such Participants will be subject to such Fund
Reimbursement Fees to the same extent as any other shareholder on any shares of
either Fund acquired (whether by reinvestment of dividends or capital gain
distributions or otherwise) after June 30, 1998.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions and Portfolio Transactions
Investment decisions for the Trust and for the other investment advisory
clients of the Adviser and Sub-Advisers are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved
(including the Trust). Some securities considered for investment by the Funds
may also be appropriate for other clients served by the Adviser or a Sub-
Adviser. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. If a purchase or sale of securities consistent with the investment
policies of a Fund and one or more of these clients is considered at or about
the same time, transactions in such securities will be allocated among the Fund
and clients in a manner deemed fair and
-67-
<PAGE>
reasonable by the Adviser or Sub-Adviser. Particularly when investing in less
liquid or illiquid securities of smaller capitalization companies, such
allocation may take into account the asset size of a Fund in determining whether
the allocation of an investment is suitable. As a result, larger Funds may
become more concentrated in more liquid securities than smaller Funds or private
accounts of the Adviser or a Sub-Adviser pursuing a small capitalization
investment strategy, which could adversely affect performance. The Adviser or a
Sub-Adviser may aggregate orders for the Funds with simultaneous transactions
entered into on behalf of its other clients so long as price and transaction
expenses are averaged either for the portfolio transaction or for that day.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the security. In some instances, one client may sell
a particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the Adviser's
or the Sub-Adviser's opinion is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients.
Brokerage and Research Services
There is generally no stated commission in the case of fixed-income
securities, which are traded in the over-the-counter markets, but the price paid
by the Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Trust of negotiated brokerage commissions. Such commissions vary among different
brokers. Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of the transaction. Transactions in
foreign securities generally involve the payment of fixed brokerage commissions,
which are generally higher than those in the United States.
The Adviser and/or each Sub-Adviser places orders for the purchase and sale
of portfolio securities, options and futures contracts and buys and sells such
securities, options and futures for the Trust through a substantial number of
brokers and dealers. In so doing, the Adviser or Sub-Adviser uses its best
efforts to obtain for the Trust the most favorable price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable price and
execution, the Adviser or Sub-Adviser, having in mind the Trust's best
interests, considers all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience and financial
stability of the broker-dealer involved and the quality of service rendered by
the broker-dealer in other transactions. Because the Portfolios invest
exclusively in Institutional Class shares of Underlying PIMCO Funds, they
generally do not pay brokerage commissions and related costs, but do indirectly
bear a proportionate share of these costs incurred by the Underlying PIMCO Funds
in which they invest.
For the fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998,
the following amounts of brokerage commissions were paid by the Funds and
Portfolios:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 6/30/00 6/30/99 6/30/98
---- ------- ------- -------
<S> <C> <C> <C>
Equity Income Fund $ 4,106,649 $ 370,906 $ 239,458
Value Fund 1,927,197 590,816 437,002
Small-Cap Value Fund 903,187 973,236 810,211
Capital Appreciation Fund 5,972,962 2,099,694 1,384,393
Mid-Cap Fund/(1)/ 3,282,364 1,648,830 1,115,609
Micro-Cap Fund/(1)/ 536,789 381,825 237,969
Small-Cap Fund/(1)/ 352,863 149,013 71,734
</TABLE>
-68-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Enhanced Equity Fund 47,705 34,926 61,193
Emerging Markets Fund/(1)/ N/A 94,539 238,241
International Developed N/A 266,609 326,193
Fund/(1)/
Balanced Fund/(1)/ N/A 108,337 91,788
Select Growth Fund/(1)/ N/A 154,017 219,194
Growth & Income Fund 105,096 53,303 44,404
Renaissance Fund 1,288,519 4,009,076 2,539,296
Growth Fund 17,064 4,502,200 4,154,740
Target Fund 28,768 3,661,375 5,577,623
Opportunity Fund N/A 1,778,867 1,345,809
Innovation Fund 2,134,497 782,662 412,457
International Fund 813,420 566,950 785,827
Select International Fund* N/A 77,095 26,179
Precious Metals Fund/(1)/ 27,057 105,266 98,635
Tax Exempt Fund/(1)/ N/A N/A N/A
Value 25 Fund/(1)/ N/A 15,802 N/A
Tax-Efficient Equity Fund 73,137 28,136 N/A
Structured Emerging 111,394 85,087 N/A
Markets Fund
Tax-Efficient Structured 160,009 153,831 N/A
Emerging Markets Fund
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund 41,208 N/A N/A
NFJ Value Fund 1,708 N/A N/A
NFJ Equity Income Fund 49,080 N/A N/A
NFJ Value 25 Fund N/A N/A N/A
60/40 Portfolio N/A 1,646 N/A
30/70 Portfolio N/A 348 N/A
90/10 Portfolio N/A 65 N/A
----------- ----------- -----------
TOTAL $21,980,673 $22,684,457 $20,217,955
</TABLE>
---------------------------
*Amounts for the year ended June 30, 1998 are for the period from 12/31/97
through 6/30/98.
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
The Adviser or, pursuant to the portfolio management agreements, a Sub-
Adviser, places orders for the purchase and sale of portfolio investments for a
Fund's accounts with brokers or dealers selected by it in its discretion. In
effecting purchases and sales of portfolio securities for the accounts of the
Funds, the Adviser and the Sub-Advisers will seek the best price and execution
of the Funds' orders. In doing so, a Fund may pay higher commission rates than
the lowest available when the Adviser or Sub-Adviser believes it is reasonable
to do so in light of the value of the brokerage and research services provided
by the broker effecting the transaction, as discussed below. The Adviser and
Sub-Advisers also may consider sales of shares of the Trust as a factor in the
selection of broker-dealers to execute portfolio transactions for the Trust.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Adviser and Sub-Advisers receive research services from many broker-dealers
with which the Adviser and Sub-Advisers place the Trust's portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services are of value to
the Adviser and Sub-Advisers in advising various of their clients (including the
Trust), although not all of these services are necessarily useful and of value
in managing the Trust. The advisory fees paid by the Trust are not reduced
because the Adviser and Sub-Advisers receive such services.
-69-
<PAGE>
In reliance on the "safe harbor" provided by Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Adviser and
Sub-Advisers may cause the Trust to pay broker-dealers which provide them with
"brokerage and research services" (as defined in the 1934 Act) an amount of
commission for effecting a securities transaction for the Trust in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
Consistent with the rules of the NASD and subject to seeking the most
favorable price and execution available and such other policies as the Trustees
may determine, the Adviser or Sub-Advisers may also consider sales of shares of
the Trust as a factor in the selection of broker-dealers to execute portfolio
transactions for the Trust.
The Adviser or a Sub-Adviser may place orders for the purchase and sale of
exchange-listed portfolio securities with a broker-dealer that is an affiliate
of the Adviser or Sub-Adviser where, in the judgment of the Adviser or Sub-
Adviser, such firm will be able to obtain a price and execution at least as
favorable as other qualified broker-dealers.
Pursuant to rules of the SEC, a broker-dealer that is an affiliate of the
Adviser or a Sub-Adviser may receive and retain compensation for effecting
portfolio transactions for a Fund on a securities exchange if the commissions
paid to such an affiliated broker-dealer by a Fund on exchange transactions do
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." As required by applicable SEC rules, the Board of Trustees has
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to an affiliated broker are
consistent with the foregoing standards.
Portfolio Turnover
A change in the securities held by a Fund is known as "portfolio turnover."
With the exception of the Tax-Efficient Structured Emerging Markets and
Tax-Efficient Equity Funds (which may attempt to minimize portfolio turnover as
a tax-efficient management strategy), the Sub-Advisers manage the Funds without
regard generally to restrictions on portfolio turnover. The use of futures
contracts and other derivative instruments with relatively short maturities may
tend to exaggerate the portfolio turnover rate for some of the Funds. Trading in
fixed income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. The use of futures
contracts may involve the payment of commissions to futures commission
merchants. High portfolio turnover (e.g., greater than 100%) involves
correspondingly greater expenses to a Fund, including brokerage commissions or
dealer mark-ups and other transaction costs on the sale of securities and
reinvestments in other securities. The higher the rate of portfolio turnover of
a Fund, the higher these transaction costs borne by the Fund generally will be.
Such sales may result in realization of taxable capital gains (including
short-term capital gains which are generally taxed to shareholders at ordinary
income tax rates). To the extent portfolio turnover results in the realization
of net short-term capital gains, such gains are generally taxed to shareholders
at ordinary income tax rates. See "Taxation."
The portfolio turnover rate of a Fund or Portfolio is calculated by
dividing (a) the lesser of purchases or sales of portfolio securities for the
particular fiscal year by (b) the monthly average of the value of the portfolio
securities owned by the Fund or Portfolio during the particular fiscal year. In
calculating the rate of portfolio turnover, there is excluded from both (a) and
(b) all securities, including options, whose maturities or expiration dates at
the time of acquisition were one year or less. Proceeds from short sales and
assets used to cover short positions undertaken are included in the amounts of
securities sold and purchased, respectively, during the year.
Because the Adviser does not expect to reallocate the Portfolio's assets
among the Underlying Funds on a frequent basis, the portfolio turnover rates for
the Portfolios are expected to be modest (i.e., less than 25%) in comparison to
most mutual funds. However, the Portfolios indirectly bear the expenses
associated with the
-70-
<PAGE>
portfolio turnover of the Underlying Funds, a number of which have high (i.e.,
greater than 100%) portfolio turnover rates.
Portfolio turnover rates for each Fund for which financial highlights are
available are provided under "Financial Highlights" in the applicable
Prospectus. In connection with the change in Sub-Advisers of the Equity Income,
Value, Growth, Target, Opportunity, Innovation, Renaissance, Select Growth,
Growth & Income and Select International Funds, these Funds may experience
increased turnover due to the differences, if any, between the portfolio
management strategies of the particular Fund's current Sub-Adviser and previous
sub-adviser. See "Management of the Trust--Portfolio Management Agreements."
NET ASSET VALUE
As indicated in the Prospectuses under the heading "How Fund Shares are
Priced," the net asset value ("NAV") of a class of a Fund's or Portfolio's
shares is determined by dividing the total value of a Fund's or Portfolio's
portfolio investments and other assets attributable to that class, less any
liabilities, by the total number of shares outstanding of that class.
For purposes of calculating the NAV, portfolio securities and other assets
for which market quotes are available are stated at market value. Market value
is generally determined on the basis of last reported sales prices, or if no
sales are reported, based on quotes obtained from a quotation reporting system,
established market makers, or pricing services. Certain securities or
investments for which daily market quotes are not readily available may be
valued, pursuant to guidelines established by the Board of Trustees, with
reference to other securities or indices. Short-term investments having a
maturity of 60 days or less are generally valued at amortized cost. Exchange
traded options, futures and options on futures are valued at the settlement
price determined by the exchange. Other securities for which market quotes are
not readily available are valued at fair value as determined in good faith by
the Board of Trustees or persons acting at their direction.
Investments initially valued in currencies other than the U.S. dollar are
converted to U.S. dollars using exchange rates obtained from pricing services.
As a result, the NAV of a Fund's shares may be affected by changes in the value
of currencies in relation to the U.S. dollar. The value of securities traded in
markets outside the United States or denominated in currencies other than the
U.S. dollar may be affected significantly on a day that the New York Stock
Exchange is closed and an investor is not able to purchase, redeem or exchange
shares. In particular, calculation of the NAV of the Select International,
Structured Emerging Markets, Tax-Efficient Structured Emerging Markets, Global
Innovation and International Funds may not take place contemporaneously with the
determination of the prices of foreign securities used in NAV calculations.
Fund and Portfolio shares are valued at the close of regular trading
(normally 4:00 p.m., Eastern time) (the "NYSE Close") on each day that the New
York Stock Exchange is open. For purposes of calculating the NAV, the Funds
normally use pricing data for domestic equity securities received shortly after
the NYSE Close and do not normally take into account trading, clearances or
settlements that take place after the NYSE Close. Domestic fixed income and
foreign securities are normally priced using data reflecting the earlier closing
of the principal markets for those securities. Information that becomes known to
the Funds or their agents after the NAV has been calculated on a particular day
will not generally be used to retroactively adjust the price of the security or
the NAV determined earlier that day.
In unusual circumstances, instead of valuing securities in the usual
manner, the Funds may value securities at fair value or estimate their value as
determined in good faith by the Board of Trustees or their designees, pursuant
to procedures approved by the Board of Trustees. Fair valuation may also be used
by the Board of Trustees if extraordinary events occur after the close of the
relevant market but prior to the NYSE Close.
-71-
<PAGE>
Each Fund's liabilities are allocated among its classes. The total of such
liabilities allocated to a class plus that class's distribution and/or servicing
fees and any other expenses specially allocated to that class are then deducted
from the class's proportionate interest in the Fund's assets, and the resulting
amount for each class is divided by the number of shares of that class
outstanding to produce the class's "net asset value" per share. Under certain
circumstances, the per share net asset value of classes of shares of the Funds
and Portfolios with higher service and/or distribution fees applicable to such
shares may be lower than the per share net asset value of the classes of shares
with lower or no service and/or distribution fees as a result of the higher
daily expense accruals of the service and/or distribution fees applicable to
such classes. Generally, for Funds and Portfolios that pay income dividends,
those dividends are expected to differ over time by approximately the amount of
the expense accrual differential between a particular Fund's or Portfolio's
classes.
The Trust expects that the holidays upon which the Exchange will be closed
are as follows: New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
TAXATION
The following discussion is general in nature and should not be regarded as
an exhaustive presentation of all possible tax ramifications. All shareholders
should consult a qualified tax adviser regarding their investment in a Fund or
Portfolio.
Each Fund and Portfolio intends to qualify annually and elect to be treated
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). To qualify as a regulated investment
company, each Fund and Portfolio generally must, among other things, (a) derive
in each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies ("Qualifying Income Test") and (b) diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the value of
the Fund's or Portfolio's total assets is represented by cash, cash items
(including receivables), U.S. Government securities, securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the Fund's or Portfolio's total assets and 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total assets is invested in the securities (other than U.S.
Government securities or the securities of other regulated investment companies)
of any one issuer or of two or more issuers which the Fund or Portfolio controls
and which are engaged in the same, similar or related trades or businesses. In
order to qualify for the special tax treatment accorded regulated investment
companies, each Fund and Portfolio must distribute each taxable year an amount
at least equal to the sum of (i) 90% of its investment company taxable income
(which includes dividends, interest and net short-term capital gains in excess
of any net long-term capital losses) and (ii) 90% of its tax exempt interest,
net of expenses allocable thereto. For purposes of the Qualifying Income Test,
the Treasury Department is authorized to promulgate regulations under which
gains from foreign currencies (and options, futures, and forward contracts on
foreign currency) would not constitute qualifying income if such gains are not
directly related to investing in securities (or options and futures with respect
to stock or securities). To date, such regulations have not been issued.
Distributions
As a regulated investment company, each Fund and Portfolio generally will
not be subject to U.S. federal income tax on its investment company taxable
income and net capital gains (that is, any net long-term capital gains in excess
of the sum of net short-term capital losses and capital loss carryovers from
prior years) designated by the Fund or Portfolio as capital gain dividends, if
any, that it distributes to shareholders on a timely basis. Each Fund and
Portfolio intends to distribute to its shareholders, at least annually,
substantially all of its investment
-72-
<PAGE>
company taxable income and any net capital gains. Amounts not distributed by a
Fund or Portfolio on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To avoid
the tax, each Fund and Portfolio must distribute during each calendar year an
amount at least equal to the sum of (1) 98% of its ordinary income (not taking
into account any capital gains or losses) for the calendar year, (2) 98% of its
capital gains in excess of its capital losses (and adjusted for certain ordinary
losses) for the twelve month period ending on October 31 of the calendar year,
and (3) all ordinary income and capital gains for previous years that were not
distributed during such years. A distribution will be treated as paid on
December 31 of the calendar year if it is declared by a Fund or Portfolio in
October, November or December of that year to shareholders of record on a date
in such a month and paid by the Fund or Portfolio during January of the
following year.
Shareholders subject to U.S. federal income tax will be subject to tax on
dividends received from a Fund or Portfolio, regardless of whether received in
cash or reinvested in additional shares. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
Distributions received by tax-exempt shareholders generally will not be subject
to federal income tax to the extent permitted under applicable tax law.
All shareholders must treat dividends, other than capital gain dividends,
exempt-interest dividends, if any, and dividends that represent a return of
capital to shareholders, as ordinary income. In particular, distributions
derived from short-term gains will be treated as ordinary income. Dividends, if
any, derived from interest on certain U.S. Government securities may be exempt
from state and local taxes, although interest on mortgage-backed U.S. Government
securities is generally not so exempt. While the Tax-Efficient Equity and Tax-
Efficient Structured Emerging Markets Funds seek to minimize taxable
distributions, the Funds may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time. Each Fund will advise shareholders annually of the amount and nature of
the dividends paid to them. The tax status of each Fund and Portfolio and the
distributions which it may make are summarized in the Prospectuses under the
captions "Fund Distributions" (or "Portfolio Distributions") and "Tax
Consequences."
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 (that is not taxable to a shareholder and
reduces the shareholder's basis in the shares) or, in some cases, as capital
gain.
A Portfolio will not be able to offset gains realized by one Underlying
PIMCO Fund in which such Portfolio invests against losses realized by another
Underlying PIMCO Fund in which such Portfolio invests. A Portfolio's use of the
fund-of-funds structure could therefore affect the amount, timing and character
of distributions to shareholders. More generally, 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.
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
-73-
<PAGE>
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.
Taxable shareholders should note that the timing of their investment or
redemptions could have undesirable tax consequences. Dividends and distributions
on shares of a Fund or Portfolio are generally subject to federal income tax as
described herein to the extent they do not exceed the Fund's or Portfolio's
realized income and gains, even though such dividends and distributions may
economically represent a return of a particular shareholder's investment. Such
distributions are likely to occur in respect of shares purchased at a time when
the net asset value of a Fund or Portfolio reflects gains that are either
unrealized, or realized but not distributed. Such realized gains may be required
to be distributed even when a Fund's or Portfolio's net asset value also
reflects unrealized losses.
Sales of Shares
Upon the disposition of shares of a Fund or Portfolio (whether by
redemption, sale or exchange), a shareholder will realize a gain or loss. Such
gain or loss will be capital gain or loss if the shares are capital assets in
the shareholder's hands, and will be long-term or short-term generally depending
upon the shareholder's holding period for the shares. Long-term capital gains
will generally be taxed at a federal income tax rate of 20% to shareholders who
are individuals. For taxable years beginning after December 31, 2000, the
maximum capital gain tax rates for capital assets (including Fund shares) held
by a non-corporate shareholder for more than 5 years will be 8 percent and 18
percent (rather than 10 percent and 20 percent). The 18-percent rate applies
only to assets the holding period for which begins after December 31, 2000
(including by way of an election to mark the asset to the market, and to pay the
tax on any gain thereon, as of January 2, 2001). The mark-to-market election may
be disadvantageous from a federal tax perspective, and shareholders should
consult their tax advisors before making such an election. Any loss realized on
a disposition will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days, beginning 30 days before and ending 30 days
after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on a disposition of shares held by the shareholder for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with respect
to such shares.
Backup Withholding
A Fund 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 share holders 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.
-74-
<PAGE>
Passive Foreign Investment Companies
Investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. federal income tax (including interest charges)
on distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to Fund shareholders. However, the Fund may elect to treat a
passive foreign investment company as a "qualified electing fund," in which case
the Fund will be required to include its share of the company's income and net
capital gains annually, regardless of whether it receives any distribution from
the company. The Fund also may make an election to mark the gains (and to a
limited extent losses) in such holdings "to the market" as though it had sold
and repurchased its holdings in those PFICs on the last day of the Fund's
taxable year. Such gains and losses are treated as ordinary income and loss. The
QEF and mark-to-market elections may accelerate the recognition of income
(without the receipt of cash) and increase the amount required to be distributed
for the Fund to avoid taxation. Making either of these elections therefore may
require a Fund to liquidate other investments (including when it is not
advantageous to do so) to meet its distribution requirement, which also may
accelerate the recognition of gain and affect a Fund's total return.
Foreign Currency Transactions
A Fund's transactions in foreign currencies, foreign currency-denominated
debt securities and certain foreign currency options, futures contracts and
forward contracts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value of
the foreign currency concerned.
Foreign Taxation
Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. 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 or her 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,
-75-
<PAGE>
including a Portfolio investing in Underlying PIMCO Funds, may not be able to
pass any such credit or deduction for taxes paid by the underlying investment
company through to its own shareholders.
Original Issue Discount and Pay-In-Kind Securities
Current federal tax law requires the holder of a U.S. Treasury or other
fixed income zero coupon security to accrue as income each year a portion of the
discount at which the security was purchased, even though the holder receives no
interest payment in cash on the security during the year. In addition, pay-in-
kind securities will give rise to income which is required to be distributed and
is taxable even though the Fund holding the security receives no interest
payment in cash on the security during the year.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities (including certain pay-in-kind securities)
may be treated as a dividend for U.S. federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. A Fund
may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
Each Fund that holds the foregoing kinds of securities may be required to
pay out as an income distribution each year an amount which is greater than the
total amount of cash interest the Fund actually received. Such distributions may
be made from the cash assets of the Fund or by liquidation of portfolio
securities, if necessary. The Fund may realize gains or losses from such
liquidations. In the event the Fund realizes net capital gains from such
transactions, its shareholders may receive a larger capital gain distribution,
if any, than they would in the absence of such transactions.
Other Taxation
From time to time, certain of the Trust's series may be considered under
the Code to be nonpublicly offered regulated investment companies. Pursuant to
Treasury Department regulations, certain expenses of nonpublicly offered
regulated investment companies, including advisory fees, may not be deductible
by 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). Such a
shareholder's pro rata portion of the affected expenses will be treated as an
additional dividend to the shareholder and will be deductible by such
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.
-76-
<PAGE>
Distributions also may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Under the laws of
various states, distributions of investment company taxable income generally are
taxable to shareholders even though all or a substantial portion of such
distributions may be derived from interest on certain federal obligations which,
if the interest were received directly by a resident of such state, would be
exempt from such state's income tax ("qualifying federal obligations"). However,
some states may exempt all or a portion of such distributions from income tax to
the extent the shareholder is able to establish that the distribution is derived
from qualifying federal obligations. Moreover, for state income tax purposes,
interest on some federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on FNMA Certificates
and GNMA Certificates). Each Fund and Portfolio will provide information
annually to shareholders indicating the amount and percentage of its dividend
distribution which is attributable to interest on federal obligations, and will
indicate to the extent possible from what types of federal obligations such
dividends are derived. The Trust is organized as a Massachusetts business trust.
Under current law, so long as each Fund and Portfolio qualifies for the federal
income tax treatment described above, it is believed that neither the Trust nor
any Fund or Portfolio will be liable for any income or franchise tax imposed by
Massachusetts. Shareholders, in any event, are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund or Portfolio.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under an Agreement
and Declaration of Trust as amended and restated on January 14, 1997. The
capitalization of the Trust consists solely of an unlimited number of shares of
beneficial interest. The Board of Trustees may establish additional series (with
different investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional series will not alter the
rights of the Trust's shareholders. When issued, shares are fully paid, non-
assessable, redeemable and freely transferable. Shares do not have preemptive
rights or subscription rights. In liquidation of a Fund or Portfolio, each
shareholder is entitled to receive his pro rata share of the net assets of that
Fund or Portfolio.
Shares begin earning dividends on Fund shares the day after the Trust
receives the shareholder's purchase payment. Net investment income from interest
and dividends, if any, will be declared and paid monthly to shareholders of
record by the 30/70 Portfolio. Net investment income from interest and
dividends, if any, will be declared and paid quarterly to shareholders of record
by the NFJ Equity Income, NFJ Value, Equity Income, Value and Renaissance Funds
and the 60/40 Portfolio. Net investment income from interest and dividends, if
any, will be declared and paid at least annually to shareholders of record by
the other Funds and the 90/10 Portfolio. Any net capital gains from the sale of
portfolio securities will be distributed no less frequently than once annually.
Net short-term capital gains may be paid more frequently. Dividend and capital
gain distributions of a Fund or Portfolio will be reinvested in additional
shares of that Fund or Portfolio unless the shareholder elects to have them paid
in cash.
Under Massachusetts law, shareholders could, under certain circumstances,
be held liable for the obligations of the Trust. However, the Second Amended and
Restated Agreement and Declaration of Trust (the ''Declaration of Trust'') of
the Trust disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Declaration of Trust also provides for indemnification out of a Fund's or
Portfolio's property for all loss and expense of any shareholder of that Fund or
Portfolio held liable on account of being or having been a shareholder. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which such disclaimer is inoperative or
the Fund or Portfolio of which he or she is or was a shareholder is unable to
meet its obligations, and thus should be considered remote.
-77-
<PAGE>
Performance Information
From time to time the Trust may make available certain information about
the performance of some or all classes of shares of some or all of the Funds or
Portfolios. Information about a Fund's or Portfolio's performance is based on
that Fund's (or its predecessor's) or Portfolio's record to a recent date and is
not intended to indicate future performance.
The total return of the classes of shares of the Funds and Portfolios may
be included in advertisements or other written material. When a Fund's or
Portfolio's total return is advertised, it will be calculated for the past year,
the past five years, and the past ten years (or if the Fund or Portfolio has
been offered for a period shorter than one, five or ten years, that period will
be substituted) since the establishment of the Fund (or its predecessor series
of PIMCO Advisors Funds) or Portfolio, as more fully described below. For
periods prior to the initial offering date of the advertised class of shares,
total return presentations for such class will be based on the historical
performance of an older class of the Fund (if any) restated, as necessary, to
reflect any different sales charges and/or operating expenses (such as different
administrative fees and/or 12b-1/servicing fee charges) associated with the
newer class. In certain cases, such a restatement will result in performance
which is higher than if the performance of the older class were not restated to
reflect the different operating expenses of the newer class. In such cases, the
Trust's advertisements will also, to the extent appropriate, show the lower
performance figure reflecting the actual operating expenses incurred by the
older class for periods prior to the initial offering date of the newer class.
Total return for each class is measured by comparing the value of an investment
in the Fund or Portfolio at the beginning of the relevant period to the
redemption value of the investment in the Fund or Portfolio at the end of the
period (assuming immediate reinvestment of any dividends or capital gains
distributions at net asset value). Total return may be advertised using
alternative methods that reflect all elements of return, but that may be
adjusted to reflect the cumulative impact of alternative fee and expense
structures.
The Funds and Portfolios may also provide current distribution information
to their shareholders in shareholder reports or other shareholder
communications, or in certain types of sales literature provided to prospective
investors. Current distribution information for a particular class of a Fund or
Portfolio will be based on distributions for a specified period (i.e., total
dividends from net investment income), divided by the relevant class net asset
value per share on the last day of the period and annualized. The rate of
current distributions does not reflect deductions for unrealized losses from
transactions in derivative instruments such as options and futures, which may
reduce total return. Current distribution rates differ from standardized yield
rates in that they represent what a class of a Fund or Portfolio has declared
and paid to shareholders as of the end of a specified period rather than the
Fund's or Portfolio's actual net investment income for that period.
Performance information is computed separately for each class of a Fund or
Portfolio. Each Fund and Portfolio may from time to time include the total
return of each class of its shares in advertisements or in information furnished
to present or prospective shareholders. The Equity Income, Value and Renaissance
Funds and the 60/40 and 30/70 Portfolios may from time to time include the yield
and total return of each class of their shares in advertisements or information
furnished to present or prospective shareholders. Each Fund and Portfolio may
from time to time include in advertisements the total return of each class (and
yield of each class in the case of the Equity Income, Value and Renaissance
Funds and the 60/40 and 30/70 Portfolios) and the ranking of those performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services as having the same investment objectives. Information
provided to any newspaper or similar listing of the Fund's or Portfolio's net
asset values and public offering prices will separately present each class of
shares. The Funds and Portfolios also may compute current distribution rates and
use this information in their Prospectuses and Statement of Additional
Information, in reports to current shareholders, or in certain types of sales
literature provided to prospective investors.
Investment results of the Funds and Portfolios will fluctuate over time,
and any representation of the Funds' or Portfolio's total return or yield for
any prior period should not be considered as a representation of what an
investor's total return or yield may be in any future period. The Trust's Annual
and Semi-Annual Reports contain additional performance information for the Funds
and Portfolios and are available upon request, without
-78-
<PAGE>
charge, by calling the telephone numbers listed on the cover of this Statement
of Additional Information.
Calculation of Yield
Quotations of yield for certain of the Funds and Portfolios will be based
on all investment income per share (as defined by the SEC) during a particular
30-day (or one month) period (including dividends and interest), less expenses
accrued during the period ("net investment income"), and are computed by
dividing net investment income by the maximum offering price per share on the
last day of the period, according to the following formula:
YIELD = 2[( a-b + 1)/6/ -1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
For the one month period ended September 30, 2000, the yields of the Equity
Income, Value and Renaissance Funds and the 60/40 and 30/70 Portfolios were as
follows (Class D shares were not offered during the period listed):
<TABLE>
<CAPTION>
Institutional Administrative
Fund Class Class Class A Class B Class C Class D
---- ----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Fund 0.49% 0.24% 0.05% -0.65% -0.65% 0.05%
Value Fund 1.57% 1.33% 1.11% 0.45% 0.45% 1.18%
Renaissance Fund 1.42% 1.17% 0.97% 0.29% 0.30% 1.03%
60/40 Portfolio 5.65% 5.42% 4.81% 4.32% 4.32% N/A
30/70 Portfolio 6.11% 5.85% 5.29% 4.78% 4.78% N/A
</TABLE>
The yield of a Fund or Portfolio will vary from time to time depending upon
market conditions, the composition of its portfolio and operating expenses of
the Trust allocated to the Fund or Portfolio or its classes of shares. These
factors, possible differences in the methods used in calculating yield should be
considered when comparing a Fund's or Portfolio's yield to yields published for
other investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's or Portfolio's various
classes of shares. These yields do not take into account any applicable
contingent deferred sales charges.
The Trust, in its advertisements, may refer to pending legislation from
time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time in
the future, yields and total return may be higher or lower than past yields and
there can be no assurance that any historical results will continue.
-79-
<PAGE>
Calculation of Total Return
Quotations of average annual total return for a Fund or Portfolio, or a
class of shares thereof, will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in the Fund, Portfolio or
class over periods of one, five, and ten years (up to the life of the Fund or
Portfolio), calculated pursuant to the following formula: P (1 + T)/n/ = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). Except as
noted below, all total return figures reflect the deduction of a proportionate
share of Fund, Portfolio or class expenses on an annual basis, and assume that
(i) the maximum sales load (or other charges deducted from payments) is deducted
from the initial $1,000 payment and that the maximum contingent deferred sales
charge, if any, is deducted at the times, in the amounts, and under the terms
disclosed in the Prospectuses and (ii) all dividends and distributions are
reinvested when paid. Quotations of total return may also be shown for other
periods. The Funds and Portfolios may also, with respect to certain periods of
less than one year, provide total return information for that period that is
unannualized. Under applicable regulations, any such information is required to
be accompanied by standardized total return information.
The performance results shown on the subsequent pages for the Equity
Income, Value, Renaissance, Growth, Select Growth, Target, Opportunity, Growth &
Income, Innovation, International and Select International Funds reflects the
results of operations under these Funds' previous Sub-Adviser(s) for periods
prior to May 8, 2000, May 8, 2000, May 7, 1999, March 6, 1999, July 1, 1999,
March 6, 1999, March 6, 1999, July 1, 1999, March 6, 1999, November 15, 1994 and
November 1, 2000 respectively. These Funds would not necessarily have achieved
the results shown under their current investment management arrangements. The
NFJ Value 25 Fund did not have any assets as of June 30, 2000 and therefore no
performance information is shown for this Fund.
-80-
<PAGE>
The table below sets forth the average annual total return of certain
classes of shares of the following Funds for periods ended June 30, 2000. For
periods prior to the "Inception Date" of a particular class of a Fund's shares,
total return presentations for the class are based on the historical performance
of Institutional Class shares of the Fund (the oldest class) adjusted, as
necessary, to reflect any current sales charges (including any contingent
deferred sales charges) associated with the newer class and any different
operating expenses associated with the newer class, such as 12b-1 distribution
and servicing fees (which are not paid by the Institutional Class) and
administrative fee charges.
Average Annual Total Return for Periods Ended June 30, 2000*
<TABLE>
<CAPTION>
Since
Inception Inception Inception
Fund Class** 1 Year 5 Years of Fund Date of Date of
(Annualized) Fund Class
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Institutional -12.83% 13.77% 13.27% 03/08/91 03/08/91
Administrative -13.17% 13.46% 12.97% 11/30/94
Class A -17.95% 12.07% 12.50% 1/20/97
Class B -17.15% 12.31% 12.20% 1/20/97
Class C -14.45% 12.50% 12.00% 1/20/97
Class D -13.15% 13.35% 12.84% 4/8/98
--------------------------------------------------------------------------------------------------
Value Institutional -6.66% 14.90% 13.71% 12/30/91 12/30/91
Administrative -7.00% 14.58% 16.23% 8/21/97
Class A -12.22% 13.14% 12.80% 1/13/97
Class B -11.49% 13.36% 12.86% 1/13/97
Class C -8.55% 13.58% 12.71% 1/13/97
Class D -7.07% 14.47% 14.01% 4/8/98
--------------------------------------------------------------------------------------------------
Small-Cap Value Institutional -8.88% 10.39% 11.49% 10/1/91 10/1/91
Administrative -9.12% 10.10% 11.21% 11/1/95
Class A -14.25% 8.71% 10.33% 1/20/97
Class B -14.38% 8.85% 10.39% 1/20/97
Class C -10.84% 9.14% 10.23% 1/20/97
--------------------------------------------------------------------------------------------------
Capital Institutional 22.79% 24.24% 19.86% 3/8/91 3/8/91
Appreciation Administrative 22.49% 23.93% 19.56% 7/31/96
Class A 15.98% 22.45% 18.71% 1/20/97
Class B 16.79% 22.76% 18.76% 1/20/97
Class C 20.85% 22.94% 18.56% 1/20/97
Class D 22.84% 23.85% 18.44% 4/8/98
--------------------------------------------------------------------------------------------------
Mid-Cap Institutional 34.88% 22.07% 18.81% 8/26/91 8/26/91
Administrative 34.53% 21.79% 18.53% 11/30/94
Class A 26.89% 20.20% 17.58% 1/13/97
Class B 28.27% 20.47% 17.64% 1/13/97
Class C 32.25% 20.67% 17.46% 1/13/97
Class D 34.24% 21.64% 18.37% 4/8/98
--------------------------------------------------------------------------------------------------
Micro-Cap Institutional 25.60% 19.16% 18.72% 6/25/93 6/25/93
Administrative 25.28% 18.86% 18.43% 4/1/96
--------------------------------------------------------------------------------------------------
Enhanced Equity Institutional 4.45% 21.34% 16.23% 2/11/91 2/11/91
Administrative 4.47% 21.07% 15.96% 8/21/97
--------------------------------------------------------------------------------------------------
Select Institutional 56.28% N/A 49.40% 12/31/97 12/31/97
International
--------------------------------------------------------------------------------------------------
</TABLE>
-81-
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Select Growth*** Institutional 13.11% 23.80% 25.22% 12/28/94 12/28/94
Administrative 12.54% 23.41% 24.83% 5/31/95
Class A 6.43% 21.92% 23.44% 3/31/00
Class B 7.08% 22.24% 23.74% 3/31/00
Class C 10.90% 22.42% 23.81% 3/31/00
Class D 12.68% 23.32% 24.73% 3/31/00
--------------------------------------------------------------------------------------------------
Growth & Institutional 49.32% 27.67% 28.46% 12/28/94 12/28/94
Income***
--------------------------------------------------------------------------------------------------
Structured Institutional 6.64% N/A 17.38% 6/30/98 6/30/98
Emerging Markets
--------------------------------------------------------------------------------------------------
Tax-Efficient Institutional 7.55% N/A 19.78% 6/30/98 6/30/98
Structured
Emerging Markets
--------------------------------------------------------------------------------------------------
Mega-Cap Institutional N/A N/A 41.52% 8/31/99 8/31/99
--------------------------------------------------------------------------------------------------
</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, 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 .25% per annum) and Class D
shares (a maximum differential of 0.50% per annum).
*** The investment objective and policies of the Select Growth Fund were
changed effective April 1, 2000. The investment objective and policies of
the Growth & Income Fund were changed effective August 1, 2000. The
investment objective and policies of the Select International Fund were
changed effective November 1, 2000. 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.
The following table sets forth the average annual total return of certain
classes of shares of the following Funds (each of which, except for the Tax-
Efficient Equity and Global Innovation Funds, was a series of PAF prior to its
reorganization as a Fund of the Trust on January 17, 1997) for periods ended
June 30, 2000. 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,
Administrative Class shares of the Tax-Efficient Equity Fund, and Class B, C and
D and Institutional Class shares of the Global Innovation Fund) are based on the
historical performance of Class C shares, adjusted to reflect any current sales
charges (including any contingent deferred sales charges) associated with the
newer class and any different operating expenses associated with the newer
class, such as 12b-1 distribution and servicing fees and administrative fee
charges. As described below, performance presentations for periods prior to the
Inception Date of Class D, Institutional Class and Administrative Class shares
of the Innovation Fund, Institutional Class and Administrative Class shares of
the Target Fund, Administrative Class Shares of the Tax-Efficient Equity Fund
and Class B, C and D and Institutional Class shares of the Global Innovation
Fund are based on the historical performance of Class A shares.
-82-
<PAGE>
Average Annual Total Return for Periods Ended June 30, 2000*
<TABLE>
<CAPTION>
Since Inception Inception
Inception Date of Date of Class
Fund Class*** 1 Year 5 Years 10 Years of Fund Fund
(Annualized)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Renaissance** Class A -2.33% 19.20% 14.43%(#) 13.29%(#) 4/18/88 2/1/91
Class B -1.47% 19.43% 14.48% 13.33% 5/22/95
Class C 1.79% 19.67% 14.21% 12.97% 4/18/88
Class D 3.56% 20.63%(#) 15.10%(#) 13.84%(#) 4/8/98
Institutional 3.30% 20.90%(#) 15.46%(#) 14.21%(#) 12/30/97
Administrative 3.36% 20.66%(#) 15.20%(#) 13.95%(#) 8/31/98
----------------------------------------------------------------------------------------------------------------------------------
Growth Class A 25.20% 24.64% 18.14%(#) 19.17%(#) 2/24/84 10/26/90
Class B 26.31% 24.91% 18.21% 19.21% 5/23/95
Class C 30.31% 25.08% 17.92% 18.69% 2/24/84
Class D 32.26%(#) 26.00%(#) 18.80%(#) 19.57%(#) 1/31/00
Institutional 32.66%(#) 26.48%(#) 19.26%(#) 20.04%(#) 4/1/99
Administrative 31.92% 26.09%(#) 18.93%(#) 19.72%(#) 4/1/99
----------------------------------------------------------------------------------------------------------------------------------
Target Class A 79.89% 30.28% N/A 26.17% 12/17/92 12/17/92
Class B 84.74% 30.76% N/A 26.23% 5/22/95
Class C 88.79% 30.89% N/A 26.24% 12/17/92
Class D 90.36% 31.76% N/A 27.12% 6/1/00
Institutional 89.85% 32.23%(#) N/A 27.59%(#) 4/1/99
Administrative 91.13% 32.15%(#) N/A 27.43%(#) 4/1/99
----------------------------------------------------------------------------------------------------------------------------------
Opportunity Class A 42.48% 15.26% 20.23%(#) 18.91%(#) 2/24/84 12/17/90
Class B 44.78% 15.54% 20.30% 18.93% 4/1/99
Class C 48.88% 15.73% 20.05% 18.45% 2/24/84
Institutional 50.24% 16.86%(#) 21.31%(#) 19.74%(#) 4/1/99
Administrative 50.36% 16.66%(#) 21.06%(#) 19.48%(#) 4/1/99
----------------------------------------------------------------------------------------------------------------------------------
Innovation Class A 103.21% 46.84% N/A 48.24% 12/22/94 12/22/94
Class B 109.17% 47.42% N/A 48.71% 5/22/95
Class C 113.17% 47.49% N/A 48.73% 12/22/94
Class D 115.85% 48.67% N/A 49.91% 4/8/98
Institutional 115.34% 49.02%(#) N/A 50.28%(#) 3/5/99
Administrative 115.37%(#) 48.73%(#) N/A 49.99%(#) 3/10/00
----------------------------------------------------------------------------------------------------------------------------------
International** Class A 5.70% 7.10% 5.55%(#) 7.22%(#) 8/25/86 2/1/91
Class B 5.24% 7.01% 5.61% 7.25% 5/22/95
Class C 8.96% 7.29% 5.25% 6.77% 8/25/86
Institutional 11.10% 8.55%(#) 6.47%(#) 8.01%(#) 9/30/98
Administrative 10.78% 8.20%(#) 6.17%(#) 7.71%(#) 9/30/98
----------------------------------------------------------------------------------------------------------------------------------
Tax-Efficient Equity Class A -0.16% N/A N/A 7.67% 7/10/98 7/10/98
Class B -0.22% N/A N/A 8.10% 7/10/98
Class C 3.78% N/A N/A 9.96% 7/10/98
Class D 5.44% N/A N/A 10.70% 7/10/98
Institutional 6.21% N/A N/A 11.33%(#) 7/2/99
Administrative 5.77% N/A N/A 10.97%(#) 9/30/98
----------------------------------------------------------------------------------------------------------------------------------
Global Innovation Class A N/A N/A N/A 221.04% 12/31/99 12/31/99
Class B N/A N/A N/A 240.07% 3/31/00
Class C N/A N/A N/A 255.05% 3/31/00
Class D N/A N/A N/A 259.98% 3/31/00
Institutional N/A N/A N/A 260.75%(#) 3/31/00
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-83-
<PAGE>
* 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, Select Growth
Fund and International Fund were changed effective February 1, 1992, March 31,
2000 and September 1, 1992, respectively. 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,
Class D, Institutional Class and Administrative Class shares of the Target Fund,
Administrative Class shares of the Tax-Efficient Equity Fund and Class B, C and
D and Institutional Class shares of the Global Innovation 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 .25%
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,
Class D, Institutional Class and Administrative Class shares of the Target Fund,
Administrative Class Shares of the Tax-Efficient Equity Fund and Class B, C and
D and Institutional Class shares of the Global Innovation 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 (although
the Funds bear certain of their other expenses, as described in the Prospectuses
and elsewhere in this Statement of Additional Information). Under the current
fee structure, the Growth Fund, Target Fund, Opportunity Fund and International
Fund are expected to have higher total Fund operating expenses than their
predecessors had under the fee structure for PAF (prior to January 17, 1997).
All other things being equal, such higher expenses have an adverse effect on
total return performance for these Funds after January 17, 1997.
(#) Where noted, the method of adjustment used in the table above for periods
prior to the Inception Date of the noted classes of the noted Funds resulted in
performance for the period shown which is higher than if the historical Class C
or Class A share performance (i.e., the older class used for prior periods) were
not adjusted to reflect the lower operating expenses of the newer class. The
following table shows the lower performance figures that would be obtained if
the performance for newer classes with lower operating expenses were calculated
by essentially tacking to such classes' actual performance the actual
performance (with adjustment for actual sales charges) of the older Class of
shares, with their higher operating expenses, for periods prior to the initial
offering date of the newer class (i.e., the total return presentations below are
based, for periods prior to the Inception Date of the noted classes, on the
historical performance of the older class adjusted to reflect the current sales
charges (if any) associated with the newer class, but not reflecting lower
---
operating expenses associated with the newer class, such as lower administrative
fee charges and/or 12b-1 distribution and servicing fee charges).
-84-
<PAGE>
Total Return for Periods Ended June 30, 2000*
(with no adjustment for operating expenses of the noted
classes for periods prior to their inception dates)
<TABLE>
<CAPTION>
Since Inception
of Fund
Fund Class 1 Year 5 Years 10 Years (Annualized)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Renaissance Class A N/A N/A 14.37% 13.10%
Class D N/A 20.14% 14.44% 13.15%
Institutional N/A 20.22% 14.47% 13.18%
Administrative N/A 19.98% 14.36% 13.09%
-----------------------------------------------------------------------------------------
Growth Class A N/A N/A 18.11% 18.81%
Institutional 32.66% 26.41% 18.08% 18.79%
Administrative 31.92% 25.26% 18.01% 18.74%
-----------------------------------------------------------------------------------------
Target Institutional N/A 31.84% N/A 27.17%
Administrative N/A 32.00% N/A 27.27%
-----------------------------------------------------------------------------------------
Opportunity Class A N/A N/A 20.19% 18.54%
Institutional N/A 15.85% 20.11% 18.49%
Administrative N/A 15.87% 20.12% 18.50%
-----------------------------------------------------------------------------------------
Innovation Institutional N/A 48.59% N/A 49.83%
Administrative 115.16% 48.53% N/A 49.78%
-----------------------------------------------------------------------------------------
International Class A N/A N/A 5.50% 6.96%
Institutional N/A 7.74% 5.46% 6.93%
Administrative N/A 7.57% 5.38% 6.87%
-----------------------------------------------------------------------------------------
Tax-Efficient Institutional N/A N/A N/A 11.11%
Equity Administrative N/A N/A N/A 10.97%
-----------------------------------------------------------------------------------------
Global Institutional N/A N/A N/A 260.75%
Innovation
-----------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the average annual total return of each
class of shares of the Portfolios for periods ended June 30, 2000. Total return
presentations for periods prior to the Inception Date of Institutional Class and
Administrative Class shares are based on the historical performance of Class A
shares (which were offered since the inception of the Portfolios), adjusted to
reflect that there are no sales charges associated with Institutional Class and
Administrative Class shares and any different operating expenses associated with
these newer classes, such as lower 12b-1 distribution and servicing fees and/or
administrative fee charges.
-85-
<PAGE>
Average Annual Total Return for Periods Ended June 30, 2000*
<TABLE>
<CAPTION>
Since Inception Inception
Inception Date of Date of
Portfolio Class** 1 Year of Portfolio Portfolio Class
(Annualized)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
90/10 Portfolio Class A 5.33% 16.36% 9/30/98 9/30/98
Class B 5.68% 17.30% 9/30/98
Class C 9.58% 19.25% 9/30/98
Institutional 12.20% 20.89%(#) 3/1/99
Administrative 11.91% 20.59%(#) 3/1/99
--------------------------------------------------------------------------------------
60/40 Portfolio Class A 3.11% 10.55% 9/30/98 9/30/98
Class B 3.36% 11.22% 9/30/98
Class C 7.41% 13.35% 9/30/98
Institutional 9.90% 14.87%(#) 3/1/99
Administrative 9.63% 14.59%(#) 3/1/99
--------------------------------------------------------------------------------------
30/70 Portfolio Class A 1.95% 5.07% 9/30/98 9/30/98
Class B 1.08% 4.91% 9/30/98
Class C 5.08% 7.10% 9/30/98
Institutional 7.47% 8.51%(#) 3/1/99
Administrative 7.21% 8.24%(#) 3/1/99
--------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of shares
assume payment of the current maximum sales charge (if any) applicable to that
class at the time of purchase and assume that the maximum CDSC (if any) for
Class A, B and C shares was deducted at the times, in the amounts, and under the
terms discussed in the Retail Portfolio Prospectus.
** Institutional Class and Administrative Class total return presentations for
the Portfolios for periods prior to the Inception Date of these classes reflect
the prior performance of Class A shares, adjusted to reflect that there are no
sales charges associated with Institutional Class and Administrative Class
shares. The adjusted performance also reflects any different operating expenses
associated with the newer classes. These include (i) 12b-1 distribution and
servicing fees, which are the same for Class A and the Administrative Class but
are not paid by the Institutional Class and (ii) administrative fee charges,
which are lower than Class A charges for the Institutional and Administrative
Classes (a differential of .30% per annum).
(#) Where noted, the method of adjustment used in the table above for periods
prior to the Inception Date of the noted classes of the Portfolios resulted in
performance for the period shown which is higher than if the historical Class A
share performance were not adjusted to reflect the lower operating expenses of
the newer class. The following table shows the lower performance figures that
would be obtained if the performance for the newer classes with lower operating
expenses were calculated by essentially tacking to such classes' actual
performance the actual performance (with adjustment for actual sales charges) of
Class A shares, with their higher operating expenses, for periods prior to the
initial offering date of the newer class (i.e., the total return presentations
below are based, for periods prior to the Inception Date of the noted classes,
on the historical performance of Class A shares adjusted to reflect the current
sales charges (if any) associated with the newer class, but not reflecting lower
---
operating expenses associated with the newer class, such as lower administrative
fee charges and/or 12b-1 distribution and servicing fee charges).
-86-
<PAGE>
Total Return for Periods Ended June 30, 2000
(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 20.73%
Administrative N/A 20.50%
-----------------------------------------------------------
60/40 Portfolio Institutional N/A 14.40%
Administrative N/A 14.22%
-----------------------------------------------------------
30/70 Portfolio Institutional N/A 8.37%
Administrative N/A 8.16%
-----------------------------------------------------------
</TABLE>
Performance information for a Fund or Portfolio may also be compared to:
(i) the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Morgan Stanley Capital International EAFE (Europe,
Australia, Far East) Index, the Morgan Stanley Capital International Emerging
Markets Free Index, the International Finance Corporation Emerging Markets
Index, the Baring Emerging Markets Index, or other unmanaged indexes that
measure performance of a pertinent group of securities; (ii) other groups of
mutual funds tracked by Lipper Analytical Services ("Lipper"), a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Funds. Unmanaged indexes
(i.e., other than Lipper) generally do not reflect deductions for administrative
and management costs or expenses. The Adviser and any of the Sub-Advisers may
also report to shareholders or to the public in advertisements concerning the
performance of the Adviser and/or the Sub-Advisers as advisers to clients other
than the Trust, and on the comparative performance or standing of the Adviser
and/or the Sub-Advisers in relation to other money managers. Such comparative
information may be compiled or provided by independent ratings services or by
news organizations. Any performance information, whether related to the Funds or
Portfolios, the Adviser or the Sub-Advisers, should be considered in light of
the Funds' or Portfolios' investment objectives and policies, characteristics
and quality, and the market conditions during the time period indicated, and
should not be considered to be representative of what may be achieved in the
future.
The total return of each class (and yield of each class in the case of the
Renaissance Fund and the 30/70 Portfolio) may be used to compare the performance
of each class of a Fund's or Portfolio's shares against certain widely
acknowledged standards or indexes for stock and bond market performance, against
interest rates on certificates of deposit and bank accounts, against the yield
on money market funds, against the cost of living (inflation) index, and against
hypothetical results based on a fixed rate of return.
The S&P's Composite Index of 500 Stocks (the "S&P 500") is a market value-
weighted and unmanaged index showing the changes in the aggregate market value
of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 380 industrial, 10 transportation, 39 utilities and 71
financial services concerns. The S&P 500 represents about 73% of the market
value of all issues traded on the New York Stock Exchange.
The S&P's 400 Mid-Cap Index (the "S&P 400 Mid-Cap Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 400 stocks of companies whose capitalization range from $100 million to
over $5 billion and which represent a wide range of industries. As of February
26, 1999, approximately 25% of the 400 stocks were stocks listed on the National
Association of
-87-
<PAGE>
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 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 1999 (as well as a
cumulative return and average annual return for this period) for the S&P 500 and
Treasury bills (using the formula set forth after the table) as well as the
rates of inflation (based on the Consumer Price Index) during such periods.
-88-
<PAGE>
<TABLE>
<CAPTION>
Consumer Price
Period S&P 500 Treasury Bills Index
--------------------------------------------------------------------------------
<S> <C> <C> <C>
1973 -14.7 6.9 8.8
1974 -26.5 8.0 12.2
1975 37.2 5.8 7.0
1976 23.8 5.0 4.8
1977 -7.2 5.1 6.8
1978 6.5 7.2 9.0
1979 18.4 10.4 13.3
1980 32.4 11.2 12.4
1981 -4.9 14.7 8.9
1982 21.4 10.5 3.8
1983 22.5 8.8 3.8
1984 6.3 9.9 3.9
1985 32.2 7.7 3.8
1986 18.5 6.1 1.1
1987 5.2 5.5 4.4
1988 16.8 6.3 4.4
1989 31.5 8.4 4.6
1990 -3.2 7.8 6.1
1991 30.5 5.6 3.1
1992 7.7 3.5 2.9
1993 10.1 2.9 2.7
1994 1.3 3.9 2.7
1995 37.4 5.6 2.7
1996 23.1 5.2 3.3
1997 33.4 5.3 1.7
1998 28.6 4.9 1.6
1999 21.0 4.7 2.7
--------------------------------------------------------------------------------
Cumulative Return
1973-1999 3,839.47% 477.8% 264.0%
--------------------------------------------------------------------------------
Average Annual Return
1973-1999 15.18% 7.0% 5.1%
--------------------------------------------------------------------------------
</TABLE>
The average returns for Treasury bills were computed using the following
method. For each month during a period, the Treasury bill having the shortest
remaining maturity (but not less than one month) was selected. (Only the
remaining maturity was considered; the bill's original maturity was not
considered). The return for the selected Treasury bill was computed based on the
price of the bill as of the last trading day of the previous month and the price
on the last trading day of the current month. The price of the bill (P) at each
time (t) is given by:
P\\t\\ = [ 1- rd ]
---
360
where,
r = decimal yield on the bill at time t (the
average of bid and ask quotes); and
d = the number of days to maturity as of time t.
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, 1999 (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 400 Index),
stocks of small companies (based on the Russell 2000 Index) and stocks of larger
companies (based on the S&P 500).
-89-
<PAGE>
Small Mid-Size Large
Period Companies Companies Companies
--------------------------------------------------------------------------------
1981(2/28 - 12/31) 1.8 10.6 -2.5
1982 25.0 22.7 21.4
1983 29.1 26.1 22.5
1984 -7.3 1.2 6.3
1985 31.1 36.0 32.2
1986 5.7 16.2 18.5
1987 -8.8 -2.0 5.2
1988 24.9 20.9 16.8
1989 16.2 35.6 31.5
1990 -19.5 -5.1 -3.2
1991 46.1 50.1 30.5
1992 18.4 11.9 7.7
1993 18.9 14.0 10.1
1994 -1.8 -3.6 1.3
1995 28.4 30.9 37.6
1996 16.5 19.2 22.9
1997 22.8 32.3 33.4
1998 -2.6 19.1 28.6
1999 21.3 14.7 21.04
-------------------------------------------------------------------------------
Cumulative Return
2/28/81-12/31/99 882.8% 2,061.9% 1,978.2%
-------------------------------------------------------------------------------
Average Annual Return
2/28/81-12/31/99 12.9% 17.7% 17.5%
-------------------------------------------------------------------------------
From time to time, the Trust may use, in its advertisements and other
information, data concerning the average price-to-earnings ("P/E") ratios of
"Value Stocks" and "Growth Stocks." For these purposes, the P/E ratios of Value
Stocks are measured by the P/E ratios of the stocks comprising the Russell 1000
Value Index, and the P/E ratios of Growth Stocks are measured by the P/E ratios
of the stocks comprising the Russell 1000 Growth Index. Both the Russell 1000
Value Index and Russell 1000 Growth Index are unmanaged indexes, and it is not
possible to invest directly in either index. The table below sets forth the
quarterly average P/E ratio of Value Stocks and the Average P/E ratio of Growth
Stocks for the periods from October 1, 1992 through June 30, 2000.
Average P/E ratio
-----------------
Period
Ending Growth Stocks Value Stocks
------ ------------- ------------
12/31/92 21.76 21.40
3/31/93 21.59 22.36
6/30/93 20.86 21.41
9/30/93 20.25 21.05
12/31/93 18.33 17.84
3/31/94 18.07 17.69
6/30/94 16.70 16.31
9/30/94 15.98 15.28
12/31/94 15.98 14.97
3/31/95 15.80 14.62
6/30/95 16.50 14.87
9/30/95 17.85 16.17
12/31/95 17.91 15.82
3/31/96 18.24 16.07
6/30/96 18.57 15.93
-90-
<PAGE>
9/30/96` 18.88 15.80
12/31/96 20.45 17.03
3/31/97 20.28 16.78
6/30/97 22.85 18.44
9/30/97 23.80 19.60
12/31/97 22.93 19.06
3/31/98 26.46 21.32
6/30/98 26.55 20.69
9/30/98 25.77 19.31
12/31/98 31.31 22.92
3/31/99 39.46 24.33
6/30/99 45.05 25.93
9/30/99 43.93 23.80
12/31/99 52.31 23.60
3/31/00 55.58 22.94
6/30/00 54.43 22.66
Advertisements and information relating to the Growth Fund may use data
comparing the performance of a hypothetical investment in Growth Stocks, Value
Stocks, "Bonds" and "Savings Accounts." For these purposes, the performance of
an investment in "Bonds" is measured by the Lehman Aggregate Bond Index, an
unmanaged index representative of the U.S. taxable fixed income universe. It is
not possible to invest in this index. The performance of an investment in
"Savings Accounts" is measured by the return on 3-month U.S. Treasury bills.
Similarly, advertisements and information relating to the Renaissance Fund may
use data comparing the performance of a hypothetical investment in "Stocks,"
Bonds and Savings Accounts. For these purposes, the performance of the
investment in "Stocks" is measured by the S&P 500, while the performance of
Bonds and Savings Accounts is measured as discussed above. The table below sets
forth the value at June 30, 2000 of a hypothetical $10,000 investment in Stocks,
Growth Stocks, Value Stocks, Bonds and Savings Accounts made on June 30, 1980.
June 30, 2000 Value of $10,000 Investment made at
Asset Category June 30, 1980
-------------- -------------------------------------------------
Growth Stocks $101,187
Value Stocks $163,456
Stocks $245,642
Bonds $64,948
Savings Accounts $37,268
Advertisements and information may compare the average annual total return
of the Growth, Renaissance, Innovation, Opportunity, Target, Capital
Appreciation and Mid-Cap Funds with that of the Lipper Large-Cap Growth Fund
Average, Lipper Multi-Cap Value Fund Average, Lipper Science & Technology Fund
Average, Lipper Small-Cap Growth Fund Average, Lipper Multi-Cap Growth Fund
Average, Lipper Multi-Cap Core Fund Average and Lipper Mid-Cap Core Fund
Average, respectively. The Innovation Fund may also be compared to the S&P 500.
The Lipper Averages are described in the Funds' Prospectuses. None of the
averages take into account sales charges. It is not possible to invest directly
in the averages. The average annual total return of the Funds and the respective
averages are set forth below. The inception dates of the Funds are set forth in
the tables under "Calculation of Total Return."
-91-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
(for periods ended 6/30/00)
---------------------------
Fund
1 Year 3 Years 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C>
Growth Fund 32.49% 30.40% 26.06% 18.81% 19.58%
Lipper Large-Cap Growth Fund Average 26.35% 27.69% 25.59% 18.47% 17.47%
Renaissance Fund 3.36% 14.18% 20.56% 15.07% 13.82%
Lipper Multi-Cap Value Fund Average -3.99% 7.78% 14.20% 12.90% 13.02%
Innovation Fund 115.04% 72.57% 48.51% N/A 49.77%
Lipper Science and Technology 84.03% 53.47% 35.99% N/A 38.45%
Fund Average
S&P 500 17.94% 27.40% 26.76% N/A 27.58%
Opportunity Fund 50.77% 21.31% 16.57% 20.91% 19.32%
Lipper Small-Cap Growth 57.71% 27.07% 21.89% 18.29% 14.80%
Fund Average
Target Fund 90.36% 41.07% 31.76% N/A 27.12%
Lipper Multi-Cap Growth Fund 45.82% 30.19% 26.00% N/A 20.53%
Average
Capital Appreciation Fund 22.73% 21.41% 23.84% N/A 19.43%
Lipper Multi-Cap Core 11.54% 16.27% 19.33% N/A 16.42%
Fund Average
Mid-Cap Fund 34.28% 19.01% 21.56% N/A 18.33%
Lipper Mid-Cap Core 37.60% 20.94% 20.59% N/A 16.97%
Fund Average
</TABLE>
From time to time, the Trust may use, in its advertisements and other
information, data comparing the average annual total return of "Small-Caps,"
which are stocks represented by the Ibbotson's U.S. Small Company Stock Total
Return Index, and "Large-Caps," which are stocks represented by the Standard &
Poors 500 Stock Composite Index. Both indexes are unmanaged indexes, and it is
not possible to invest directly in either index. For example, for the period
from December 31, 1926 through December 31, 1999, the average annual total
return of Small-Caps was 29.79%, and for Large-Caps was 21.04%.
Advertisements and other information and other information relating to the
Funds may list the annual total returns of certain asset classes during
specified years. In such advertisements, the return of "Small Company Stocks"
will be measured by the Russell 2000 Index of small company stocks, the returns
of "Large Company Stocks" will be measured by the S&P 500, and the return of
"Intermediate-Term Government Bonds" will be measured by a one-bond portfolio
with a 5-year maturity as measured by Ibbotson Associates.
Advertisements and other information relating to the Innovation Fund may
include information pertaining to the number of home internet subscriptions and
cellular phone users and sales of personal computers.
The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
1997/1998 costs of college (using tuition and fees only) and an assumed rate of
increase for such costs. For example, the table below sets forth the projected
cost of four years of college at a public college and a private college assuming
a steady increase in both cases of 3% per year. In presenting this information,
the Trust is making no prediction regarding what will be the actual growth rate
in the cost of a college education, which may be greater or less than 3% per
year and may vary significantly from year to year.
-92-
<PAGE>
In its advertisements and other materials, the Trust may compare the returns
over periods of time of investments in stocks, bonds and treasury bills to each
other and to the general rate of inflation. For example, the average annual
return of each category* during the period from 1974 through 1999 was:
Stocks: 15.2%
Bonds: 9.2%
T-Bills: 6.9%
Inflation: 5.1%
* Returns of unmanaged indexes do not reflect past or future performance of
any of the Funds or Portfolios of PIMCO Funds: Multi-Manager Series. Stocks
are represented by Ibbotson's Large Company Stock Total Return Index. Bonds
are represented by Ibbotson's Long-term Corporate Bond Index. Treasury
bills are represented by Ibbotson's Treasury Bill Index and Inflation is
represented by the Cost of Living Index. These are all unmanaged indexes,
which can not be invested in directly. While Treasury bills are insured and
offer a fixed rate of return, both the principal and yield of investment
securities will fluctuate with changes in market conditions. Source:
Ibbotson, Roger G., and Rex A. Sinquefiled, Stocks, Bonds, Bill and
Inflation (SBBI), 1989, updated in Stocks, Bonds, Bills and Inflation 2000
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
1980 through 1999, the average annual return of stocks comprising the Ibbotson's
Large Company Stock Total Return Index ranged from -4.9% to 37.4% while the
annual return of a hypothetical portfolio comprised 40% of such common stocks,
40% of bonds comprising the Ibbotson's Long-term Corporate bond Index and 20% of
Treasury bills comprising the Ibbottson's Treasury Bill Index (a "mixed
portfolio") would have ranged from -1.00% to 28.19% over the same period. The
average annual returns of each investment category* for each of the years from
1980 through 1999 is set forth in the following table.
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
-------------------- --------- -----------------------------------------
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%
1999 21.00% -7.40% 4.70% 2.70% 5.9%
-93-
<PAGE>
* Returns of unmanaged indexes do not reflect past or future performance of
any of the Funds or Portfolios of PIMCO Funds: Multi-Manager Series. Stocks
are represented by Ibbotson's Large Company Stock Total Return Index. Bonds
are represented by Ibbotson's Long-term Corporate Bond Index. Treasury
bills are represented by Ibbotson's Treasury Bill Index and Inflation is
represented by the Cost of Living Index. Treasury bills are all unmanaged
indexes, which can not be invested in directly. While Treasury bills are
insured and offer a fixed rate of return, both the principal and yield of
investment securities will fluctuate with changes in market conditions.
Source: Ibbotson, Roger G., and Rex A. Sinquefiled, Stocks, Bonds, Bill and
Inflation (SBBI), 1989, updated in Stocks, Bonds, Bills and Inflation 2000
Yearbook, Ibbotson Associates, Chicago. All rights reserved.
The Trust may use in its advertisements and other materials examples
designed to demonstrate the effect of compounding when an investment is
maintained over several or many years. For example, the following table shows
the annual and total contributions necessary to accumulate $200,000 of savings
(assuming a fixed rate of return) over various periods of time:
Investment Annual Total Total
Period Contribution Contribution Saved
------ ------------ ------------ -----
30 Years $ 1,979 $ 59,370 $200,000
25 Years $ 2,955 $ 73,875 $200,000
20 Years $ 4,559 $ 91,180 $200,000
15 Years $ 7,438 $111,570 $200,000
10 Years $13,529 $135,290 $200,000
This hypothetical example assumes a fixed 7% return compounded annually and
a guaranteed return of principal. The example is intended to show the
benefits of a long-term, regular investment program, and is in no way
representative of any past or future performance of a Fund 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.
Articles or reports which include information relating to performance,
rankings and other characteristics of the Funds and Portfolios may appear in
various national publications and services including, but not limited to: The
Wall Street Journal, Barron's, Pensions and Investments, Forbes, Smart Money,
Mutual Fund Magazine, The New York Times, Kiplinger's Personal Finance, Fortune,
Money Magazine, Morningstar's Mutual Fund Values, CDA Investment Technologies
and The Donoghue Organization. Some or all of these publications or reports may
publish their own rankings or performance reviews of mutual funds, including the
Funds, and may provide information relating to the Adviser and the Sub-Advisers,
including descriptions of assets under management and client base, and opinions
of the author(s) regarding the skills of personnel and employees of the Adviser
or the Sub-Advisers who have portfolio management responsibility. From time to
time, the Trust may include references to or reprints of such publications or
reports in its advertisements and other information relating to the Funds and
Portfolios.
From time to time, the Trust may set forth in its advertisements and other
materials information about the growth of a certain dollar-amount invested in
one or more of the Funds or Portfolios over a specified period of time and may
use charts and graphs to display that growth.
-94-
<PAGE>
From time to time, the Trust may set forth in its advertisements and other
materials the names of and additional information regarding investment analysts
employed by the Sub-Advisers who assist with portfolio management and research
activities on behalf of the Funds.
Ibbotson Associates ("Ibbotson") has analyzed the risk and returns of the
Funds and relevant benchmark market indexes in a variety of market conditions.
Based on its independent research and analysis, Ibbotson may develop, from time
to time, model portfolios of the Funds and series of PIMS which indicate how, in
Ibbotson's opinion, a hypothetical investor with a 5+ year investment horizon
might allocate his or her assets among the Funds and series of PIMS. Ibbotson
bases its model portfolios on five levels of investor risk tolerance which it
developed and defines as ranging from "Very Conservative" (low volatility;
emphasis on capital preservation, with some growth potential) to "Very
Aggressive" (high volatility; emphasis on long-term growth potential). However,
neither Ibbotson nor the Trust offers Ibbotson's model portfolios as
investments. Moreover, neither the Trust, the Adviser, the Sub-Advisers nor
Ibbotson represent or guarantee that investors who allocate their assets
according to Ibbotson's models will achieve their desired investment results.
From time to time, the Trust may set forth on its internet website or in
advertisements or other materials information about the expected amounts and
times of Fund distributions to shareholders. In some cases, this information is
estimated. Actual distribution amounts may be higher or lower than estimated
amounts and distributions, which are subject to the approval of the Board of
Trustees, may not occur at all.
Compliance Efforts Related to the Euro
Problems may arise in conjunction with the recent and ongoing introduction
of the euro. Whether introducing the euro to financial companies' systems will
be problematic is not fully known; however, the cost associated with making
systems recognize the euro is not currently expected to be material.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold annual
meetings of Trust shareholders to elect Trustees or for other purposes. It is
not anticipated that the Trust will hold shareholders' meetings unless required
by law or the Declaration of Trust. In this regard, the Trust will be required
to hold a meeting to elect Trustees to fill any existing vacancies on the Board
if, at any time, fewer than a majority of the Trustees have been elected by the
shareholders of the Trust. Shareholders may remove a person serving as Trustee
either by declaration in writing or at a meeting called for such purpose. The
Trustees are required to call a meeting for the purpose of considering the
removal of a person serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust. In the
event that such a request was made, the Trust has represented that it would
assist with any necessary shareholder communications. Shareholders of a class of
shares have different voting rights with respect to matters that affect only
that class.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). All classes of shares of the Funds and Portfolios
have identical voting rights except that each class of shares has exclusive
voting rights on any matter submitted to shareholders that relates solely to
that class, and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class. Each class of shares has exclusive voting rights with respect
to matters pertaining to any distribution or servicing plan or agreement
applicable to that class. These shares are entitled to vote at meetings of
shareholders. Matters submitted to shareholder vote must be approved by each
Fund and Portfolio separately except (i) when required by the 1940 Act shares
shall be voted together and (ii) when the Trustees have determined that the
matter does not affect all Funds and 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.
-95-
<PAGE>
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.
The Portfolios will vote shares of each Underlying PIMCO Fund which they
own in their discretion in accordance with the Portfolios' proxy voting
policies.
Certain Ownership of Trust Shares
As of October 4, 2000, 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. Appendix B lists persons who own of
record or beneficially 5% or more of the noted class of shares of the Funds as
of October 4, 2000, as well as information about owners of 25% or more of the
outstanding shares of beneficial interest of the Funds, and therefore may be
presumed to "control" the Fund, as that term is defined in the 1940 Act.
Custodian
State Street Bank & Trust Co. ("State Street"), 801 Pennsylvania, Kansas
City, Missouri 64105, serves as custodian for assets of all Funds and
Portfolios, including as custodian of the Trust for the custody of the foreign
securities acquired by those Funds that invest in foreign securities. Under the
agreement, State Street may hold foreign securities at its principal offices and
its branches, and subject to approval by the Board of Trustees, at a foreign
branch of a qualified U.S. bank, with an eligible foreign subcustodian, or with
an eligible foreign securities depository.
Pursuant to rules or other exemptions under the 1940 Act, the Trust may
maintain foreign securities and cash in the custody of certain eligible foreign
banks and securities depositories. Selection of these foreign custodial
institutions is currently made by the Board of Trustees following a
consideration of a number of factors, including (but not limited to) the
reliability and financial stability of the institution; the ability of the
institution to perform capably custodial services for the Trust; the reputation
of the institution in its national market; the political and economic 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.
Codes of Ethics
The Trust, PIMCO Advisors, PAIA, Cadence, NFJ, Parametric, Blairlogie and
the Distributor have adopted Codes of Ethics pursuant to the requirements of the
1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest
in securities, including securities that may be purchased or held by the Funds
or Portfolios.
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.
-96-
<PAGE>
Transfer and Shareholder Servicing Agents
PFPC, Inc., P.O. Box 9688, Providence, Rhode Island 02940, serves as the
Transfer and Shareholder Servicing Agent for the Trust's Class A, Class B, Class
C and Class D shares. National Financial Data Services, 330 West 9th Street, 4th
Floor, Kansas City, Missouri 64105, serves as the Transfer Agent for the Trust's
Institutional and Administrative Class shares.
Legal Counsel
Ropes & Gray, One International Place, Boston, Massachusetts 02110 serves
as legal counsel to the Trust.
Registration Statement
This Statement of Additional Information and the Prospectuses do not
contain all of the information included in the Trust's registration statements
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statements, including the exhibits
filed therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectuses as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the relevant registration statement, each such
statement being qualified in all respects by such reference.
Financial Statements
Audited financial statements for the Funds, as of June 30, 2000, for the
fiscal year then ended, including notes thereto, and the reports of
PricewaterhouseCoopers LLP thereon, each dated August 21, 2000, are incorporated
by reference from the Trust's five June 30, 2000 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 both the
Trust Institutional Prospectus and the NFJ Institutional Prospectus, another
(the "Class D Annual Report") corresponds to the Class D Prospectus, another
(the "Retail Portfolio Annual Report") corresponds to the Retail Portfolio
Prospectus, and the fifth (the "Institutional Portfolio Annual Report")
corresponds to the Institutional Portfolio Prospectus. The Trust's June 30, 2000
Annual Reports were filed electronically with the SEC on September 1, 2000
(Accession No. 0000912057-00-039949).
-97-
<PAGE>
APPENDIX A
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.
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 bond ratings, where specified, are applicable to financial
contracts, senior bank obligations and insurance company senior policyholder and
claims obligations with an original maturity in excess of one year. Obligations
relying upon support mechanisms such as letter-of-credit and bonds of indemnity
are excluded unless explicitly rated. Obligations of a branch of a bank are
considered to be domiciled in the country in which the branch is located.
A-1
<PAGE>
Unless noted as an exception, Moody's rating on a bank's ability to repay
senior obligations extends only to branches located in countries which carry a
Moody's Sovereign Rating for Bank Deposits. Such branch obligations are rated at
the lower of the bank's rating or Moody's Sovereign Rating for the Bank Deposits
for the country in which the branch is located. When the currency in which an
obligation is denominated is not the same as the currency of the country in
which the obligation is domiciled, Moody's ratings do not incorporate an opinion
as to whether payment of the obligation will be affected by the actions of the
government controlling the currency of denomination. In addition, risk
associated with bilateral conflicts between an investor's home country and
either the issuer's home country or the country where an issuer branch is
located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance
company obligations are exempt from registration under the U.S. Securities Act
of 1933 or issued in conformity with any other applicable law or regulation. Nor
does Moody's represent any specific bank or insurance company obligation is
legally enforceable or a valid senior obligation of a rated issuer.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classified from Aa through Caa 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. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
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
Issue Credit Rating Definitions
A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program
(including ratings on medium term note programs and commercial paper programs).
It takes into consideration the creditworthiness of guarantors, insurers, or
other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The issue credit rating is not
a recommendation to purchase, sell, or hold a financial obligation, inasmuch as
it does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the
obligors or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
credit rating and may,
A-2
<PAGE>
on occasion, rely on unaudited financial information. Credit ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term
ratings are generally assigned to those obligations considered short term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days -- including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term rating addresses the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.
Issue credit ratings are based, in varying degrees, on the following
considerations: likelihood of payment -- capacity and willingness of the obligor
to meet its financial commitment on an obligation in accordance with the terms
of the obligation; nature of and provisions of the obligation; protection
afforded by , and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not conform exactly with the category definition.
Corporate and Municipal Bond Ratings
Investment Grade
AAA: An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated 'AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A: An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity o the obligor to meet its financial commitment on
the obligation.
Speculative Grade
Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are 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: An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligors's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB', but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligation rated 'CCC' is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
A-3
<PAGE>
CC: An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated 'C' is CURRENTLY
HIGHLY VULNERABLE to nonpayment. The 'C' rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A 'C' also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: An obligation rated 'D' is in payment default. The 'D' rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poors's believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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.: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's's
does not rate a particular obligation as a matter of policy.
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: A short-term obligation rated 'A-1' is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligors's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated 'A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
A-4
<PAGE>
B: A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C: A short-term obligation rated 'C' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
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-5
<PAGE>
APPENDIX B
CERTAIN OWNERSHIP OF TRUST SHARES AS OF OCTOBER 4, 2000
As of October 4, 2000, the following persons owned of record or beneficially 5%
or more of the noted class of shares of the following Funds:
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
PIMCO Equity Income Fund
Institutional
AGL Resources Inc. Post Retirement 191,106.47 22.260%
UFE Insurance Coverage
Attn: State Street Bank and Trust
200 Newport Avenue Ext. JQB7
North Quincy, MA 02171-2102
US Bank NA as Custodian for 151,109.86 17.600%
Great Western Malting Salaried Savings
P.O. Box 64010
St. Paul, MN 55164-0010
Northern Trust Co. as Trustee 75,858.91 8.830%
California Chamber of Commerce
P.O. Box 92956
801 S. Canal St.
Chicago, IL 60607-4515
AGL Resources Inc. Postretire 75,648.30 8.810%
Health Coverage for Collectively Bargain Employees
Attn: State Street Bank & Trust Co.
200 Newport Avenue JQB7
North Quincy, MA 02171-2102
Africa Inland Mission 50,674.63 5.900%
P.O. Box 178
Pearl River, NY 10965-0178
Charles Schwab & Co. Trust ** 44,315.29 5.160%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
US Bank NA as Custodian for 44,290.77 5.160%
Bargain Great Western Mailing
P.O. Box 64010
St. Paul, MN 55164-0010
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Administrative
Sandra Hogue-Burney 5,047.96 67.190% *
1126 Las Olas Ave.
Santa Barbara, CA 93109-2115
FTC & CO. ** 2,191.07 29.160% *
Attn: DATALYNX
P.O. Box 173736
Denver, CO 80217-3736
Class A
MLPF&S for the sole Benefit ** 198,134.95 23.542%
of it's customers
Attn: Fund Admin/#97M
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Khosrow B. Semnani 105,663.01 12.555%
P.O. Box 3508
Salt Lake City, UT 84110-3508
Class B
MLPF&S for the sole Benefit ** 126,222.64 10.865%
of it's customers
Attn: Fund Admin/#97
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 110,467.19 9.057%
Attn: Fund Admin/#97
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class D
Charles Schwab & Co. Inc. ** 358.68 76.321% *
Special Custody accounts FBO Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
E*Trade Securities, Inc. ** 50,237.00 10.689%
Jeffrey D. Hage
P.O. Box 989030
West Sacramento, CA 95798-9060
E*Trade Securities, Inc. ** 46.86 9.971%
Mark R. Black
P.O. Box 989030
West Sacramento, CA 95798-9060
Value Fund
Institutional
Pacific Mutual Life Insurance Co. 137,749.58 39.010% *
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, CA 92660
CMTA-GMPP & Allied Workers Pension Trust 449,214.93 15.400%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, CA 94502
California Race Track Association 357,982.05 12.270%
P.O. Box 67
La Verne, CA 91750-0067
Charles Schwab & Co. Inc. ** 257,847.49 8.840%
Attn: Mutual Fund Dept.
101 Montgomery St.
San Francisco, CA 94126-2500
BAC Local #19 Pension Trust 240,293.45 8.240%
Attn: Allied Administrators Inc.
777 Davis Street
San Francisco, CA 94126-2500
90/10 Portfolio 164,571.74 5.640%
PIMCO Funds Asset Allocation Series
800 Newport Center Dr.
Newport Beach, CA 92660
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Class A
Teamsters Union Local # 52 Pension Fund 345,400.25 22.408%
Attn: Dennis Vadini
3150 Chester Ave.
Cleveland, OH 44114-4605
MLPF&S for the sole benefit of it's customers 123,773.84 8.029%
**A165
Attn: Fund Admin/#97M
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class B
MLPF&S for the sole benefit of it's customers ** 500,408.85 21.545%
Attn: Fund Admin/#97M
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 436,481.96 9.396%
Attn: Fund Admin/#97M
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class D
Charles Schwab and Co. Inc **A183 3,567.24 60.180% *
Special custody accounts FBO customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
PIMCO Advisors LP 894.97 15.083%
Attn: Vinh Nguyen
800 Newport Beach, CA 92660-6309
E*Trade Securities, Inc. ** 869.53 14.669%
Jeffrey L. Cardwell
P.O. Box 989030
West Sacramento, CA 95798-9030
NFSC FEBO 596.77 10.067%
FMT CO Cust IRA
FBO Lawrence Kramer
680 Bridle Path
Cincinnati, OH 45231
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Renaissance Fund
Institutional
BAC Local #19 Pension Fund 213,568.01 35.120% *
C/O Allied Administrators Inc.
777 Davis Street
San Francisco, CA 94111-1405
90/10 Portfolio 137,800.51 22.660%
PIMCO Advisors LP
800 Newport Center Dr.
Newport Beach, CA 92660-6309
Fort Wayne Newspaper Inc. 84,351.08 13.870%
600 W. Main St.
Fort Wayne, IN 46802-1498
60/40 Portfolio 78,057.44 12.840%
PIMCO Advisors LP
800 Newport Center Dr.
Newport Beach, CA 92660-6309
Charles Schwab & Co. Inc. 44,368.07 7.300%
Attn: Mutual Fund Dept.
101 Montgomery St.
San Francisco, CA 94104-4122
Administrative
Firlin & Co. ** 10,486.31 14.530%
Attn: Trust Resources-MAC
P.O. Box 82408
Lincoln, NE 68501-2401
National Bank of Commerce TTEE 5,900.26 8.170%
City of Scottsbluff Retirement and Pension Plans
1248 O Street
P.O. Box 82408
Lincoln, NE 68501-2408
Class A
MLPF&S for the sole benefit of it's customers ** 477,600.04 9.794%
Attn: Fund Admin/#97M
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Prudential Bank & Trust Co. 279,788.81 5.738%
Defined Contribution Plan
FBO Plan Participants
30 Scranton, PA 18507-1755
Class B
MLPF&S for the sole benefit of it's customers ** 1,088,520.95 17.972%
Attn: Fund Admin/#97M
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 2,795,196.97 13.548%
Attn: Fund Admin/#97M
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class D
National Investors Services Corp ** 13,335.02 54.468% *
for exclusive benefit of our customers
Attn: Ms. Sandra Stewart
55 Water St., 32nd Floor
New York, NY 10041-3299
Charles Schwab & Co. Inc. ** 9,558.04 39.040% *
Special Custody Accounts FBO Customers
Attn: Mutual Funds-
101 Montgomery St.
San Francisco, CA 94104-4122
NFSC FEBO 1,598.13 6.490%
FMT CO Customer IRA Rollover
525 W. Dana Lane
Houston, TX 77024
Growth and Income Fund
Institutional Class
State Street Bank & Trust Co. 74,111.88 24.740%
901 E. Cary Street
Richmond, VA 23219-4057
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
PIMCO Advisors L.P. 189,759.81 63.340% *
800 Newport Center Dr.
Newport Beach, CA 92660
Growth Fund
Institutional Class
Pacific Mutual Life Insurance Co. 219,034.27 42.470% *
Employee's Retirement Plan Trust
700 Newport Center DR.
Newport Beach, CA 92660
Charles Schwab & Co. Inc. ** 118,900.58 23.060%
101 Montgomery St.
San Francisco, CA 940104-4122
BAC Local#19 Pension Fund Trust 54,510.50 10.570%
c/o Allied Administrators Inc.
777 Davis St.
San Francisco, CA 94111
Pacific Life Foundation 37,155.06 7.200%
700 Newport Center Dr.
Newport Beach, CA 92660
90/10 Portfolio 29,216.38 5.670%
PIMCO Funds Asset Allocation Series
800 Newport Center Dr.
Newport Beach, CA 92660
Administrative Class
Chase Bank of Texas, N.A. Trustee 269,429.43 61.710% *
1111 Fannin, 10th Floor
Houston, TX 77002
Class A
MLPF&S for the sole benefit of it's customers ** 523,510.43 7.919%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Class B
MLPF&S for the sole benefit of it's customers ** 1,465,262.18 21.267%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 8,713,619.24 12.580%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class D
Charles Schwab & Co. Inc. ** 531.46 33.263% *
Special Custody Accounts FBO Customers
101 Montgomery St.
San Francisco, CA 94104-4122
PIMCO Advisors LP 304.51 19.058%
800 Newport Center Dr.
Newport Beach, CA 92660-6309
Select Growth Fund
Institutional
Charles Schwab & Co. Inc. ** 89,049.97 7.130%
101 Montgomery St.
San Francisco, CA 94104-4122
IRA A/C John W. Barnum 37,302.72 2.653% *
901 E Cary St.
Richmond, VA 2319-4057
National Financial Services Corp. ** 10,030.24 7.130%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Administrative Class
National Financial Services Corp. for Exclusive 2,328.63 56.700% *
Benefit **
of their customers
1 World Financial Center
200 Liberty Street
New York, NY 10281-1003
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Donaldson Lufkin & Jenrette ** 1,107.22 26.960% *
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
Raymond James and Associates Inc. Custodian 441.71 10.760%
211 Groveland Ave.
Raleigh, NC 27605-1630
Norwest Bank NA 226.67 5.520%
FBO Hanna & Morton LLP Emp. 401K
P.O. Box 1533
Minneapolis, MN 55479
Class A
FTC & Co. ** 211,483.78 26.659% *
Attn: DATALYNX
P.O. Box 173736
Denver, CO 80217-3736
Class B
MLPF&S for the sole benefit of it's customers ** 40,281.19 16.800%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class D
PIMCO Advisors LP 430.11 100.000% *
800 Newport Center Dr.
Newport Beach, CA 92660
Target Fund
Institutional Class
Pacific Mutual Life Insurance Co. 234,099.43 37.440%
Employees Retirement Plan Trust
700 Newport Center Dr.
Newport Beach, CA 92660
Charles Schwab & Co. ** 170,470.06 27.270% *
101 Montgomery St.
San Francisco, Ca 94104
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
BAC Local # 19 Pension Trust 64,511.01 10.320%
c/o Allied Administrators Inc.
777 Davis Street
San Francisco, CA 94111
Pacific Life Foundation 41,851.61 6.690%
700 Newport Center Dr.
Newport Beach, CA 92660
90/10 Portfolio 41,538.03 6.640%
PIMCO Funds Asset Allocation Series
800 Newport Center Dr.
Newport Beach, Ca 92660
60/40 Portfolio 27,104.34 6.270%
PIMCO Funds Asset Allocation Series
800 Newport Center Dr.
Newport Beach, CA 92660
Class A
MLPF&S for the sole benefit of it's customers ** 1,932,277.24 17.248%
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class B
MLPF&S for the sole benefit of it's customers ** 2,793,733.88 27.008% *
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 14,155,367.01 23.513%
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class D
National Financial Securities ** 1,238.83 48.713% *
685 NW 133rd Way
Plantation, FL 33325-6152
Charles Schwab & Co. Inc. ** 975.97 38.377% *
Special Custody Accounts FBO Customers
101 Montgomery St.
San Francisco, CA 94104-4122
</TABLE>
B-10
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
PIMCO Advisors LP 328.30 12.909%
800 Newport Center Dr.
Newport Beach, CA 92660-6309
Opportunity Fund
Institutional Class
LaSalle Bank, N.A., Custodian 374,421.88 18.130%
AMFAC
P.O. Box 1443
Chicago, IL 60690
Charles Schwab & Co. Inc. ** 173,809.83 8.880%
101 Montgomery St.
San Francisco, CA 94104
St. Cloud Clinic of Internal Medicine 138,823.72 7.090%
c/o First American Trust
P.O. Box 986
St. Cloud, MN 56302-0986
Pacific Mutual Life Insurance Co. 132,146.00 6.750%
Employee's Retirement Plan Trust
700 Newport Center Dr.
Newport Beach, CA 92660
West Central Initiative Endowment 108,991.33 5.570%
c/o Norwest Bank MN NA
P.O. Box 1533
Minneapolis, MN 55480
Carabec 135,677.29 6.930%
P.O. Box 789
Fort Dodge, IA 50501-0798
Administrative Class
Chase Bank of Texas, N.A., Trustee 228,977.67 43.120% *
1111 Fannin, 10th Floor
Houston, TX 77002
American Express Trust Co. 125,412.26 23.620%
P.O. Box 534
Minneapolis, MN 55440-0534
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Class A
American Express Trust Co. 751,048.33 17.062%
FBO WESCO Distribution Inc. Retirement Savings
Plan
733 Marquette Ave. N10/996
Minneapolis, MN 55402-2309
MLPF&S for the sole benefit of it's customers ** 689,427.48 15.662%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class B
MLPF&S for the sole benefit of it's customers ** 61,871.54 5.218%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 2,954,367.62 20.375%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Innovation Fund
Institutional Class
Pacific Mutual Life Insurance Co. 139,148.63 28.870% *
Employee's Retirement Plan
700 Newport Center Dr.
Newport Beach, CA 92660
FIIOC as agent for Employee Benefit Trans 131,782.61 27.340% *
100 Magellan Way KW1C
Covington, KY 41015
Charles Schwab & Co. Trust ** 80,898.25 16.780%
101 Montgomery St.
San Francisco, CA 94104
Alpine Trust & Asset Management 47,937.52 9.950%
225 North 5th St.
Grand Junction, CO 81501
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Administrative Class
T. Rowe Price Trust Co. FBO 9,595.54 45.770% *
Retirement Plan Clients Asset Reconciliation
P.O. Box 17215
Baltimore, MD 21297-1215
FIIOC as agent for certain Employee Benefits Trans 4,575.89 21.830%
100 Magellan Way KW1C
Covington, KY 41015-1987
Columbia Trust Co. ** 4,037.18 19.260%
1301 SW 5th Avenue
Portland, OR 97201-5601
Bank of NY as Trustee for various retirement 2,233.89 10.660%
plans **
3 Manhattanville Rd. Ste 103
Purchase, NY 10577-2138
Class A
MLPF&S for the sole benefit of it's customers ** 4,138,796.13 19.333%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class B
MLPF&S for the sole benefit of it's customers ** 4,702,078.88 18.080%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 5,840,830.25 17.059%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class D
Charles Schwab & Co. Inc. ** 1,013,609.54 75.860% *
Special Custody Accounts FBO Customers
101 Montgomery St.
San Francisco, CA 94104-4122
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Global Innovation Fund
Institutional Class
PIMCO Advisors LP 300,000.00 100.000% *
800 Newport Center Dr.
Newport Beach, CA 92660
Administrative Class
TTEES of the Schafer Family Trust 13,912.08 52.820% *
1318 Colony Place
Newport Beach, CA 92660
FTC & Co. Attn: DATALYNX ** 5,326.09 20.220%
P.O. Box 173736
Denver, CO 80217-3736
Hamilton Limited Partnership 3,975.70 15.100%
800 15th St.
Bellingham, WA 98225-6310
Robert Hamilton TTEE 2,760.91 10.480%
Under Intervivos Trust
800 15th St.
Bellingham, WA 98225-6310
Class A
MLPF&S for the sole benefit of it's customers ** 518,838.79 13.788%
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Legg Mason Wood Walker Inc. 189,214.76 5.028%
P.O. Box 1476
Baltimore, MD 21202
Class B
MLPF&S for the sole benefit of it's customers ** 671,918.40 19.359%
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 973,760.84 16.884%
4800 Deer Lake Dr. E, Floor 3
Jacksonville, FL 32246-6484
</TABLE>
B-14
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Class D
Charles Schwab & Co. Inc. ** 51,855.05 37.091% *
Special Custody Accounts FBO Customers
101 Montgomery St.
San Francisco, CA 94104
DLJ Securities Corporation Inc. ** 49,091.80 35.114% *
P.O. Box 2052
Jersey City, NJ 07305-9998
NFSC FEBO 10,277.49 7.352%
1 Ulbrick Lane
Westport, CT 06880
Mega-Cap Fund
Institutional Class
PIMCO Advisors LP 300,100.42 100.000% *
800 Newport Center Dr.
Newport Beach, CA 92660
Capital Appreciation Fund
Institutional Class
PFPC FBO LPL Supermarket Program 1,795,604.58 13.610%
211S. Gulph Rd.
King of Prussia, PA 19406-3101
Charles Schwab & Co., Inc. -Reinvest ** 2,147,243.07 16.280%
101 Montgomery Street
San Francisco, CA 94104-4122
Pacific Mutual Life Insurance Co. 798,125.80 6.050%
Employee's Retirement Plan Trust
700 Newport Center Dr.
Newport Beach, CA 92660
Administrative Class
Certain Employee (Fidelity) 2,520,396.50 32.480%
100 Magetian KWIC
Covington, KY 41015
</TABLE>
B-15
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Investco Trust Company FBO 1,618,425.82 20.860%
Reynolds & Reynolds 401K Plan
P.O. Box 77405
Atlanta, BA 30357
First Union National Bank 1,168,859.32 15.060%
401 S. Tryon St., FRB-3
Charlotte, NC 28202
BISYS Brokerage Services ** 780,648.44 10.060%
Investco Trustco
51 Madison Ave.
New York, NY 10010-1603
New York Life Trust Company ** 395,315.30 5.090%
51 Madison Ave
New York, NY 10010
Class A
MLPF&S for the sole benefit of it's customers ** 800,661.73 22.141%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Carn & Co. 616,107.50 17.037%
American Yazaki Employee Svgs and Ret plan
P.O. Box 96211
Washington D.C. 20090-6211
Prudential Bank & Trust Co. 413,468.58 11.434%
30 Scranton Office Park
Scranton, PA 18507-1755
Class B
MLPF&S for the sole benefit of it's customers ** 396,765.29 15.151%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 484,661.55 14.977%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Class D
Charles Schwab & Co. Inc. ** 24,674.60 81.244% *
Special Custody Accounts FBO Customers
101 Montgomery St.
San Francisco, CA 94104-4122
Mid-Cap Fund
Institutional
Charles Schwab & Co., Inc. -Reinvest ** 6,200,696.44 31.440% *
101 Montgomery St.
San Francisco, CA 94104-4122
Ameritech Savings Plan for Salaried Employees 2,250,225.15 11.410%
c/o Mellon Trust as Trustee
135 Santilli Hwy
Everett, MA 02149-1906
Administrative
Certain Employee (Fidelity) 3,934,250.93 57.310% *
100 Magellan KW1C
Covinton, KY 41015
UMB TTEE FBO Andrew Profit Sharing Trust 428,492.96 8.370%
JP Morgan/American Century
P.O. Box 419784
Kansas City, MO 64141
First Union National Bank 418,944.82 8.180%
401 S. Tryon Street, FRB-3
Charlotte, NC 28202
Class A
MLPF&S for the sole benefit of it's customers ** 1,374,158.20 30.976%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class B
MLPF&S for the sole benefit of it's customers ** 619,709.32 20.297%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
</TABLE>
B-17
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Class C
MLPF&S for the sole benefit of it's customers ** 488,813.73 13.879%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class D
Charles Schwab & Co. Inc. ** 37,277.38 74.473%
Special Custody accounts FBO Customers
101 Montgomery St.
San Francisco, CA 94104-4122
NFSC FEBO 4,031.22 8.053%
2 Rowell Rd.
Danvers, MA 01923
Micro-Cap Fund
Institutional Class
Charles Schwab & Co., Inc. Reinvest ** 1,756,089.98 19.450%
101 Montgomery St.
San Francisco, CA 94104
Dominion resources 1,572,192.51 17.320%
c/o Bost & Co.
P.O. Box 3198
Pittsburgh, PA 15230-3198
Wendel & Co. ** 1,054,372.51 11.620%
P.O. Box 1066 Wall St. Station
New York, NY 10268-1066
Oberlin College 984,714.13 10.850%
c/o Mac & Co.
P.O. Box 3198
Pittsburgh, PA 15230-3198
Public Service of New Mexico 883,353.91 9.730%
c/o Mac & Co.
P.O. Box 318
Pittsburgh, PA 15230-3198
</TABLE>
B-18
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
U.S. Bank of National Assoc. Custodian 526,817.10 5.770%
Trust Mutual Funds
P.O. Box 64010
St. Paul, MN 55164
The Northern Trust Company Trustee 500,117.94 5.510%
Toyota Directed Retirement Trust
P.O. Box 92956
Chicago, IL 60675
Administrative Class
Centurion Trust Company ** 152,502.39 45.040%
FBO Omnibus/Centurion Capital Management
2425 EB Camelback Road, Suite 530
Phoenix, AZ 85016
Northern Trust as Trustee for Sunday School Board 107,674.82 31.800%
P.O. Box 92956
Chicago, IL 60675
New York Life Trust Company ** 64,286.57 18.990%
51 Madison Ave.
New York, NY 10010
Small-Cap Value Fund
Institutional
Charles Schwab & Co., Inc. ** 299,888.63 17.390%
101 Montgomery St.
San Francisco, CA 94104-4122
FIIOC as agent for certain employee ben trans 156,640.16 9.080%
100 Magellan Way KW1C
Covington, KY 41015-1987
Idaho Power Co 125,191.19 7.260%
P.O. Box 64010
St. Paul, MN 55164
Donaldson Lufkin & Jenrette ** 90,939.37 5.270%
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
B-19
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Woodenhead Inds. Inc. & Affiliated Co. 94,109.63 5.460%
Three Parkway North, Suite 550
Deerfileld, IL 60015-2568
Administrative Class
National Financial Services Corporation for the 484,143.14 42.250% *
Exclusive
Benefit of our Customers **
1 World Trade Center
200 Liberty Street
New York, NY 10281
First Union National Bank 145,471.60 12.700%
401 S. Tyron St.
Charlotte, NC 28202-1911
American Express Trust Company 64,058.03 5.590%
P.O. Box 534
Minneapolis, MN 55440-0534
Norwest Bank MN NA FBO 64,058.03 5.590%
P.O. Box 1533
Minneapolis, MN 55480-1533
Class A
MLPF&S for the sole benefit of it's customers ** 1,774,102.49 26.150% *
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Norwest Bank MN NA 868,131.34 12.796%
Dain Rauscher
P.O. Box 1533
Minneapolis, MN 55480
Class B
MLPF&S for the sole benefit of it's customers ** 832,902.87 22.441%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 1,127,675.23 23.272%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
</TABLE>
B-20
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Enhanced Equity Fund
Institutional
CMTA-GMPP & Allied Workers Pension 399,510.10 24.450%
1640 South Loop Road
Alameda, CA 94104
BAC Local # 19 Pension Trust 303,504.01 18.580%
777 Davis Street
San Francisco, CA 94126-2500
California Race Track Association 218,187.06 13.350%
P.O. Box 67
LaVerne, CA 91750
90/10 Portfolio 184,503.51 11.290%
PIMCO Funds Asset Allocation Series
800 Newport Center Sr.
Newport Beach, CA 92660
Asbestos Workers Local #87 158,613.12 9.710%
Employee Defined Contribution Pension Trust
1635 N.E. Loop 410, #700
San Antonio, TX 78209
Fort Wayne Newspaper Inc. 123,067.95 7.530%
600 W. Main Street
Fort Wayne, IN 46802
60/40 Portfolio 113,967.80 6.980%
PIMCO Funds Asset Allocation Series
800 Newport Center Dr.
Newport Beach, CA 92660
Tax-Efficient Equity Fund
Institutional Class
Loni Austin Parrish UAW 12,574.16 13.220%
FBO Ashley Nicole Parish
c/o Austin Industries
P.O. Box 1060
Newberg, OR 97132
</TABLE>
B-21
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Loni Austin Parrish UAW 11,199.27 11.770%
FBO Ashley Nicole Parish
c/o Austin Industries
P.O. Box 1060
Newberg, OR 97132
Loni Austin Parrish UAW 10,745.96 11.290%
FBO Jessica Danielle Parish
c/o Austin Industries
P.O. Box 1060
Newberg, OR 97132
Loni Austin Parrish UAW 10,745.96 11.290%
FBO Jessica Danielle Parish
c/o Austin Industries
P.O. Box 1060
Newberg, OR 97132
Scott N. Parrish 9,066.18 9.530%
c/o Austin Industries
P.O. Box 1060
Newberg, OR 97132
US Bank National Association Custodian 8,626.78 9.070%
JD Gray Irrv. Trust FBO JGG Dtd. 5-13-99
Trust Mutual Funds
P.O. Box 64010
St. Paul, MN 55164
US Bank National Association Custodian 8,579.27 9.020%
JD Gray Irrv. Trust FBO SWG Dtd. 5-13-99
Trust Mutual Funds
P.O. Box 64010
St. Paul, MN 55164
US Bank National Association Custodian 8,264.13 8.690%
FBO T.G. Gearheart Dtd. 5-13-99
Trust Mutual Funds
P.O. Box 64010
St. Paul, MN 55164
</TABLE>
B-22
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
US Bank National Association Custodian 7,921.34 8.330%
JD Gray Irrv. Trust FBO M.E. Gray Dtd. 5-13-99
Trust Mutual Funds
P.O. Box 64010
St. Paul, MN 55164
US Bank National Association Custodian 7,425.69 7.800%
JD Gray Irrv. Trust FBO GBH Dtd. 5-13-99
Trust Mutual Funds
P.O. Box 64010
St. Paul, MN 55164
Administrative Class
Centurion Trust Company ** 1,029,976.55 62.940% *
FBO Omnibus/Centurion Capital Management
2425 EB Camelback Road, Suite 530
Phoenix, AZ 85016
Sharon Cohen 110,345.24 6.740%
1785 215th St., Apt. 103
Bayside, NY 11360-1716
Class A
NFSC FEBO 91,899.25 12.990%
The Robb Charitable Trust
Richard A. Robb
56 Pilgrim Rd.
Marblehead, MA 01945-1750
MLPF&S for the sole benefit of it's customers ** 79,079.85 11.186%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Dain Rauscher Incorporated FBO 57,337.21 8.110%
Michael and Elizabeth King-Long Term Account
14800 164th Place NE
Woodinville, WA 98072
Lewco Securities Corp. ** 42,824.24 6.057%
34 Exchange Place, 4th Floor
Jersey City, NJ 07311
</TABLE>
B-23
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Class B
MLPF&S for the sole benefit of it's customers ** 193,854.15 21.322%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole benefit of it's customers ** 276,951.72 21.444%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class D
National Investors Services Corp. ** 6,752.41 87.861% *
for exclusive benefit of our customers
55 Water St. 32nd Floor
New York, NY
PIMCO Advisors LP 932.84 12.138%
800 Newport Center Dr.
Newport Beach, CA 92660
Structured Emerging Markets Fund
Institutional Class
Berklee College of Music, Inc. 562,163.54 19.850%
1140 Boylston St.
Boston, MA 02215-3693
Fleet National Bank 356,607.00 12.590%
Hartford Foundation
P.O. Box 92800
Rochester, NY 14638
Munsen-Williams-Proctor Institute 317,937.26 11.220%
310 Genesee Street
Utica, NY 13502
The Reeves Foundation 286,810.62 10.120%
115 Summit Avenue
Summit, NJ 07901
</TABLE>
B-24
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Brockton Health Corp. Endowment 222,238.24 7.850%
680 Centere Street
Brockton, MA 02402-3395
Desert Mutual Retiree Med. & Life Pl. Trust 186,619.70 6.590%
60 East South Temple Street
Salt Lake City, UT 84147
Wentworth Douglas Hospital 174,981.072 6.170%
789 Central Ave.
Dover, NH 03820-2589
Tax-Efficient Structured Emerging Markets Fund
Institutional Class
Alscott Investments, LLC
501 Baybrook Court 4,837,270.23 75.300% *
Boise, ID 83706
Charles Schwab & Co. -Reinvest **
101 Montgomery St. 1,120,093.39 17.430%
San Francisco, CA 94104-4122
Alscott Investments, LLC
501 Baybrook Court 1,002,480.56 15.600%
Boise, ID 83706
Rede & Company (Weyerhauser)
4380 S.W. Macadam, Suite 450 708,643.58 11.020%
Portland, OR 97201
Waycrosse, Inc./International Equity Fund II
P.O. Box 9300, MS 28 629,689.76 9.800%
Minneapolis, MN 55440-9300
Ruby Trust
499 Park Avenue 593,483.30 9.230%
New York, NY 10022
</TABLE>
B-25
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
International Fund
Institutional Class
90/10 Portfolio 379,372.72 59.170% *
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, CA 92660
60/40 Portfolio 223,961.44 34.930% *
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, CA 92660
30/70 Portfolio 37,861.63 5.900%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, CA 92660
Class A
MLPF&S for the sole custody of it's customers ** 83,940.53 10.384%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Circle Trust Co. FBO Export Corp. Profit Sharing 40,687.15 5.033%
Plan
Metro Center
1 Station Pl.
Stamford, CT 06902-6800
Class B
MLPF&S for the sole custody of it's customers ** 141,824.01 16.072%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
Class C
MLPF&S for the sole custody of it's customers ** 822,454.13 10.481%
4800 Deer Lake Dr. E., Floor 3
Jacksonville, FL 32246-6484
</TABLE>
B-26
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
NFJ Equity Income Fund
Institutional Class
Northern Trust Company TTEE FBO 1,771,575.76 46.510% *
AM Castle & Co. Employees Pension
P.O. Box 92956
Chicago, IL 60675
Miter & CO. c/o Marshall & Ilsley Trust Co. ** 1,261,292.60 33.110% *
P.O. Box 2977
Milwaukee, WI 53201-2977
Administrative Class
First Union National Bank ** 334,897.60 100.000% *
401 S. Tryon St.
Charlotte, NC 28202-1911
NFJ Value Fund
Institutional Class
Mark S. Geller DDS MSD Inc. 14,232.00 16.850%
Profit Sharing Trust
1220 Coit Rd. #108
Plano, TX 75075
Charles Hutto DDS Target Benefit PL 12,512.77 14.810%
430 N. High
Henderson, TX 75652
Sydney Teague 11,880.53 14.060%
8721 Mendocino Dr.
Austin, TX 78735
Sue Roberts Sloan 10,325.96 12.220%
c/o Kirkpatrik, Klein, & Mathis
4901 LBJ Fwy Ste 120
Dallas, TX 75244-6118
Residuary Trust u/w/o 9,861.37 11.670%
Matthew C. Roberts III
c/o Kirkpatrik, Klein, & Mathis
4901 LBJ Fwy Ste 120
Dallas, TX 75244-6118
</TABLE>
B-27
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
--------- -----------
<S> <C> <C>
Jean C. Beasley 7,047.98 8.340%
P.O. Box 191245
Dallas, TX 75219
Anna J. Armstrong 7,047.98 8.340%
4128 Amherst
Dallas, TX 752198245
Chris Najork 5,473.37 6.480%
Linda Najork
1632 Promontory Dr.
Cedar Hill, TX 75104-1529
</TABLE>
--------------------
*Entity owned 25% or more of the outstanding shares of beneficial interest of
the Fund, and therefore may be presumed to "control" the Fund, as that term is
defined in the 1940 Act.
** Shares are believed to be held only as nominee.
B-28
<PAGE>
PIMCO Funds Shareholders' Guide
for Class A, B and C Shares
November 1, 2000, as revised [ ], 2000
This Guide relates to the mutual funds (each, a "Fund") that are series of PIMCO
Funds: Multi-Manager Series (the "MMS Trust") and PIMCO Funds: Pacific
Investment Management Series (the "PIMS Trust" and, together with the MMS Trust,
the "Trusts"). Unless otherwise indicated, references to the Funds include the
PIMCO Funds Asset Allocation Series portfolios (the "Portfolios"). The
Portfolios are so called "funds of funds" which are series of the MMS Trust.
Class A, B and C shares of the MMS Trust, the PIMS Trust and the Portfolios are
offered through four separate prospectuses (each, a "Retail Prospectus"). The
information in this Guide is subject to change without notice at the option of
the Trusts, the Advisers or the Distributor.
This Guide contains detailed information about Fund purchase, redemption and
exchange options and procedures and other information about the Funds. This
Guide is not a prospectus, and should be used in conjunction with the applicable
Retail Prospectus. This Guide, and the information disclosed herein, is
incorporated by reference in, and considered part of, the Statement of
Additional Information corresponding to each Retail Prospectus.
PIMCO Funds Distributors LLC distributes the Funds' shares. You can call PIMCO
Funds Distributors LLC at 1-800-426-0107 to find out more about the Funds and
other funds in the PIMCO Funds family. You can also visit our Web site at
www.pimcofunds.com.
<PAGE>
TABLE OF CONTENTS
How to Buy Shares ........................................................ SG-3
Alternative Purchase Arrangements ........................................ SG-9
Exchange Privilege ....................................................... SG-24
How to Redeem ............................................................ SG-26
SG-2
<PAGE>
How to Buy Shares
Class A, Class B and Class C shares of each Fund are continuously offered
through the Trusts' principal underwriter, PIMCO Funds Distributors LLC (the
"Distributor") and through other firms which have dealer agreements with the
Distributor ("participating brokers") or which have agreed to act as introducing
brokers for the Distributor ("introducing brokers"). The Distributor is a
wholly owned subsidiary of PIMCO Advisors L.P. ("PIMCO Advisors"), the
investment adviser to the Funds that are series of the MMS Trust, and an
affiliate of Pacific Investment Management Company LLC ("Pacific Investment
Management Company"), the investment adviser to the Funds that are series of the
PIMS Trust. PIMCO Advisors and Pacific Investment Management Company are each
referred to herein as an "Adviser."
There are two ways to purchase Class A, Class B or Class C shares: either
(i) through your dealer or broker which has a dealer agreement with the
Distributor or (ii) directly by mailing a PIMCO Funds account application (an
''account application'') with payment, as described below under the heading
Direct Investment, to the Distributor (if no dealer is named in the account
application, the Distributor may act as dealer). Class A, Class B and Class C
shares of the Short Duration Municipal Income Fund and Class B and Class C
shares of the California Municipal Bond, California Intermediate Municipal Bond
and New York Municipal Bond Funds are not offered as of the date of this Guide;
however, investment opportunities in these Funds may be available in the future.
Shares may be purchased at a price equal to their net asset value per share
next determined after receipt of an order, plus a sales charge which, at the
election of the purchaser, may be imposed either (i) at the time of the purchase
in the case of Class A shares (the "initial sales charge alternative"), (ii) on
a contingent deferred basis in the case of Class B shares (the "deferred sales
charge alternative") or (iii) by the deduction of an ongoing asset based sales
charge in the case of Class C shares (the "asset based sales charge alternative"
circumstances, Class A and Class C shares are also subject to a Contingent
Deferred Sales Charge ("CDSC"). See "Alternative Purchase Arrangements."
Purchase payments for Class B and Class C shares are fully invested at the net
asset value next determined after acceptance of the trade. Purchase payments for
Class A shares, less the applicable sales charge, are invested at the net asset
value next determined after acceptance of the trade.
All purchase orders received by the Distributor prior to the close of
regular trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange on a regular business day are processed at that day's offering price.
However, orders received by the Distributor from dealers or brokers after the
offering price is determined that day will receive such offering price if the
orders were received by the dealer or broker from its customer prior to such
determination and were transmitted to and received by the Distributor prior to
its close of business that day (normally 5:00 p.m., Eastern time) or, in the
case of certain retirement plans, received by the Distributor prior to 9:30
a.m., Eastern time on the next business day. Purchase
SG-3
<PAGE>
orders received on other than a regular business day will be executed on the
next succeeding regular business day. The Distributor, in its sole discretion,
may accept or reject any order for purchase of Fund shares. The sale of shares
will be suspended during any period in which the New York Stock Exchange is
closed for other than weekends or holidays, or, if permitted by the rules of the
Securities and Exchange Commission, when trading on the New York Stock Exchange
is restricted or during an emergency which makes it impracticable for the Funds
to dispose of their securities or to determine fairly the value of their net
assets, or during any other period as permitted by the Securities and Exchange
Commission for the protection of investors.
Except for purchases through the PIMCO Funds Auto-Invest plan, the PIMCO
Funds Auto-Exchange plan, investments pursuant to the Uniform Gifts to Minors
Act, tax-qualified and wrap programs referred to below under "Tax-Qualified
Retirement Plans" and Alternative Purchase Arrangements--Sales at Net Asset
Value," and purchases by certain registered representatives as described below
under "Registered Representatives' Investments," the minimum initial investment
in Class A, Class B or Class C shares of any Fund is $2,500, and the minimum
additional investment is $100 per Fund. For information about dealer
commissions, see "Alternative Purchase Arrangements" below. Persons selling
Fund shares may receive different compensation for selling Class A, Class B or
Class C shares. Normally, Fund shares purchased through participating brokers
are held in the investor's account with that broker. No share certificates will
be issued unless specifically requested in writing by an investor or broker-
dealer.
Direct Investment
Investors who wish to invest in Class A, Class B or Class C shares of a
Fund directly, rather than through a participating broker, may do so by opening
an account with the Distributor. To open an account, an investor should complete
the account application. All shareholders who open direct accounts with the
Distributor will receive from the Distributor individual confirmations of each
purchase, redemption, dividend reinvestment, exchange or transfer of Fund
shares, including the total number of Fund shares owned as of the confirmation
date, except that purchases which result from the reinvestment of daily-accrued
dividends and/or distributions will be confirmed once each calendar quarter. See
"Distributions" in the applicable Retail Prospectus. Information regarding
direct investment or any other features or plans offered by the Trusts may be
obtained by calling the Distributor at 1-800-426-0107 or by calling your broker.
Purchase by Mail
Investors who wish to invest directly may send a check payable to PIMCO
Funds Distributors LLC, along with a completed application form to:
SG-4
<PAGE>
PIMCO Funds Distributors LLC
P.O. Box 9688
Providence, RI 02940-0926
Purchases are accepted subject to collection of checks at full value and
conversion into federal funds. Payment by a check drawn on any member of the
Federal Reserve System can normally be converted into federal funds within two
business days after receipt of the check. Checks drawn on a non-member bank may
take up to 15 days to convert into federal funds. In all cases, the purchase
price is based on the net asset value next determined after the purchase order
and check are accepted, even though the check may not yet have been converted
into federal funds.
Subsequent Purchases of Shares
Subsequent purchases of Class A, Class B or Class C shares can be made as
indicated above by mailing a check with a letter describing the investment or
with the additional investment portion of a confirmation statement. Except for
subsequent purchases through the PIMCO Funds Auto-Invest plan, the PIMCO Funds
Auto-Exchange plan, tax-qualified programs and PIMCO Funds Fund Link referred to
below, and except during periods when an Automatic Withdrawal Plan is in effect,
the minimum subsequent purchase is $100 in any Fund. All payments should be made
payable to PIMCO Funds Distributors LLC and should clearly indicate the
shareholder's account number. Checks should be mailed to the address above under
"Purchase by Mail."
Tax-Qualified Retirement Plans
The Distributor makes available retirement plan services and documents for
Individual Retirement Accounts (IRAs), including Roth IRAs, for which Boston
Safe Deposit & Trust Company serves as trustee and for IRA Accounts established
with Form 5305-SIMPLE under the Internal Revenue Code of 1986, as amended (the
"Code"). These accounts include Simplified Employee Pension Plan (SEP) and
Salary Reduction Simplified Employee Pension Plan (SAR/SEP) IRA and SIMPLE IRA
accounts and prototype documents. In addition, prototype documents are available
for establishing 403(b)(7) custodial accounts with Boston Safe Deposit & Trust
Company as custodian. This type of plan is available to employees of certain
non-profit organizations.
The minimum initial investment for all tax-qualified plans (except for
employer-sponsored plans, SIMPLE IRAs, SEPs and SAR/SEPs) is $1,000 per Fund and
the minimum subsequent investment is $100. The minimum initial investment for
employer-sponsored plans, SIMPLE IRAs, SEPs and SAR/SEPs and the minimum
subsequent investment per Fund for all such plans is $50.
SG-5
<PAGE>
PIMCO Funds Auto-Invest
The PIMCO Funds Auto-Invest plan provides for periodic investments into the
shareholder's account with the Trust by means of automatic transfers of a
designated amount from the shareholder's bank account. The minimum investment
for eligibility in the PIMCO Funds Auto-Invest plan is $1,000 per Fund.
Investments may be made monthly or quarterly, and may be in any amount subject
to a minimum of $50 per month for each Fund in which shares are purchased
through the plan. Further information regarding the PIMCO Funds Auto-Invest
plan is available from the Distributor or participating brokers. You may enroll
by completing the appropriate section on the account application, or you may
obtain an Auto-Invest application by calling the Distributor or your broker.
Registered Representatives' Investments
Current registered representatives and other full-time employees of
participating brokers or such persons' spouses or trusts or custodial accounts
for their minor children may purchase Class A shares at net asset value without
a sales charge. The minimum initial investment in each case is $500 per Fund
and the minimum subsequent investment is $50.
PIMCO Funds Auto-Exchange
The PIMCO Funds Auto-Exchange plan establishes regular, periodic exchanges
from one Fund account to another Fund account. The plan provides for regular
investments into a shareholder's account in a specific Fund by means of
automatic exchanges of a designated amount from another Fund account of the same
class of shares and with identical account registration.
Exchanges may be made monthly or quarterly, and may be in any amount
subject to a minimum of $1,000 to open a new Fund account and of $50 for any
existing Fund account for which shares are purchased through the plan.
Further information regarding the PIMCO Funds Auto-Exchange plan is
available from the Distributor at 1-800-426-0107 or participating brokers. You
may enroll by completing an application which may be obtained from the
Distributor or by telephone request at 1-800-426-0107. For more information on
exchanges, see "Exchange Privilege."
PIMCO Funds Fund Link
PIMCO Funds Fund Link ("Fund Link") connects your Fund account(s) with a
bank account. Fund Link may be used for subsequent purchases and for redemptions
and other transactions described under "How to Redeem." Purchase transactions
are effected by electronic funds transfers from the shareholder's account at a
U.S. bank or other financial institution that is an Automated Clearing House
("ACH") member. Investors may use Fund
SG-6
<PAGE>
Link to make subsequent purchases of shares in any amount greater than $50. To
initiate such purchases, call 1-800- 426-0107. All such calls will be recorded.
Fund Link is normally established within 45 days of receipt of a Fund Link
application by PFPC, Inc. (the "Transfer Agent"), the Funds' transfer agent for
Class A, B and C shares. The minimum investment by Fund Link is $50 per Fund.
Shares will be purchased on the regular business day the Distributor receives
the funds through the ACH system, provided the funds are received before the
close of regular trading on the New York Stock Exchange. If the funds are
received after the close of regular trading, the shares will be purchased on the
next regular business day.
Fund Link privileges must be requested on the account application. To
establish Fund Link on an existing account, complete a Fund Link application,
which is available from the Distributor or your broker, with signatures
guaranteed from all shareholders of record for the account. See "Signature
Guarantee" below. Such privileges apply to each shareholder of record for the
account unless and until the Distributor receives written instructions from a
shareholder of record canceling such privileges. Changes of bank account
information must be made by completing a new Fund Link application signed by all
owners of record of the account, with all signatures guaranteed. The
Distributor, the Transfer Agent and the Fund may rely on any telephone
instructions believed to be genuine and will not be responsible to shareholders
for any damage, loss or expenses arising out of such instructions. The Fund
reserves the right to amend, suspend or discontinue Fund Link privileges at any
time without prior notice. Fund Link does not apply to shares held in broker
"street name" accounts.
Signature Guarantee
When a signature guarantee is called for, the shareholder should have
"Signature Guaranteed" stamped under his signature and guaranteed by any of the
following entities: U.S. banks, foreign banks having a U.S. correspondent bank,
credit unions, savings associations, U.S. registered dealers and brokers,
municipal securities dealers and brokers, government securities dealers and
brokers, national securities exchanges, registered securities associations and
clearing agencies (each an "Eligible Guarantor Institution"). The Distributor
reserves the right to reject any signature guarantee pursuant to its written
signature guarantee standards or procedures, which permit it to reject signature
guarantees from Eligible Guarantor Institutions that do not, based on credit
guidelines or other requirements, satisfy such written standards or procedures.
Beginning January 1, 2001, when a signature guarantee is called for, a
"medallion" signature guarantee will be required. A medallion signature
guarantee may be obtained from a domestic bank or trust company, broker, dealer,
clearing agency, savings association or other financial institution which is
participating in a medallion program recognized by the Securities Transfer
Association. The three recognized medallion programs are the Securities
Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion Program
(SEMP) and New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP).
Signature guarantees from financial institutions which are not participating in
one of these programs will not be
SG-7
<PAGE>
accepted. Please note that financial institutions participating in a recognized
medallion program may still be ineligible to provide a signature guarantee for
transactions of greater than a specified dollar amount.
The Distributor reserves the right to modify its signature guarantee
standards at any time. The Funds may change the signature guarantee
requirements from time to time upon notice to shareholders, which may, but is
not required to, be given by means of a new or supplemented Retail Prospectus or
a new or supplemented Guide. Shareholders should contact the Distributor for
additional details regarding the Funds' signature guarantee requirements.
Account Registration Changes
Changes in registration or account privileges may be made in writing to the
Transfer Agent. Signature guarantees may be required. See "Signature Guarantee"
above. All correspondence must include the account number and must be sent to:
PIMCO Funds Distributors LLC
P.O. Box 9688
Providence, RI 02940-0926
Small Account Fee
Because of the disproportionately high costs of servicing accounts with low
balances, a fee at an annual rate of $16 (paid to the applicable Fund's
administrator) will automatically be deducted from direct Fund accounts with
balances falling below a minimum level. The valuation of Fund accounts and the
deduction are expected to take place during the last five business days of each
calendar quarter. The fee will be deducted in quarterly installments from Fund
accounts with balances below $2,500, except for Uniform Gift to Minors, IRA,
Roth IRA and Auto-Invest accounts, for which the limit is $1,000. The fee also
applies to employer-sponsored retirement plan accounts, Money Purchase and/or
Profit Sharing plans, 401(k) plans, 403(b)(7) custodial accounts, SIMPLE IRAs,
SEPs and SAR/SEPs. (A separate custodial fee may apply to IRAs, Roth IRAs and
other retirement accounts.) No fee will be charged on any Fund account of a
shareholder if the aggregate value of all of the shareholder's Fund accounts is
at least $50,000. Any applicable small account fee will be deducted
automatically from your below-minimum Fund account in quarterly installments and
paid to the Administrator. Each Fund account will normally be valued, and any
deduction taken, during the last five business days of each calendar quarter.
No small account fee will be charged to employee and employee-related accounts
of PIMCO Advisors and/or, in the discretion of PIMCO Advisors, its affiliates.
SG-8
<PAGE>
Minimum Account Size
Due to the relatively high cost to the Funds of maintaining small accounts,
you are asked to maintain an account balance in each Fund in which you invest of
at least the amount necessary to open the type of account involved. If your
balance for any Fund is below such minimum for three months or longer, the
applicable Fund's administrator shall have the right (except in the case of
employer-sponsored retirement accounts) to close that Fund account after giving
you 60 days in which to increase your balance. Your Fund account will not be
liquidated if the reduction in size is due solely to market decline in the value
of your Fund shares or if the aggregate value of all your accounts in PIMCO
Funds exceeds $50,000.
Alternative Purchase Arrangements
The Funds offer investors Class A, Class B and Class C shares in the
applicable Retail Prospectus. Class A, B and C shares bear sales charges in
different forms and amounts and bear different levels of expenses, as described
below. Through separate prospectuses, certain of the Funds currently offer up to
three additional classes of shares in the United States: Class D, Institutional
Class and Administrative Class shares. Class D shares are offered through
financial intermediaries. Institutional Class shares are offered to pension and
profit sharing plans, employee benefit trusts, endowments, foundations,
corporations and other high net worth individuals. Administrative Class shares
are offered primarily through employee benefit plan alliances, broker-dealers
and other intermediaries. Class D, Institutional Class and Administrative Class
shares are sold without a sales charge and have different expenses than Class A,
Class B and Class C shares. As a result of lower sales charges and/or operating
expenses, Class D, Institutional Class and Administrative Class shares are
generally expected to achieve higher investment returns than Class A, Class B or
Class C shares. Certain Funds also offer up to two additional classes of shares
that are offered only to non-U.S. investors outside the United States: Class J
and Class K shares. To obtain more information about the other classes of
shares, please call the applicable Trust at 1-800-927-4648 (for Institutional
and Administrative Class shares) or the Distributor at 1-888-87-PIMCO (for Class
D shares).
The alternative purchase arrangements described in this Guide are designed
to enable a retail investor to choose the method of purchasing Fund shares that
is most beneficial to the investor based on all factors to be considered,
including the amount and intended length of the investment, the particular Fund
and whether the investor intends to exchange shares for shares of other Funds.
Generally, when making an investment decision, investors should consider the
anticipated life of an intended investment in the Funds, the accumulated
distribution and servicing fees plus CDSCs on Class B or Class C shares, the
initial sales charge plus accumulated servicing fees on Class A shares (plus a
CDSC in certain circumstances), the possibility that the anticipated higher
return on Class A shares due to the lower ongoing charges will offset the
initial sales charge paid on such shares, the automatic conversion of
SG-9
<PAGE>
Class B shares to Class A shares and the difference in the CDSCs applicable to
Class A, Class B and Class C shares.
Class A The initial sales charge alternative (Class A) might be preferred by
investors purchasing shares of sufficient aggregate value to qualify for
reductions in the initial sales charge applicable to such shares. Similar
reductions are not available on the contingent deferred sales charge alternative
(Class B) or the asset based sales charge alternative (Class C). Class A shares
are subject to a servicing fee but are not subject to a distribution fee and,
accordingly, such shares are expected to pay correspondingly higher dividends on
a per share basis. However, because initial sales charges are deducted at the
time of purchase, not all of the purchase payment for Class A shares is invested
initially. Class B and Class C shares might be preferable to investors who wish
to have all purchase payments invested initially, although remaining subject to
higher distribution and servicing fees and, for certain periods, being subject
to a CDSC. An investor who qualifies for an elimination of the Class A initial
sales charge should also consider whether he or she anticipates redeeming shares
in a time period which will subject such shares to a CDSC as described below.
See "Initial Sales Charge Alternative--Class A Shares--Class A Deferred Sales
Charge" below.
Class B Class B shares might be preferred by investors who intend to invest in
the Funds for longer periods and who do not intend to purchase shares of
sufficient aggregate value to qualify for sales charge reductions applicable to
Class A shares. Both Class B and Class C shares can be purchased at net asset
value without an initial sales charge. However, unlike Class C shares, Class B
shares convert into Class A shares after the shares have been held for seven
years. After the conversion takes place, the shares will no longer be subject to
a CDSC, and will be subject to the servicing fees charged for Class A shares
which are lower than the distribution and servicing fees charged on either Class
B or Class C shares. See "Deferred Sales Charge Alternative--Class B Shares"
below. Class B shares are not available for purchase by employer sponsored
retirement plans.
Class C Class C shares might be preferred by investors who intend to purchase
shares which are not of sufficient aggregate value to qualify for Class A sales
charges of 1% or less and who wish to have all purchase payments invested
initially. Class C shares are preferable to Class B shares for investors who
intend to maintain their investment for intermediate periods and therefore may
also be preferable for investors who are unsure of the intended length of their
investment. Unlike Class B shares, Class C shares are not subject to a CDSC
after they have been held for one year and are subject to only a 1% CDSC during
the first year. However, because Class C shares do not convert into Class A
shares, Class B shares are preferable to Class C shares for investors who intend
to maintain their investment in the Funds for long periods. See "Asset Based
Sales Charge Alternative--Class C Shares" below.
In determining which class of shares to purchase, an investor should always
consider whether any waiver or reduction of a sales charge or a CDSC is
available. See generally
SG-10
<PAGE>
"Initial Sales Charge Alternative--Class A Shares" and "Waiver of Contingent
Deferred Sales Charges" below.
The maximum single purchase of Class B shares of a Fund is $249,999. The
maximum single purchase of Class C shares of a Fund is $999,999. The Funds may
refuse any order to purchase shares.
For a description of the Distribution and Servicing Plans and distribution
and servicing fees payable thereunder with respect to Class A, Class B and Class
C shares, see "Distributor and Distribution and Servicing Plans" below.
Waiver of Contingent Deferred Sales Charges The CDSC applicable to Class A and
Class C shares is currently waived for (i) any partial or complete redemption in
connection with (a) required minimum distributions to IRA account owners or
beneficiaries who are age 70 1/2 or older or (b) distributions to participants
in employer-sponsored retirement plans upon attaining age 59 1/2 or on account
of death or disability; (ii) any partial or complete redemption in connection
with a qualifying loan or hardship withdrawal from an employer sponsored
retirement plan; (iii) any complete redemption in connection with a distribution
from a qualified employer retirement plan in connection with termination of
employment or termination of the employer's plan and the transfer to another
employer's plan or to an IRA (with the exception of a Roth IRA); (iv) any
partial or complete redemption following death or disability (as defined in the
Internal Revenue Code) of a shareholder (including one who owns the shares as
joint tenant with his or her spouse) from an account in which the deceased or
disabled is named, provided the redemption is requested within one year of the
death or initial determination of disability; (v) any redemption resulting from
a return of an excess contribution to a qualified employer retirement plan or an
IRA (with the exception of a Roth IRA); (vi) up to 10% per year of the value of
a Fund account which (a) has the value of at least $10,000 at the start of such
year and (b) is subject to an Automatic Withdrawal Plan; (vii) redemptions by
Trustees, officers and employees of either Trust, and by directors, officers and
employees of the Distributor, PIMCO Advisors or Pacific Investment Management
Company; (viii) redemptions effected pursuant to a Fund's right to involuntarily
redeem a shareholder's Fund account if the aggregate net asset value of shares
held in such shareholder's account is less than a minimum account size specified
in such Fund's prospectus; (ix) involuntary redemptions caused by operation of
law; (x) redemptions of shares of any Fund that is combined with another Fund,
investment company, or personal holding company by virtue of a merger,
acquisition or other similar reorganization transaction; (xi) redemptions by a
shareholder who is a participant making periodic purchases of not less than $50
through certain employer sponsored savings plans that are clients of a broker-
dealer with which the Distributor has an agreement with respect to such
purchases; (xii) redemptions effected by trustees or other fiduciaries who have
purchased shares for employer-sponsored plans, the trustee, administrator,
fiduciary, broker, trust company or registered investment adviser for which has
an agreement with the Distributor with respect to such purchases; (xiii)
redemptions in connection with IRA accounts established with Form 5305-SIMPLE
under the Code for which
SG-11
<PAGE>
the Trust is the designated financial institution; (xiv) a redemption by a
holder of Class A shares who purchased $1,000,000 or more of Class A shares (and
therefore did not pay a sales charge) where the participating broker or dealer
involved in the sale of such shares waived the commission it would normally
receive from the Distributor pursuant to an agreement with the Distributor; or
(xv) a redemption by a holder of Class A shares where the participating broker
or dealer involved in the purchase of such shares waived the commission it
normally would receive from the Distributor in connection with such purchase
pursuant to an agreement with the Distributor.
The CDSC applicable to Class B shares is currently waived for any partial
or complete redemption in each of the following cases: (a) in connection with
required minimum distributions to IRA account owners or to plan participants or
beneficiaries who are age 70 1/2 or older; (b) involuntary redemptions caused by
operation of law; (c) redemption of shares of any Fund that is combined with
another Fund, investment company, or personal holding company by virtue of a
merger, acquisition or other similar reorganization transaction; (d) following
death or disability (as defined in the Code) of a shareholder (including one who
owns the shares as joint tenant with his or her spouse) from an account in which
the deceased or disabled is named, provided the redemption is requested within
one year of the death or initial determination of disability; and (e) up to 10%
per year of the value of a Fund account which (i) has a value of at least
$10,000 at the start of such year and (ii) is subject to an Automatic Withdrawal
Plan. See "How to Redeem--Automatic Withdrawal Plan."
The Distributor may require documentation prior to waiver of the CDSC for
any class, including distribution letters, certification by plan administrators,
applicable tax forms, death certificates, physicians' certificates, etc.
Initial Sales Charge Alternative--Class A Shares
Class A shares are sold at a public offering price equal to their net asset
value per share plus a sales charge, as set forth below. As indicated below
under ''Class A Deferred Sales Charge,'' certain investors that purchase
$1,000,000 or more of any Fund's Class A shares (and thus pay no initial sales
charge) may be subject to a 1% CDSC if they redeem such shares during the first
18 months after their purchase.
SG-12
<PAGE>
Initial Sales Charge -- Class A Shares
Growth, Select Growth, Target, Opportunity, Capital Appreciation, Mid-Cap,
Growth & Income, Equity Income, Renaissance, Value, Small-Cap Value, Tax-
Efficient Equity, International, Innovation, Global Innovation and Select
International Funds, and PIMCO Funds Asset Allocation Series -- 90/10 and 60/40
Portfolios
--------------------------------------------------------------------------------
Amount of Purchase Sales Charge as Sales Charge Discount or
% of Net Amount as % of Public Commission to
Invested Offering Price dealers as %
of Public
Offering Price
--------------------------------------------------------------------------------
$0 - $49,999 5.82% 5.50% 4.75%
--------------------------------------------------------------------------------
$50,000 - $99,999 4.71% 4.50% 4.00%
--------------------------------------------------------------------------------
$100,000 - $249,999 3.63% 3.50% 3.00%
--------------------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
--------------------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
--------------------------------------------------------------------------------
$1,000,000 + 0.00%/(1)/ 0.00%/(1)/ 0.75%/(2)/
--------------------------------------------------------------------------------
PIMCO Funds Asset Allocation Series -- 30/70 Portfolio
--------------------------------------------------------------------------------
Amount of Purchase Sales Charge as Sales Charge Discount or
% of Net Amount as % of Public Commission to
Invested Offering Price dealers as %
of Public
Offering Price
--------------------------------------------------------------------------------
$0 - $49,999 4.71% 4.50% 4.00%
--------------------------------------------------------------------------------
$50,000 - $99,999 4.17% 4.00% 3.50%
--------------------------------------------------------------------------------
$100,000 - $249,999 3.63% 3.50% 3.00%
--------------------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
--------------------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
--------------------------------------------------------------------------------
$1,000,000 + 0.00%/(1)/ 0.00%/(1)/ 0.50%/(2)/
--------------------------------------------------------------------------------
SG-13
<PAGE>
Total Return, Total Return Mortgage, High Yield, Long-Term U.S. Government,
Global Bond II, Foreign Bond, Emerging Markets Bond, Strategic Balanced and
Convertible Funds
--------------------------------------------------------------------------------
Amount of Purchase Sales Charge as Sales Charge Discount or
% of Net Amount as % of Public Commission to
Invested Offering Price dealers as %
of Public
Offering Price
--------------------------------------------------------------------------------
$0 - $49,999 4.71% 4.50% 4.00%
--------------------------------------------------------------------------------
$50,000 - $99,999 4.17% 4.00% 3.50%
--------------------------------------------------------------------------------
$100,000 - $249,999 3.63% 3.50% 3.00%
--------------------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
--------------------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
--------------------------------------------------------------------------------
$1,000,000+ 0.00%/(1)/ 0.00%/(1)/ 0.50%/(3)/
--------------------------------------------------------------------------------
Low Duration, Real Return Bond, Municipal Bond and StocksPLUS Funds
--------------------------------------------------------------------------------
Amount of Purchase Sales Charge as Sales Charge Discount or
% of Net Amount as % of Public Commission to
Invested Offering Price dealers as %
of Public
Offering Price
--------------------------------------------------------------------------------
$0 - $49,999 3.09% 3.00% 2.50%
--------------------------------------------------------------------------------
$50,000 - $99,999 2.56% 2.50% 2.00%
--------------------------------------------------------------------------------
$100,000 - $249,999 2.04% 2.00% 1.75%
--------------------------------------------------------------------------------
$250,000 - $499,999 1.52% 1.50% 1.25%
--------------------------------------------------------------------------------
$500,000 - $999,999 1.27% 1.25% 1.00%
--------------------------------------------------------------------------------
$1,000,000+ 0.00%/(1)/ 0.00%/(1)/ 0.50%/(3)/
--------------------------------------------------------------------------------
SG-14
<PAGE>
Short-Term Fund
--------------------------------------------------------------------------------
Amount of Purchase Sales Charge as Sales Charge Discount or
% of Net Amount as % of Public Commission to
Invested Offering Price dealers as %
of Public
Offering Price
--------------------------------------------------------------------------------
$0 - $49,999 2.04% 2.00% 1.75%
--------------------------------------------------------------------------------
$50,000 - $99,999 1.78% 1.75% 1.50%
--------------------------------------------------------------------------------
$100,000 - $249,999 1.52% 1.50% 1.25%
--------------------------------------------------------------------------------
$250,000+ 0.00%/(1)/ 0.00%/(1)/ 0.25%/(3)/
------------------------------------------------------------------------------
California Municipal Bond, California Intermediate Municipal Bond and New York
Municipal Bond Funds
--------------------------------------------------------------------------------
Amount of Purchase Sales Charge as Sales Charge Discount or
% of Net Amount as % of Public Commission to
Invested Offering Price dealers as %
of Public
Offering Price
--------------------------------------------------------------------------------
$0 - $49,999 3.09% 3.00% 2.75%
--------------------------------------------------------------------------------
$50,000 - $99,999 2.04% 2.00% 1.75%
--------------------------------------------------------------------------------
$100,000 - $249,999 2.01% 1.00% 0.90%
--------------------------------------------------------------------------------
$250,000+ 0.00%/(1)/ 0.00%/(1)/ 0.25%/(4)/
------------------------------------------------------------------------------
1. As shown, investors that purchase more than $1,000,000 of any Fund's Class
A shares ($250,000 in the case of the Short-Term Fund) will not pay any
initial sales charge on such purchase. However, except with regard to
purchases of Class A shares of the Money Market, California Municipal Bond,
California Intermediate Municipal Bond and New York Municipal Bond Funds,
purchasers of $1,000,000 or more ($250,000 in the case of the Short-Term
Fund) of Class A shares (other than those purchasers described below under
"Sales at Net Asset Value" where no commission is paid) will be subject to
a CDSC of 1% if such shares are redeemed during the first 18 months after
such shares are purchased unless such purchaser is eligible for a waiver of
the CDSC as described under "Waiver of Contingent Deferred Sales Charges"
above. See "Class A Deferred Sales Charge" below.
2. The Distributor will pay a commission to dealers who sell amounts of
$1,000,000 or more of Class A shares (or who sell Class A shares at net
asset value to certain employer-sponsored plans as outlined in "Sales at
Net Asset Value" below) of each of these Funds and the Portfolios (except
for the 30/70 Portfolio) according to the following schedule: 0.75% of the
first $2,000,000, 0.50% of amounts from $2,000,001 to $5,000,000, and 0.25%
of amounts over $5,000,000; and of the 30/70 Portfolio according to the
following schedule: 0.50% of the first $2,000,000, and 0.25% of amounts
over $2,000,000.
3. The Distributor will pay a commission to dealers who sell amounts of
$1,000,000 ($250,000 in the case of the Short-Term Fund) or more of Class A
shares (or who sell Class A shares at net asset value to certain employer-
sponsored plans as outlined in "Sales at Net Asset Value") of each of these
Funds except for the Money Market Fund (for which no payment is made) and
the Short-Term and Short Duration Municipal Income Funds, according to the
following schedule: 0.50% of the first $2,000,000 and 0.25% of amounts over
$2,000,000; and 0.25% of sales of Class A shares of the Short-Term and
Short Duration Municipal Income Funds in excess of $250,000.
4. The Distributor will pay a commission to dealers who sell $250,000 or more
of Class A shares of the California Municipal Bond, California Intermediate
Municipal Bond and New York Municipal Bond Funds at an annual rate of
0.25%, to be paid in quarterly installments.
Each Fund receives the entire net asset value of its Class A shares
purchased by investors. The Distributor receives the sales charge shown above
less any applicable discount or commission "reallowed" to participating brokers
in the amounts indicated in the table above. The Distributor may, however, elect
to reallow the entire sales charge to participating brokers for all sales with
respect to which orders are placed with the Distributor for any particular Fund
during a particular period. During such periods as may from time to time be
designated
SG-15
<PAGE>
by the Distributor, the Distributor will pay an additional amount of up to 0.50%
of the purchase price on sales of Class A shares of all or selected Funds
purchased to each participating broker which obtains purchase orders in amounts
exceeding thresholds established from time to time by the Distributor. From time
to time, the Distributor, its parent and/or its affiliates may make additional
payments to one or more participating brokers based upon factors such as the
level of sales or the length of time clients' assets have remained in the Trust.
Shares issued pursuant to the automatic reinvestment of income dividends or
capital gains distributions are issued at net asset value and are not subject to
any sales charges.
Under the circumstances described below, investors may be entitled to pay
reduced sales charges for Class A shares.
Combined Purchase Privilege Investors may qualify for a reduced sales charge by
combining purchases of the Class A shares of one or more Funds which offer Class
A shares (together, "eligible PIMCO Funds") into a "single purchase," if the
resulting purchase totals at least $50,000. The term single purchase refers to:
(i) a single purchase by an individual, or concurrent purchases, which
in the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of 21
years purchasing Class A shares of the eligible PIMCO Funds for his,
her or their own account;
(ii) single purchase by a trustee or other fiduciary purchasing shares
for a single trust, estate or fiduciary account although more than
one beneficiary is involved; or
(iii) a single purchase for the employee benefit plans of a single
employer.
For further information, call the Distributor at 1-800-426-0107 or your
broker.
Cumulative Quantity Discount (Right of Accumulation) A purchase of additional
Class A shares of any eligible PIMCO Fund may qualify for a Cumulative Quantity
Discount at the rate applicable to the discount bracket obtained by adding:
(i) the investor's current purchase;
(ii) the value (at the close of business on the day of the current
purchase) of all Class A shares of any eligible PIMCO Fund held by
the investor computed at the maximum offering price; and
SG-16
<PAGE>
(iii) the value of all shares described in paragraph (ii) owned by another
shareholder eligible to be combined with the investor's purchase
into a "single purchase" as defined above under "Combined
Purchase Privilege."
For example, if you owned Class A shares of the Equity Income Fund worth
$25,000 at the current maximum offering price and wished to purchase Class
A shares of the Growth Fund worth an additional $30,000, the sales charge
for the $30,000 purchase would be at the 4.50% rate applicable to a single
$55,000 purchase of shares of the Growth Fund, rather than the 5.50% rate.
Letter of Intent An investor may also obtain a reduced sales charge by means of
a written Letter of Intent, which expresses an intention to invest not less than
$50,000 within a period of 13 months in Class A shares of any eligible PIMCO
Fund(s) other than the Money Market Fund. Each purchase of shares under a Letter
of Intent will be made at the public offering price or prices applicable at the
time of such purchase to a single transaction of the dollar amount indicated in
the Letter. At the investor's option, a Letter of Intent may include purchases
of Class A shares of any eligible PIMCO Fund (other than the Money Market Fund)
made not more than 90 days prior to the date the Letter of Intent is signed;
however, the 13-month period during which the Letter is in effect will begin on
the date of the earliest purchase to be included and the sales charge on any
purchases prior to the Letter will not be adjusted.
Investors qualifying for the Combined Purchase Privilege described above
may purchase shares of the eligible PIMCO Funds under a single Letter of Intent.
For example, if at the time you sign a Letter of Intent to invest at least
$100,000 in Class A shares of any Fund (other than the Money Market Fund), you
and your spouse each purchase Class A shares of the Growth Fund worth $30,000
(for a total of $60,000), it will only be necessary to invest a total of $40,000
during the following 13 months in Class A shares of any of the Funds (other than
the Money Market Fund) to qualify for the 3.50% sales charge on the total amount
being invested (the sales charge applicable to an investment of $100,000 in any
of the Funds other than the Money Market, Short-Term, Low Duration, Real Return
Bond, Short Duration Municipal Income, Municipal Bond, California Municipal
Bond, California Intermediate Municipal Bond, New York Municipal Bond and
StocksPLUS Funds).
A Letter of Intent is not a binding obligation to purchase the full amount
indicated. The minimum initial investment under a Letter of Intent is 5% of such
amount. Shares purchased with the first 5% of such amount will be held in escrow
(while remaining registered in your name) to secure payment of the higher sales
charge applicable to the shares actually purchased in the event the full
intended amount is not purchased. If the full amount indicated is not purchased,
a sufficient amount of such escrowed shares will be involuntarily redeemed to
pay the additional sales charge applicable to the amount actually purchased, if
necessary. Dividends on escrowed shares, whether paid in cash or reinvested in
additional eligible PIMCO Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released.
SG-17
<PAGE>
If you wish to enter into a Letter of Intent in conjunction with your
initial investment in Class A shares of a Fund, you should complete the
appropriate portion of the account application. If you are a current Class A
shareholder desiring to do so you may obtain a form of Letter of Intent by
contacting the Distributor at 1-800-426-0107 or any broker participating in this
program.
Reinstatement Privilege A Class A shareholder who has caused any or all of his
shares (other than the Money Market Fund shares that were not acquired by
exchanging Class A shares of another Fund) to be redeemed may reinvest all or
any portion of the redemption proceeds in Class A shares of any eligible PIMCO
Fund at net asset value without any sales charge, provided that such
reinvestment is made within 120 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined. See "How Net Asset Value is Determined" in the applicable Retail
Prospectus. A reinstatement pursuant to this privilege will not cancel the
redemption transaction and, consequently, any gain or loss so realized may be
recognized for federal tax purposes except that no loss may be recognized to the
extent that the proceeds are reinvested in shares of the same Fund within 30
days. The reinstatement privilege may be utilized by a shareholder only once,
irrespective of the number of shares redeemed, except that the privilege may be
utilized without limit in connection with transactions whose sole purpose is to
transfer a shareholder's interest in a Fund to his Individual Retirement Account
or other qualified retirement plan account. An investor may exercise the
reinstatement privilege by written request sent to the Distributor or to the
investor's broker.
Sales at Net Asset Value Each Fund may sell its Class A shares at net asset
value without a sales charge to (a) current or retired officers, trustees,
directors or employees of either Trust, PIMCO Advisors, Pacific Investment
Management Company or the Distributor, other affiliates of PIMCO Advisors at the
discretion of PIMCO Advisors, Pacific Investment Management Company or the
Distributor, a parent, brother or sister of any such officer, trustee, director
or employee or a spouse or child of any of the foregoing persons, or any trust,
profit sharing or pension plan for the benefit of any such person and to any
other person if the Distributor anticipates that there will be minimal sales
expenses associated with the sale, (b) current registered representatives and
other full-time employees of participating brokers or such persons' spouses or
for trust or custodial accounts for their minor children, (c) trustees or other
fiduciaries purchasing shares for certain plans sponsored by employers,
professional organizations or associations or charitable organizations, the
trustee, administrator, fiduciary, broker, trust company or registered
investment adviser for which has an agreement with the Distributor, PIMCO
Advisors or Pacific Investment Management Company with respect to such purchases
(including provisions related to minimum levels of investment in the Trust), and
to participants in such plans and their spouses purchasing for their account(s)
or IRAs (with the exception of Roth IRAs), (d) participants investing through
accounts known as "wrap accounts" established with brokers or dealers approved
by the Distributor where such brokers or dealers are paid a single, inclusive
fee for brokerage and investment management services, (e) client accounts of
broker-dealers or registered investment advisers affiliated with such
SG-18
<PAGE>
broker-dealers with which the Distributor, PIMCO Advisors or Pacific Investment
Management Company has an agreement for the use of a Fund in particular
investment products or programs, (f) accounts for which certain trust companies
that may be affiliated with the Trust or the Fund's Adviser serves as trustee or
custodian, and (g) investors who are investing the proceeds from a redemption of
shares of another open-end investment company (mutual fund) on which the
investor paid an initial sales charge, but only to the extent of such proceeds
and only if such investment is made within 60 days of such redemption. As
described above, the Distributor will only pay service fees and will not pay any
initial commission or other fees to dealers upon the sale of Class A shares to
the purchasers described in this paragraph except for sales to purchasers
described under (c) in this paragraph.
Notification of Distributor An investor or participating broker must notify the
Distributor whenever a quantity discount or reduced sales charge is applicable
to a purchase and must provide the Distributor with sufficient information at
the time of purchase to verify that each purchase qualifies for the privilege or
discount. Upon such notification, the investor will receive the lowest
applicable sales charge. The quantity discounts described above may be modified
or terminated at any time.
Class A Deferred Sales Charge For all Funds, except the Money Market, California
Municipal Bond, California Intermediate Municipal Bond and New York Municipal
Bond Funds, investors who purchase $1,000,000 ($250,000 in the case of the
Short-Term Fund) or more of Class A shares (and, thus, purchase such shares
without any initial sales charge) may be subject to a 1% CDSC (the "Class A
CDSC") if such shares are redeemed within 18 months of their purchase. The Class
A CDSC does not apply to investors purchasing $1,000,000 ($250,000 in the case
of the Short-Term and Short Duration Municipal Income Funds) or more of any
Fund's Class A shares if such investors are otherwise eligible to purchase Class
A shares without any sales charge because they are described under "Sales at Net
Asset Value" above.
For purchases subject to the Class A CDSC, a 1% CDSC will apply for any
redemption of such Class A shares that occurs within 18 months of their
purchase. No CDSC will be imposed if the shares redeemed have been acquired
through the reinvestment of dividends or capital gains distributions or if the
amount redeemed is derived from increases in the value of the account above the
amount of purchase payments subject to the CDSC. In determining whether a CDSC
is payable, it is assumed that Class A shares acquired through the reinvestment
of dividends and distributions are redeemed first, and thereafter that Class A
shares that have been held by an investor for the longest period of time are
redeemed first.
The Class A CDSC does not apply to Class A shares of the Money Market,
California Municipal Bond, California Intermediate Municipal Bond and New York
Municipal Bond Funds but, if Class A shares of these Funds are purchased in a
transaction that, for any other Fund, would be subject to the CDSC (i.e., a
purchase of $1,000,000 ($250,000 in the case of the Short-Term and Short
Duration Municipal Income Funds) or more) and are subsequently
SG-19
<PAGE>
exchanged for Class A shares of any other Fund, a Class A CDSC will apply to the
shares of the Fund(s) acquired by exchange for a period of 18 months from the
date of the exchange.
The Class A CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements--Waiver of
Contingent Deferred Sales Charges." For more information about the Class A CDSC,
call the Distributor at 1-800-426-0107.
Participating Brokers Investment dealers and other financial intermediaries
provide varying arrangements for their clients to purchase and redeem Fund
shares. Some may establish higher minimum investment requirements than set
forth above. Firms may arrange with their clients for other investment or
administrative services and may independently establish and charge transaction
fees and/or other additional amounts to their clients for such services, which
charges would reduce clients' return. Firms also may hold Fund shares in
nominee or street name as agent for and on behalf of their customers. In such
instances, the Trust's transfer agent will have no information with respect to
or control over accounts of specific shareholders. Such shareholders may obtain
access to their accounts and information about their accounts only from their
broker. In addition, certain privileges with respect to the purchase and
redemption of shares or the reinvestment of dividends may not be available
through such firms. Some firms may participate in a program allowing them access
to their clients' accounts for servicing including, without limitation,
transfers of registration and dividend payee changes; and may perform functions
such as generation of confirmation statements and disbursement of cash
dividends. This Guide and the Retail Prospectuses should be read in connection
with such firms' material regarding their fees and services.
Deferred Sales Charge Alternative--Class B Shares
Class B shares are sold at their current net asset value without any
initial sales charge. The full amount of an investor's purchase payment will be
invested in shares of the Fund(s) selected. A CDSC will be imposed on Class B
shares if an investor redeems an amount which causes the current value of the
investor's account for a Fund to fall below the total dollar amount of purchase
payments subject to the CDSC, except that no CDSC is imposed if the shares
redeemed have been acquired through the reinvestment of dividends or capital
gains distributions or if the amount redeemed is derived from increases in the
value of the account above the amount of purchase payments subject to the CDSC.
Class B shares of the Short-Term Fund and the Money Market Fund are not
offered for initial purchase but may be obtained through exchanges of Class B
shares of other Funds. See "Exchange Privilege" below. Class B shares are not
available for purchase by employer sponsored retirement plans.
SG-20
<PAGE>
Whether a CDSC is imposed and the amount of the CDSC will depend on the
number of years since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the CDSC according to the following
schedule:
Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
---------------- ---------------------
First 5
Second 4
Third 3
Fourth 3
Fifth 2
Sixth 1
Seventh 0*
* After the seventh year, Class B shares convert into Class A shares as
described below.
In determining whether a CDSC is payable, it is assumed that the purchase
payment from which a redemption is made is the earliest purchase payment from
which a redemption or exchange has not already been fully effected.
The following example will illustrate the operation of the Class B CDSC:
Assume that an individual opens a Fund account and makes a purchase payment
of $10,000 for Class B shares of a Fund and that six months later the value of
the investor's account for that Fund has grown through investment performance
and reinvestment of distributions to $11,000. The investor then may redeem up to
$1,000 from that Fund account ($11,000 minus $10,000) without incurring a CDSC.
If the investor should redeem $3,000 from that Fund account, a CDSC would be
imposed on $2,000 of the redemption (the amount by which the investor's account
for the Fund was reduced below the amount of the purchase payment). At the rate
of 5%, the Class B CDSC would be $100.
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class B shares in the
shareholder's account for the particular Fund are aggregated, and the current
value of all such shares is aggregated. Any CDSC imposed on a redemption of
Class B shares is paid to the Distributor.
Class B shares are subject to higher distribution fees than Class A shares
for a fixed period after their purchase, after which they automatically convert
to Class A shares and are no
SG-21
<PAGE>
longer subject to such higher distribution fees. Class B shares of each Fund
automatically convert into Class A shares after they have been held for seven
years.
For sales of Class B shares made and services rendered to Class B
shareholders, the Distributor intends to make payments to participating brokers,
at the time a shareholder purchases Class B shares, of 4.00% of the purchase
amount for each of the Funds. During such periods as may from time to time be
designated by the Distributor, the Distributor will pay selected participating
brokers an additional amount of up to .50% of the purchase price on sales of
Class B shares of all or selected Funds purchased to each participating broker
which obtains purchase orders in amounts exceeding thresholds established from
time to time by the Distributor.
The Class B CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements --Waiver of
Contingent Deferred Sales Charges." For more information about the Class B
CDSC, call the Distributor at 1-800-426-0107.
Asset Based Sales Charge Alternative--Class C Shares
Class C shares are sold at their current net asset value without any
initial sales charge. A CDSC is imposed on Class C shares if an investor redeems
an amount which causes the current value of the investor's account for a Fund to
fall below the total dollar amount of purchase payments subject to the CDSC,
except that no CDSC is imposed if the shares redeemed have been acquired through
the reinvestment of dividends or capital gains distributions or if the amount
redeemed is derived from increases in the value of the account above the amount
of purchase payments subject to the CDSC. All of an investor's purchase payments
are invested in shares of the Fund(s) selected.
Whether a CDSC is imposed and the amount of the CDSC will depend on the
number of years since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the CDSC according to the following
schedule:
Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
---------------- ---------------------
First 1
Thereafter 0
In determining whether a CDSC is payable, it is assumed that the purchase
payment from which the redemption is made is the earliest purchase payment (from
which a redemption or exchange has not already been effected).
SG-22
<PAGE>
The following example will illustrate the operation of the Class C CDSC:
Assume that an individual opens a Fund account and makes a purchase payment
of $10,000 for Class C shares of a Fund and that six months later the value of
the investor's account for that Fund has grown through investment performance
and reinvestment of distributions to $11,000. The investor then may redeem up to
$1,000 from that Fund account ($11,000 minus $10,000) without incurring a CDSC.
If the investor should redeem $3,000 from that Fund account, a CDSC would be
imposed on $2,000 of the redemption (the amount by which the investor's account
for the Fund was reduced below the amount of the purchase payment). At the rate
of 1%, the Class C CDSC would be $20.
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class C shares in the
shareholder's account for the particular Fund are aggregated, and the current
value of all such shares is aggregated. Any CDSC imposed on a redemption of
Class C shares is paid to the Distributor. Unlike Class B shares, Class C shares
do not automatically convert to any other class of shares of the Funds.
Except as described below, for sales of Class C shares made and services
rendered to Class C shareholders, the Distributor expects to make payments to
participating brokers, at the time the shareholder purchases Class C shares, of
1.00% (representing .75% distribution fees and .25% servicing fees) of the
purchase amount for all Funds, except the Money Market, Short-Term, Real Return
Bond, Municipal Bond and StocksPLUS Funds. For the Low Duration, Real Return
Bond, Municipal Bond and StocksPLUS Funds, the Distributor expects to make
payments of .75% (representing .50% distribution fees and .25% service fees);
for the Short-Term Fund, the Distributor expects to make payments of .55%
(representing .30% distribution fees and .25% service fees); and for the Money
Market Fund, the Distributor expects to make no payment. For sales of Class C
shares made to participants making periodic purchases of not less than $50
through certain employer sponsored savings plans which are clients of a broker-
dealer with which the Distributor has an agreement with respect to such
purchases, no payments are made at the time of purchase. During such periods as
may from time to time be designated by the Distributor, the Distributor will pay
an additional amount of up to .50% of the purchase price on sales of Class C
shares of all or selected Funds purchased to each participating broker which
obtains purchase orders in amounts exceeding thresholds established from time to
time by the Distributor.
The Class C CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements--Waiver of
Contingent Deferred Sales Charges." For more information about the Class C CDSC,
contact the Distributor at 1-800-426-0107.
SG-23
<PAGE>
Exchange Privilege
Except with respect to exchanges for shares of Funds for which sales may be
suspended to new investors or as provided in the applicable Retail Prospectus or
in this Guide, a shareholder may exchange Class A, Class B and Class C shares of
any Fund for the same Class of shares of any other Fund in an account with
identical registration on the basis of their respective net asset values (except
that a sales charge will apply on exchanges of Class A shares of the Money
Market Fund on which no sales charge was paid at the time of purchase.) Class A
shares of the Money Market Fund may be exchanged for Class A shares of any other
Fund, but the usual sales charges applicable to investments in such other Fund
apply on shares for which no sales charge was paid at the time of purchase.
There are currently no exchange fees or charges. All exchanges are subject to
the $2,500 minimum initial purchase requirement for each Fund, except with
respect to tax-qualified programs and exchanges effected through the PIMCO Funds
Auto-Exchange plan. An exchange will constitute a taxable sale for federal
income tax purposes.
Investors who maintain their account with the Distributor may exchange
shares by a written exchange request sent to PIMCO Funds Distributors LLC, P.O.
Box 9688, Providence, RI 02940-0926 or, unless the investor has specifically
declined telephone exchange privileges on the account application or elected in
writing not to utilize telephone exchanges, by a telephone request to the
Distributor at 1-800-426-0107. Each Trust will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and may be
liable for any losses due to unauthorized or fraudulent instructions if it fails
to employ such procedures. Each Trust will require a form of personal
identification prior to acting on a caller's telephone instructions, will
provide written confirmations of such transactions and will record telephone
instructions. Exchange forms are available from the Distributor at 1-800-426-
0107 and may be used if there will be no change in the registered name or
address of the shareholder. Changes in registration information or account
privileges may be made in writing to the Transfer Agent, PFPC, Inc., P.O. Box
9688, Providence, RI 02940-0926, or by use of forms which are available from the
Distributor. A signature guarantee is required. See "How to Buy Shares--
Signature Guarantee." Telephone exchanges may be made between 9:00 a.m., Eastern
time and the close of regular trading (normally 4:00 p.m., Eastern time) on the
New York Stock Exchange on any day the Exchange is open (generally weekdays
other than normal holidays). The Trusts reserve the right to refuse exchange
purchases if, in the judgment of the Fund's Adviser, the purchase would
adversely affect the Fund and its shareholders. In particular, a pattern of
exchanges characteristic of "market-timing" strategies may be deemed by an
Adviser to be detrimental to a Trust or a particular Fund.
The Trusts reserve the right to refuse exchange purchases if, in the
judgment of an Adviser or a Fund's sub-adviser, the purchase would adversely
affect a Fund and its shareholders. In particular, a pattern of exchanges
characteristic of "market-timing" strategies
SG-24
<PAGE>
may be deemed by an Adviser to be detrimental to a Trust or a particular Fund.
Currently, each Trust limits the number of "round trip" exchanges an investor
may make. An investor makes a "round trip" exchange when the investor purchases
shares of a particular Fund, subsequently exchanges those shares for shares of a
different PIMCO Fund, and then exchanges back into the originally purchased
Fund. The Trusts have the right to refuse any exchange for any investor who
completes (by making the exchange back into the shares of the originally
purchased Fund) more than six round trip exchanges in any twelve-month period.
Although the Trusts have no current intention of terminating or modifying the
exchange privilege other than as set forth in the preceding sentence, each
reserves the right to do so at any time. Except as otherwise permitted by the
Securities and Exchange Commission, each Trust will give 60 days' advance notice
to shareholders of any termination or material modification of the exchange
privilege. For further information about exchange privileges, contact your
participating broker or call the Distributor at 1-800-426-0107.
With respect to Class B and Class C shares, or Class A shares subject to a
CDSC, if less than all of an investment is exchanged out of a Fund, any portion
of the investment attributable to capital appreciation and/or reinvested
dividends or capital gains distributions will be exchanged first, and thereafter
any portions exchanged will be from the earliest investment made in the Fund
from which the exchange was made. Shareholders should take into account the
effect of any exchange on the applicability of any CDSC that may be imposed upon
any subsequent redemption.
Investors may also select the PIMCO Funds Auto-Exchange plan which
establishes automatic periodic exchanges. For further information on automatic
exchanges see "How to Buy Shares--PIMCO Funds Auto-Exchange" above.
Exchange Limitations
Until July 3, 2000, shareholders will not be permitted to exchange their
shares of any Fund or series of the Trusts for shares of the Global Innovation
Fund, although investors will be permitted to exchange their shares of the
Global Innovation Fund for shares of the same class of any other Fund or series
of the Trusts, subject to any restrictions on exchanges in the applicable
Prospectus(es). This restriction may be changed or eliminated at any time at
the discretion of the Distributor.
SG-25
<PAGE>
How to Redeem
Class A, Class B or Class C shares may be redeemed through a participating
broker, by telephone, by submitting a written redemption request directly to the
Transfer Agent (for non-broker accounts), or through an Automatic Withdrawal
Plan or PIMCO Funds Fund Link.
A CDSC may apply to a redemption of Class A, Class B or Class C shares. See
"Alternative Purchase Arrangements" above. Shares are redeemed at their net
asset value next determined after a redemption request has been received as
described below, less any applicable CDSC. There is no charge by the Distributor
(other than an applicable CDSC) with respect to a redemption; however, a
participating broker who processes a redemption for an investor may charge
customary commissions for its services (which may vary). Dealers and other
financial services firms are obligated to transmit orders promptly. Requests for
redemption received by dealers or other firms prior to the close of regular
trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange on a
regular business day and received by the Distributor prior to the close of the
Distributor's business day will be confirmed at the net asset value effective at
the closing of the Exchange on that day, less any applicable CDSC.
Other than an applicable CDSC, you will not pay any special fees or charges
to the Trust or the Distributor when you sell your shares. However, if you sell
your shares through your broker, dealer or other financial intermediary, that
firm may charge you a commission or other fee for processing your redemption
request.
Redemptions of Fund shares may be suspended when trading on the New York
Stock Exchange is restricted or during an emergency which makes it impracticable
for the Funds to dispose of their securities or to determine fairly the value of
their net assets, or during any other period as permitted by the Securities and
Exchange Commission for the protection of investors. Under these and other
unusual circumstances, the Trust may suspend redemptions or postpone payments
for more than seven days, as permitted by law.
Direct Redemption
A shareholder's original account application permits the shareholder to
redeem by written request and by telephone (unless the shareholder specifically
elects not to utilize telephone redemptions) and to elect one or more of the
additional redemption procedures described below. A shareholder may change the
instructions indicated on his original account application, or may request
additional redemption options, only by transmitting a written direction to the
Transfer Agent. Requests to institute or change any of the additional redemption
procedures will require a signature guarantee.
SG-26
<PAGE>
Redemption proceeds will normally be mailed to the redeeming shareholder
within seven days or, in the case of wire transfer or Fund Link redemptions,
sent to the designated bank account within one business day. Fund Link
redemptions may be received by the bank on the second or third business day. In
cases where shares have recently been purchased by personal check, redemption
proceeds may be withheld until the check has been collected, which may take up
to 15 days. To avoid such withholding, investors should purchase shares by
certified or bank check or by wire transfer.
Written Requests
To redeem shares in writing (whether or not represented by certificates), a
shareholder must send the following items to the Transfer Agent, PFPC, Inc.,
P.O. Box 9688, Providence, RI 02940-0926.
(1) a written request for redemption signed by all registered owners exactly as
the account is registered on the Transfer Agent's records, including
fiduciary titles, if any, and specifying the account number and the dollar
amount or number of shares to be redeemed;
(2) for certain redemptions described below, a guarantee of all signatures on
the written request or on the share certificate or accompanying stock
power, if required, as described under "How to Buy Shares--Signature
Guarantee";
(3) any share certificates issued for any of the shares to be redeemed (see
"Certificated Shares" below); and
(4) any additional documents which may be required by the Transfer Agent for
redemption by corporations, partnerships or other organizations, executors,
administrators, trustees, custodians or guardians, or if the redemption is
requested by anyone other than the shareholder(s) of record.
Transfers of shares are subject to the same requirements. A signature
guarantee is not required for a redemption requested by and payable to all
shareholders of record for the account that is to be sent to the address of
record for that account. To avoid delay in redemption or transfer, shareholders
having any questions about these requirements should contact the Transfer Agent
in writing or call the Distributor at 1-800-426-0107 before submitting a
request. Redemption or transfer requests will not be honored until all required
documents have been completed by the shareholder and received by the Transfer
Agent. This redemption option does not apply to shares held in broker "street
name" accounts. Shareholders whose shares are held in broker "street name"
accounts must redeem through their broker.
SG-27
<PAGE>
If the proceeds of the redemption (i) are to be paid to a person other than
the record owner, (ii) are to be sent to an address other than the address of
the account on the Transfer Agent's records or (iii) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed as
described above, except that the Distributor may waive the signature guarantee
requirement for redemptions up to $2,500 by a trustee of a qualified retirement
plan, the administrator for which has an agreement with the Distributor.
Telephone Redemptions
Each Trust accepts telephone requests for redemption of uncertificated
shares, except for investors who have specifically declined telephone redemption
privileges on the account application or elected in writing not to utilize
telephone redemptions. The proceeds of a telephone redemption will be sent to
the record shareholder at his record address. Changes in account information
must be made in a written authorization with a signature guarantee. See "How to
Buy Shares--Signature Guarantee." Telephone redemptions will not be accepted
during the 30-day period following any change in an account's record address.
This redemption option does not apply to shares held in broker "street name"
accounts. Shareholders whose shares are held in broker "street name" accounts
must redeem through their broker.
By completing an account application, an investor agrees that the
applicable Trust, the Distributor and the Transfer Agent shall not be liable for
any loss incurred by the investor by reason of the Trust accepting unauthorized
telephone redemption requests for his account if the Trust reasonably believes
the instructions to be genuine. Thus, shareholders risk possible losses in the
event of a telephone redemption not authorized by them. Each Trust may accept
telephone redemption instructions from any person identifying himself as the
owner of an account or the owner's broker where the owner has not declined in
writing to utilize this service. Each Trust will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and may be
liable for any losses due to unauthorized or fraudulent instructions if it fails
to employ such procedures. Each Trust will require a form of personal
identification prior to acting on a caller's telephone instructions, will
provide written confirmations of such transactions and will record telephone
instructions.
A shareholder making a telephone redemption should call the Distributor at
1-800-426-0107 and state (i) the name of the shareholder as it appears on the
Transfer Agent's records, (ii) his account number with the Trust, (iii) the
amount to be withdrawn and (iv) the name of the person requesting the
redemption. Usually the proceeds are sent to the investor on the next Trust
business day after the redemption is effected, provided the redemption request
is received prior to the close of regular trading (normally 4:00 p.m., Eastern
time) on the New York Stock Exchange that day. If the redemption request is
received after the close of the New York Stock Exchange, the redemption is
effected on the following Trust business day at that day's net asset value and
the proceeds are usually sent to the investor on the second following
SG-28
<PAGE>
Trust business day. Each Trust reserves the right to terminate or modify the
telephone redemption service at any time. During times of severe disruptions in
the securities markets, the volume of calls may make it difficult to redeem by
telephone, in which case a shareholder may wish to send a written request for
redemption as described under "Written Requests" above. Telephone communications
may be recorded by the Distributor or the Transfer Agent.
Fund Link Redemptions
If a shareholder has established Fund Link, the shareholder may redeem
shares by telephone and have the redemption proceeds sent to a designated
account at a financial institution. Fund Link is normally established within 45
days of receipt of a Fund Link application by the Transfer Agent. To use Fund
Link for redemptions, call the Distributor at 1-800-426-0107. Subject to the
limitations set forth above under "Telephone Redemptions," the Distributor, a
Trust and the Transfer Agent may rely on instructions by any registered owner
believed to be genuine and will not be responsible to any shareholder for any
loss, damage or expense arising out of such instructions. Requests received by
the Transfer Agent prior to the close of regular trading (normally 4:00 p.m.,
Eastern time) on the New York Stock Exchange on a business day will be processed
at the net asset value on that day and the proceeds (less any CDSC) will
normally be sent to the designated bank account on the following business day
and received by the bank on the second or third business day. If the redemption
request is received after the close of regular trading on the New York Stock
Exchange, the redemption is effected on the following business day. Shares
purchased by check may not be redeemed through Fund Link until such shares have
been owned (i.e., paid for) for at least 15 days. Fund Link may not be used to
redeem shares held in certificated form.
Changes in bank account information must be made by completing a new Fund
Link application, signed by all owners of record of the account, with all
signatures guaranteed. See "How to Buy Shares--Signature Guarantee." See "How to
Buy Shares--PIMCO Funds Fund Link" for information on establishing the Fund Link
privilege. Either Trust may terminate the Fund Link program at any time without
notice to its shareholders. This redemption option does not apply to shares held
in broker "street name" accounts. Shareholders whose shares are held in broker
"street name" accounts must redeem through their broker.
PIMCO Funds Automated Telephone System
PIMCO Funds Automated Telephone System ("ATS") is an automated telephone
system that enables shareholders to perform a number of account transactions
automatically using a touch-tone telephone. ATS may be used on already-
established Fund accounts after you obtain a Personal Identification Number
(PIN) by calling the special ATS number: 1-800-223-2413.
SG-29
<PAGE>
Purchasing Shares. You may purchase shares by telephone by calling 1-800-223-
2413. You must have established ATS privileges to link your bank account with
the Fund to pay for these purchases.
Exchanging Shares. With the PIMCO Funds Exchange Privilege, you can exchange
shares automatically by telephone from your Fund Link Account to another PIMCO
Funds account you have already established by calling 1-800-223-2413. Please
refer to "Exchange Privilege" for details.
Redemptions. You may redeem shares by telephone automatically by calling 1-
800-223-2413 and the Fund will send the proceeds directly to your Fund bank
account. Please refer to "How to Redeem" for details.
Expedited Wire Transfer Redemptions
If a shareholder has given authorization for expedited wire redemption,
shares can be redeemed and the proceeds sent by federal wire transfer to a
single previously designated bank account. Requests received by a Trust prior to
the close of the New York Stock Exchange will result in shares being redeemed
that day at the next determined net asset value (less any CDSC). Normally the
proceeds will be sent to the designated bank account the following business day.
The bank must be a member of the Federal Reserve wire system. Delivery of the
proceeds of a wire redemption request may be delayed by the applicable Trust for
up to 7 days if the Distributor deems it appropriate under then current market
conditions. Once authorization is on file with a Trust, such Trust will honor
requests by any person identifying himself as the owner of an account or the
owner's broker by telephone at 1-800-426-0107 or by written instructions. A
Trust cannot be responsible for the efficiency of the Federal Reserve wire
system or the shareholder's bank. Neither Trust currently charges for wire
transfers. The shareholder is responsible for any charges imposed by the
shareholder's bank. The minimum amount that may be wired is $2,500. Each Trust
reserves the right to change this minimum or to terminate the wire redemption
privilege. Shares purchased by check may not be redeemed by wire transfer until
such shares have been owned (i.e., paid for) for at least 15 days. Expedited
wire transfer redemptions may be authorized by completing a form available from
the Distributor. Wire redemptions may not be used to redeem shares in
certificated form. To change the name of the single bank account designated to
receive wire redemption proceeds, it is necessary to send a written request with
signatures guaranteed to PIMCO Funds Distributors LLC, P.O. Box 9688,
Providence, RI 02940-0926. See "How to Buy Shares--Signature Guarantee." This
redemption option does not apply to shares held in broker "street name"
accounts. Shareholders whose shares are held in broker "street name" accounts
must redeem through their broker.
SG-30
<PAGE>
Certificated Shares
To redeem shares for which certificates have been issued, the certificates
must be mailed to or deposited with the applicable Trust, duly endorsed or
accompanied by a duly endorsed stock power or by a written request for
redemption. Signatures must be guaranteed as described under "How to Buy Shares-
-Signature Guarantee." Further documentation may be requested from institutions
or fiduciary accounts, such as corporations, custodians (e.g., under the Uniform
Gifts to Minors Act), executors, administrators, trustees or guardians
("institutional account owners"). The redemption request and stock power must be
signed exactly as the account is registered, including indication of any special
capacity of the registered owner.
Automatic Withdrawal Plan
An investor who owns or buys shares of a Fund having a net asset value of
$10,000 or more may open an Automatic Withdrawal Plan and have a designated sum
of money (not less than $100 per Fund) paid monthly (or quarterly) to the
investor or another person. Such a plan may be established by completing the
appropriate section of the account application or by obtaining an Automatic
Withdrawal Plan application from the Distributor or your broker. If an Automatic
Withdrawal Plan is set up after the account is established providing for payment
to a person other than the record shareholder or to an address other than the
address of record, a signature guarantee is required. See "How to Buy Shares--
Signature Guarantee." Class A, Class B and Class C shares of any Fund are
deposited in a plan account and all distributions are reinvested in additional
shares of the particular class of the Fund at net asset value. Shares in a plan
account are then redeemed at net asset value (less any applicable CDSC) to make
each withdrawal payment. Any applicable CDSC may be waived for certain
redemptions under an Automatic Withdrawal Plan. See "Alternative Purchase
Arrangements--Waiver of Contingent Deferred Sales Charges."
Redemptions for the purpose of withdrawals are ordinarily made on the
business day preceding the day of payment at that day's closing net asset value
and checks are mailed on the day of payment selected by the shareholder. The
Transfer Agent may accelerate the redemption and check mailing date by one day
to avoid weekend delays. Payment will be made to any person the investor
designates; however, if the shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary, except in the case
of a profit-sharing or pension plan where payment will be made to the designee.
As withdrawal payments may include a return of principal, they cannot be
considered a guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with an Automatic Withdrawal Plan may result
in a gain or loss for tax purposes. Continued withdrawals in excess of income
will reduce and possibly exhaust invested principal, especially in the event of
a market decline. The maintenance of an Automatic Withdrawal Plan concurrently
with purchases of additional shares of the Fund would be disadvantageous to the
investor because of the CDSC that may become payable on such withdrawals in the
case of
SG-31
<PAGE>
Class A, Class B or Class C shares and because of the initial sales charge in
the case of Class A shares. For this reason, the minimum investment accepted for
a Fund while an Automatic Withdrawal Plan is in effect for that Fund is $1,000,
and an investor may not maintain a plan for the accumulation of shares of the
Fund (other than through reinvestment of distributions) and an Automatic
Withdrawal Plan at the same time. The Trust or the Distributor may terminate or
change the terms of the Automatic Withdrawal Plan at any time.
Because the Automatic Withdrawal Plan may involve invasion of capital,
investors should consider carefully with their own financial advisers whether
the plan and the specified amounts to be withdrawn are appropriate in their
circumstances. The Trust and the Distributor make no recommendations or
representations in this regard.
Redemptions In Kind
Each Trust agrees to redeem shares of its Funds solely in cash up to the
lesser of $250,000 or 1% of the Fund's net assets during any 90-day period for
any one shareholder. In consideration of the best interests of the remaining
shareholders, each Trust reserves the right to pay any redemption proceeds
exceeding this amount in whole or in part by a distribution in kind of
securities held by a Fund in lieu of cash. Except for Funds with a tax-
efficient management strategy, it is highly unlikely that shares would ever be
redeemed in kind. When shares are redeemed in kind, the redeeming shareholder
should expect to incur transaction costs upon the disposition of the securities
received in the distribution.
PIMCO Funds
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902-6896
1-800-426-0107
SG-32
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits.
The letter of each exhibit relates to the exhibit
designation in Form N-1A:
(a) Form of Second Amendment and Restated Agreement and
Declaration of Trust (2)
(b) (1) Form of Amended and Restated Bylaws (19).
(c) (1) Article III (Shares) and Article V (Shareholders' Voting
Powers and Meetings) of the Second Amended and Restated
Agreement and Declaration of Trust (2)
(2) Article 9 (Issuance of Shares Certificates) and Article 11
(Shareholders' Voting Powers and Meetings) of the Amended
and Restated Bylaws (19).
<PAGE>
(d) (1) (i) Form of Amended and Restated Investment Advisory
Agreement effective as of May 5, 2000 (19).
(ii) Form of Investment Advisory Agreement for PIMCO Select
Growth Fund for the period from March 31, 2000 to
May 5, 2000 (19).
(iii) Form of Investment Advisory Agreement for PIMCO Global
Innovation Fund for the period from April 3, 2000 to
May 5, 2000 (19).
(iv) Form of Addendum to Investment Advisory Agreement to
add the Cadence Capital Appreciation and Cadence Mid-
Cap Growth Funds, to be filed by amendment (19).
(v) Form of Addendum to Investment Advisory Agreement to
decrease the advisory fee rate with respect to PIMCO
Growth & Income Fund (f/k/a PIMCO Mid-Cap Equity Fund)
and to add the PIMCO Healthcare Innovation, PIMCO
Internet Innovation, PIMCO Small-Cap Technology, PIMCO
Telecom Innovation, PIMCO Electronics Innovation,
PIMCO/Allianz New Asia, PIMCO/Allianz Europe Growth,
PIMCO/Allianz Select World and PIMCO/Allianz Emerging
Markets Funds (19).
(2) (i) Form of Portfolio Management Agreement with NFJ
Investment Group (19).
(ii) Form of Portfolio Management Agreement with Cadence
Capital Management (19).
(iii) Form of Portfolio Management Agreement with
Parametric Portfolio Associates (19).
-2-
<PAGE>
(iv) Form of Portfolio Management Agreement with
Blairlogie Capital Management (19).
(v) Form of Portfolio Management Agreement with the
Sub-Adviser to the PIMCO/Allianz New Asia,
PIMCO/Allianz Europe Growth, PIMCO/Allianz
Select World and PIMCO/Allianz Emerging Markets
Funds (20).
(e) (1) Form of Distribution Contract (19).
(2) Form of Supplement to Distribution Contract to add
PIMCO Global Innovation Fund for the period from April
3, 2000 to May 5, 2000 (19).
(3) Form of Supplement to Distribution Contract to add the
Cadence Capital Appreciation and Cadence Mid-Cap Growth
Funds, to be filed by amendment (19).
(4) Form of Supplement to Distribution Contract to add the
PIMCO Growth & Income, PIMCO Healthcare Innovation,
PIMCO Internet Innovation, PIMCO Small-Cap Technology,
PIMCO Telecom Innovation, PIMCO Electronics Innovation,
PIMCO/Allianz New Asia, PIMCO/Allianz Europe Growth,
PIMCO/Allianz Select World and PIMCO/Allianz Emerging
Markets Funds (19).
(f) Not Applicable.
(g) (1) Form of Custody and Investment Accounting Agreement
dated January 1, 2000 with State Street Bank & Trust
Company (19).
(h) (1) Form of Amended and Restated Administration Agreement
between the Trust and PIMCO Advisors L.P. (19).
-3-
<PAGE>
(2) Form of Administration Agreement between PIMCO Advisors
L.P. and Pacific Investment Management Company (4)
(3) Form of Amendment to Administration Agreement (to
include Class D shares) between PIMCO Advisors L.P. and
Pacific Investment Management Company (11)
(4) Form of Agency Agreement and Addenda (1)
(5) Form of Addendum to Agency Agreement (4)
(6) Form of Assignment of Agency Agreement (4)
(7) Form of Addendum to Agency Agreement (6)
(8) (i) Form of Transfer Agency and Services Agreement with
National Financial Data Services, to be filed by
amendment.
(ii) Form of Transfer Agency and Services Agreement with
First Data Investor Services Group, Inc. dated
November 9, 1998, as amended July 20, 1999 (19).
(9) Form of Service Plan for Institutional Services Shares
(6)
(10) Form of Administrative Services Plan for Administrative
Class Shares (4)
(i) Opinion and Consent of Counsel (6)
(j) (1) Consents of PricewaterhouseCoopers LLP.
(i) Consent dated October 30, 2000 (20)
(ii) Consent dated November 13, 2000, filed herewith.
(iii) Letter dated October 26, 1999 from
PricewaterhouseCooopers LLP to the Securities and
Exchange Commission. (14)
(2) Consent and Opinion of Coopers & Lybrand LLP (6)
(k) Not Applicable
(l) Initial Capital Agreement (6)
(m) (1) Form of Distribution and Servicing Plan (Class A) (4)
(2) Form of Distribution and Servicing Plan (Class B) (4)
(3) Form of Distribution and Servicing Plan (Class C) (4)
(4) Form of Distribution Plan for Administrative Class
Shares (4)
-4-
<PAGE>
(5) Form of Distribution Plan for Class D Shares included as
part of the Form of Amended and Restated Administration
Agreement included in Exhibit 9(b)
(n) (a) Financial Data Schedules for the period ended
6/30/98 (11)
(b) Financial Data Schedules for the period ended
12/31/98 (12)
(o) Form of Amended and Restated Multi-Class Plan (7)
(p) (1) Code of Ethics of the Registrant (19)
(2) Code of Ethics of PIMCO Advisors L.P., Cadence Capital
Management, NFJ Investment Group and Parametric
Portfolio Associates (19)
(3) Code of Ethics of Blairlogie Capital Management (19)
(4) Code of Ethics of PIMCO Funds Distributors LLC (19)
(q) (1) Powers of Attorney and Certificate of Secretary (1)
(2) Power of Attorney for E. Philip Cannon, Donald P.
Carter, Gary A. Childress, William D. Cvengros, John P.
Hardaway, Joel Segall, W. Bryant Stooks, Gerald M.
Thorne, Richard L. Nelson, Lyman W. Porter and Alan
Richards (5)
(3) Power of Attorney for Kenneth M. Poovey (16)
--------------------
1 Included in Post-Effective Amendment No. 22 to the Trust's Registration
Statement on Form N-1A (File No. 33-36528), as filed on July 1, 1996.
2 Included in Definitive Proxy Statement of the Trust (File No. 811-06161),
as filed on November 7, 1996.
3 Included in Post-Effective Amendment No. 33 to the Trust's Registration
Statement on Form N-1A of PIMCO Advisors Funds (File No. 2-87203), as filed
on November 30, 1995.
4 Included in Post-Effective Amendment No. 25 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on January 13, 1997.
5 Included in Post-Effective Amendment No. 27 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on October 10, 1997.
6 Included in Post-Effective Amendment No.28 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on October 31, 1997.
7 Included in Post-Effective Amendment No. 30 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on March 13, 1998.
8 Included in Post-Effective Amendment No. 32 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on April 21, 1998.
9 Included in Post-Effective Amendment No. 33 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on June 30, 1998.
10. Included in Post-Effective Amendment No. 34 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on July 2, 1998.
11. Included in Post-Effective Amendment No. 36 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on October 30, 1998.
12. Included in Post-Effective Amendment No. 38 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on March 31, 1999.
13. Included in Post-Effective Amendment No. 39 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on May 25, 1999.
14. Included in Post-Effective Amendment No. 43 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on October 29, 1999.
15. Included in Post-Effective Amendment No. 44 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on December 14, 1999.
16. Included in Post-Effective Amendment No. 46 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on March 27, 2000.
17. Included in Post-Effective Amendment No. 47 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on March 31, 2000.
18. Included in Post-Effective Amendment No. 50 to the Trust's Registration
19. Included in Post-Effective Amendment No. 51 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on August 17, 2000.
20. Included in Post-Effective Amendment No. 53 to the Trust's Registration
Statement on Form N-1A (File 33-36528), as filed on October 31, 2000.
-5-
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 25. Indemnification
Reference is made to Article VIII, Section 1, of the Registrant's Second
Amended and Restated Agreement and Declaration of Trust, which is incorporated
by reference herein.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to trustees, officers and
controlling persons of the Registrant by the Registrant pursuant to the Trust's
Second Amended and Restated Agreement and Declaration of Trust, its By-Laws or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers or controlling
persons of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustees, officers or controlling persons in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Advisor and Portfolio
Managers.
Unless otherwise stated, the principal business address of each
organization listed in 800 Newport Center Drive, Newport Beach, CA 92660.
PIMCO Advisors L.P.
Name Position with Advisor Other Affiliations
Joachim Faber, Dr. Chief Executive Officer Member of the Board
and Member of the of Allianz AG
Executive Committee
Udo Frank Managing Director; Managing Director and Chief
Chief Investment Officer Investment Officer of Allianz
of U.S. Equity Division Asset Advisory and Management
and Member of the GmbH
Executive Committee
Robert M. Fitzgerald Executive Vice President Chief Financial Officer and
and Chief Treasurer, PIMCO Funds
Financial Officer Distributors LLC, Cadence
Capital Management, Inc., NFJ
Investment Group, NFJ
Management, Inc., Parametric
Portfolio Associates,
Parametric Management, Inc.,
Pacific Investment
Management Company LLC and
StocksPLUS Management, Inc.;
Chief Financial Officer,
Cadence Capital Management;
Executive Vice President
and Chief Financial Officer,
Value Advisors LLC; and Chief
Financial Officer PIMCO
Funds Advertising Agency.
Kenneth M. Poovey Managing Director; Chief Chief Executive Officer,
Executive Officer of U.S. Value Advisors LLC,
Equity Division of PIMCO Oppenheimer Capital; Trustee
Advisors and Member of of the Trust.
the Executive committee
Marcus Reiss Member of the To be provided.
Executive Committee
William S. Member of the Executive Chief Executive Officer and
Thompson, Jr. Committee & Chief Executive Managing Director, Pacific
Officer Investment Management Company
LLC; Member, President and
Chief Executive Officer,
PIMCO Partners LLC; Director
and President, StocksPlus
Management, Inc.; Vice
President, PIMCO Variable
Insurance Trust, PIMCO
Funds: Pacific Investment
Management Series and PIMCO
Commercial Mortgage
Securities Trust, Inc.
Stephen J. Treadway Managing Director Chairman, President, and
Chief Executive Officer,
PIMCO Funds Advertising
Agency, Inc., PIMCO Funds
Distributors LLC.
James G. Ward Executive Vice President, Executive Vice President,
Human Resources Human Resources,
Value Advisors LLC.
Andrew Bocko Director of None.
Information Technology
Vinh T. Nguyen Controller Vice President and
Controller, Cadence Capital
Management, Inc., NFJ
Management, Inc., Parametric
Management, Inc., StocksPLUS
Management, Inc., PIMCO Funds
Advertising Agency, Inc.,
PIMCO Funds Distributors LLC,
and Value Advisors LLC;
Controller, Pacific
Investment Management
Company LLC.
Stewart A. Smith Secretary Secretary, NFJ Investment
Group, Parametric Portfolio
Associates; Assistant
Secretary, Cadence Capital
Management.
-6-
<PAGE>
Cadence Capital Management
Exchange Place, 53 State Street
Boston, Massachusetts 02109
Name Position with Portfolio Other Affiliations
Manager
William B. Bannick Managing Director and Director and Managing
Executive Vice President Director, Cadence Capital
Management, Inc.
David B. Breed Managing Director and Director, Managing Director
and Chief Executive Officer,
Cadence Capital Management,
Inc.
Katherine A. Burdon Managing Director None.
Bart J. O'Connor Managing Director None.
Michael J. Skillman Managing Director None.
Wayne A. Wicker Managing Director None.
Robert M. Fitzgerald Chief Financial Officer See PIMCO Advisors L.P.
and Assistant Treasurer
Barbara M. Green Treasurer None.
Mary Ellen Melendez Secretary None.
Stewart A. Smith Assistant Secretary See PIMCO Advisors L.P.
NFJ Investment Group
2121 San Jacinto, Suite 1440
Dallas, Texas 75201
Name Position with Portfolio Other Affiliations
Manager
Benno J. Fischer Managing Director Director, Managing
Director, and Co-Chairman,
NFJ Management, Inc.
Robert M. Fitzgerald Chief Financial Officer See PIMCO Advisors L.P.
and Treasurer
John L. Johnson Managing Director Director, and Co-Chairman
Managing Director, NFJ
Management, Inc.
Jack C. Najork Managing Director Director, Managing
Director, Co-Chairman, NFJ
Management, Inc.
Stewart A. Smith Secretary See PIMCO Advisors L.P.
Vinh T. Nguyen Vice President and See PIMCO Advisors L.P.
Controller
-7-
<PAGE>
Parametric Portfolio Associates
7310 Columbia Center, 701 Fifth Avenue,
Seattle, Washington 98104-7090
Name Position with Portfolio Manager Other Affiliations
William E. Cornelius Managing Director Director, Managing
Chief Executive
Officer Parametric
Management, Inc.
David M. Stein Managing Director Director and
Managing Director,
Parametric
Management, Inc.
Brian Langstraat Managing Director None.
Robert M. Fitzgerald Chief Financial Officer and See PIMCO Advisors
Treasurer L.P.
Stewart A. Smith Secretary See PIMCO Advisors
L.P.
Vinh T. Nguyen Vice President and Controller See PIMCO Advisors
L.P.
Blairlogie Capital Management, Limited
4th Floor, 125 Princes Street
Edinburgh EH2 4AD, Scotland
Name Position with Portfolio Other Affiliations
Manager
Gavin R. Dobson Chief Executive Officer Director and Chief
and Managing Director Executive Officer,
Blairlogie Holdings
Limited (U.K.).
James G. S. Smith Chief Investment Officer Director and Chief
and Managing Director Investment Officer
Blairlogie Holdings
Limited (U.K.).
-8-
<PAGE>
Item 27. Principal Underwriters.
(a) PIMCO Funds Distributors LLC (the "Distributor") serves as
Distributor of shares for the Registrant and also of PIMCO Funds:
Pacific Investment Management Series. The Distributor is a wholly
owned subsidiary of PIMCO Advisors L.P., the Registrant's Adviser.
(b)
Positions and Positions
Name and Principal Offices with and Offices
Business Address* Underwriter with Registrant
Erik M. Aarts Vice President None
James D. Bosch Regional Vice President None
Deborah P. Brennan Vice President, None
Compliance Officer
Timothy R. Clark Executive Vice President None
Lesley Cotton Vice President None
Kelly Crean Regional Vice President None
Paul DeNicolo Regional Vice President None
Jonathan P. Fessel Regional Vice President None
Robert M. Fitzgerald Chief Financial Officer None
and Treasurer
Michael J. Gallagher Regional Vice President None
Joseph Gengo Regional Vice President None
Ronald H. Gray Regional Vice President None
Dan Hally Regional Vice President None
Ned Hammond Regional Vice President None
Charles Hano Regional Vice President None
Derek B. Hayes Vice President None
Christopher Horan Regional Vice President None
Kristina Hooper Vice President None
John B. Hussey Regional Vice President None
Brian Jacobs Senior Vice President None
Stephen R. Jobe Senior Vice President None
-9-
<PAGE>
William E. Lynch Senior Vice President None
Stephen Maginn Executive Vice President None
Wayne Meyer Regional Vice President None
Andrew J. Meyers Executive Vice President None
George Murphy Regional Vice President None
Kerry A. Murphy Vice President None
Fiora N. Moyer Regional Vice President None
Philip J. Neugebauer Senior Vice President None
Vinh T. Nguyen Vice President, Controller None
Joffrey H. Pearlman Regional Vice President None
Glynne P. Pisapia Regional Vice President None
Francis C. Poli Vice President, None
Compliance Officer
J. Scott Rose Regional Vice President None
Anne Marie Russo Vice President None
Keith Schlingheyde Regional Vice President None
Newton B. Schott, Jr. Executive Vice President, Vice President and
Chief Administrative Secretary
Officer, Chief Legal
Officer and Secretary
Elizabeth Ellsworth Vice President None
Eugene M. Smith Jr. Vice President None
Robert M. Smith Regional Vice President None
Zinovia Spezakis Vice President None
William H. Thomas, Jr. Senior Vice President None
Stephen J. Treadway Chairman, President and None
Chief Executive Officer
Paul H. Troyer Senior Vice President None
Theresa Vlachos Vice President None
Richard M. Weil Assistant Secretary None
Glen A. Zimmerman Vice President None
-----------------------
Principal business address for all individuals listed is 2187 Atlantic
Street, Stamford, CT 06902 or 800 Newport Center Drive, Newport Beach, CA 92660.
(c) The Registrant has no principal underwriter that is not an affiliated
person of the Registrant or an affiliated person of such an
affiliated person.
Item 28. Location of Accounts and Records.
The account books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of State Street Bank &
Trust Co., 21 West 10th Street, Kansas City, Missouri 64105, National
Financial Data Services, 330 W. 9th Street, 4th Floor, Kansas City, Missouri
64105, and/or PFPC Inc., PO Box 9688, Providence,
Rhode Island 02940.
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
-10-
<PAGE>
NOTICE
------
A copy of the Agreement and Declaration of Trust of PIMCO Funds: Multi-
Manager Series (the "Trust"), together with all amendments thereto, is on file
with the Secretary of State of The Commonwealth of Massachusetts and notice is
hereby given that this instrument is executed on behalf of the Trust by an
officer of the Trust as an officer and not individually and that the obligations
of or arising out of this instrument are not binding upon any of the Trustees of
the Trust or shareholders of any series of the Trust individually but are
binding only upon the assets and property of the Trust or the respective series.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement under Rule
485(b) under the Securities Act and has duly caused this Post-Effective
Amendment 54 (the "Amendment") to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Stamford, and
the State of Connecticut on the 13th day of November, 2000.
PIMCO FUNDS: MULTI-MANAGER SERIES
By: /s/ Stephen J. Treadway
-----------------------
Stephen J. Treadway,
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 54 has been signed below by the following persons
in the capacities and on the dates indicated.
Name Capacity Date
---- -------- ----
/s/ Stephen J. Treadway Trustee and President November 13, 2000
-----------------------
Stephen J. Treadway
* Treasurer and Principal
----------------------- Financial and Accounting
John P. Hardaway Officer
* Trustee
-----------------------
Donald P. Carter
* Trustee
-----------------------
E. Philip Cannon
* Trustee
-----------------------
Gary A. Childress
* Trustee
-----------------------
Richard L. Nelson
* Trustee
-----------------------
Kenneth M. Poovey
* Trustee
-----------------------
Lyman W. Porter
* Trustee
-----------------------
Alan Richards
* Trustee
-----------------------
W. Bryant Stooks
* Trustee
-----------------------
Gerald M. Thorne
* By: /s/ Stephen J. Treadway
-----------------------
Stephen J. Treadway,
Attorney-In-Fact
Date: November 13, 2000
<PAGE>
Exhibit Index
Exhibit No. Name
----------- -----------------------------------------
(j)(ii) Consent of PricewaterhouseCoopers LLP
