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PIMCO FUNDS: MULTI-MANAGER SERIES
STATEMENT OF ADDITIONAL INFORMATION
April 3, 2000, as revised June 1, 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 April 3, 2000. Class D shares of certain Funds are offered
through the "Class D Prospectus," dated June 1, 2000. Institutional and
Administrative Class shares of certain Funds are offered through two separate
prospectuses, the "Trust Institutional Prospectus," dated April 3, 2000, and the
"NFJ Institutional Prospectus," to be dated April 12, 2000 (together, the
"Institutional Prospectus"). Class A, Class B and Class C shares of the
Portfolios are offered through the "Retail Portfolio Prospectus," dated April 3,
2000, and Institutional and Administrative Class Shares of the Portfolios are
offered through the "Institutional Portfolio Prospectus," dated April 3, 2000.
The Class A, B and C Prospectus, the Class D Prospectus, the Institutional
Prospectus, the Retail Portfolio Prospectus and the Institutional Portfolio
Prospectus are collectively referred to herein as the "Prospectuses."
Audited financial statements for the Trust, as of June 30, 1999, including
notes thereto, and the reports of PricewaterhouseCoopers LLP thereon, are
incorporated herein by reference from the Trust's five June 30, 1999 Annual
Reports. Unaudited financial statements for the PIMCO Select Growth and Target
Funds only are incorporated herein by reference from the Trust's December 31,
1999 Semi-Annual Reports for Institutional and Administrative Class shares and
for Class A, B and C shares (collectively, the "Semi-Annual Reports"). No
financial information for any other series of the Trust is incorporated herein
by reference from the Semi-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 March
31, 2000 and as from time to time amended or supplemented (the "PIMS
Prospectus"), and the PIMS Statement of Additional Information, dated March 31,
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.
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Institutional and Institutional Class A, B and C, Class D,
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Portfolio Prospectuses, and Retail Portfolio Prospectuses,
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Annual Reports, Semi-Annual Reports Annual Reports, Semi-Annual Reports,
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and the PIMS the Guide and
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Prospectus and Statement of Statement of Additional
--------------------------- -----------------------
Additional Information Information
---------------------- -----------
PIMCO Funds PIMCO Funds Distributors LLC
840 Newport Center Drive 2187 Atlantic Street
Suite 300 Stamford, Connecticut 06902
Newport Beach, California 92660 Telephone: Class A, B and C - 1-800-426-0107
Telephone: 1-800-927-4648 Class D - 1-888-87-PIMCO
1-800-987-4626 (PIMCO Retail Portfolio - 1-800-426-0107
Infolink Audio Response Network)
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TABLE OF CONTENTS
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THE TRUST................................................................................. 1
INVESTMENT OBJECTIVES AND POLICIES........................................................ 1
U.S. Government Securities....................................................... 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.................................................. 24
Repurchase Agreements............................................................ 25
Securities Loans................................................................. 25
Stocks of Small and Medium Capitalization Companies.............................. 25
Illiquid Securities.............................................................. 26
Inflation-Indexed Bonds.......................................................... 26
Delayed Funding Loans and Revolving Credit Facilities............................ 27
Catastrophe 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................................................................... 34
Trustees and Officers............................................................ 34
Trustees' Compensation........................................................... 37
Investment Adviser............................................................... 38
Portfolio Management Agreements.................................................. 42
Fund Administrator............................................................... 45
DISTRIBUTION OF TRUST SHARES.............................................................. 49
Distributor and Multi-Class Plan................................................. 49
Distribution and Servicing Plans for Class A, Class B and Class C Shares......... 51
Payments Pursuant to Class A Plans............................................... 54
Payments Pursuant to Class B Plans............................................... 56
Payments Pursuant to Class C Plans............................................... 57
Distribution and Administrative Services Plans for Administrative Class Shares... 62
Payments Pursuant to the Administrative Plans.................................... 64
Plan for Class D Shares.......................................................... 65
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Purchases, Exchanges and Redemptions............................................. 68
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................................... 69
Investment Decisions and Portfolio Transactions.................................. 69
Brokerage and Research Services.................................................. 70
Portfolio Turnover............................................................... 72
NET ASSET VALUE........................................................................... 73
TAXATION.................................................................................. 74
Distributions.................................................................... 75
Sales of Shares.................................................................. 76
Backup Withholding............................................................... 77
Options, Futures, Forward Contracts and Swap Agreements.......................... 77
Foreign Currency Transactions.................................................... 77
Foreign Taxation................................................................. 77
Original Issue Discount and Pay-In-Kind Securities............................... 78
Other Taxation................................................................... 79
OTHER INFORMATION......................................................................... 79
Capitalization................................................................... 79
Performance Information.......................................................... 80
Calculation of Yield............................................................. 81
Calculation of Total Return...................................................... 82
Compliance Efforts Related to the Euro........................................... 98
Voting Rights.................................................................... 98
Certain Ownership of Trust Shares................................................ 98
Custodian........................................................................ 126
Code of Ethics................................................................... 127
Independent Accountants.......................................................... 127
Transfer and Shareholder Servicing Agents........................................ 127
Legal Counsel.................................................................... 127
Registration Statement........................................................... 127
Financial Statements............................................................. 127
APPENDIX -- DESCRIPTION OF SECURITIES RATINGS............................................. A-1
PIMCO FUNDS SHAREHOLDERS' GUIDE FOR CLASS A, B AND C SHARES............................... SG-1
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THE TRUST
PIMCO Funds: Multi-Manager Series (the "Trust"), is an open-end
management investment company ("mutual fund") that currently consists of
twenty-eight separate diversified investment series that are operational and
offer their shares to the public. The following twenty-five 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 Mid-Cap Equity Fund,
the Target Fund, the Small-Cap Value Fund, the Small-Cap Fund (f/k/a the
"Small-Cap Growth 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 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.
The PIMCO Tax Exempt, International Developed, Emerging Markets,
Balanced and Precious Metals 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 Company"), in a transaction which took place on
June 26, 1998. The Tax Exempt Fund was liquidated in connection with the
transaction and is no longer a series of the Trust. The International Developed
and Emerging Markets Funds reorganized with and into newly-formed series of
Alleghany Funds in a transaction which took place on April 30, 1999. The
International Developed and Emerging Markets Funds were liquidated in connection
with the transaction and are no longer series of the Trust. The Balanced Fund
reorganized with and into the Strategic Balanced Fund of PIMS in a transaction
which took place on September 17, 1999. The Balanced Fund was liquidated in
connection with the transaction and is no longer a series of the Trust. The
Precious Metals Fund was liquidated on March 3, 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 which 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 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.
Prior to April, 2000, the Select Growth, Mid-Cap, Small-Cap and
Micro-Cap Funds were named the Core Equity, Mid-Cap Growth, Small Cap Growth and
Micro-Cap Growth Funds, respectively.
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.
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
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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
Investment Company Act of 1940, as amended ("1940 Act"), require a Fund to
maintain continuous asset coverage (that is, total assets including borrowings,
less liabilities exclusive of borrowings) of 300% of the amount borrowed, with
an exception for borrowings not in excess of 5% of the Fund's total assets made
for temporary administrative purposes. 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
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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.
Among the corporate debt securities in which the Funds may invest are
convertible securities. A convertible debt security is a bond, debenture, note,
or other security that entitles the holder to acquire common stock or other
equity securities of the same or a different issuer. A convertible security
generally entitles the holder to receive interest paid or accrued until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
non-convertible debt securities. Convertible securities rank senior to common
stock in a corporation's capital structure and, therefore, generally entail less
risk than the corporation's common stock.
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A convertible security may be subject to redemption at the option of
the issuer at a predetermined price. If a convertible security held by a Fund is
called for redemption, the Fund would be required to permit the issuer to redeem
the security and convert it to underlying common stock, or would sell the
convertible security to a third party.
High Yield Securities ("Junk Bonds")
Certain of the Funds may invest in debt/fixed income securities of
domestic or foreign issuers that meet minimum ratings criteria set forth for a
Fund, or, if unrated, are of comparable quality in the opinion of the Fund's
Sub-Adviser. A description of the ratings categories used is set forth in the
Appendix to this Statement of Additional Information.
A security is considered to be below "investment grade" quality if it
is either (1) not rated in one of the four highest rating categories by one of
the Nationally Recognized Statistical Rating Organizations ("NRSROs") (i.e.,
rated Ba or below by Moody's Investors Service, Inc. ("Moody's") or BB or below
by Standard & Poor's Ratings Services ("S&P")) or (2) if unrated, determined by
the relevant Sub-Adviser to be of comparable quality to obligations so rated.
Certain Funds may invest a portion of their assets in fixed income
securities rated lower than Baa by Moody's or lower than BBB by S&P but rated at
least B by Moody's or S&P or, if not rated, determined by the Sub-Adviser to be
of comparable quality. In addition, certain of these Funds may invest in
convertible securities rated below B by Moody's or S&P (or, if unrated,
considered by the Sub-Adviser to be of comparable quality). Securities rated
lower than Baa by Moody's or lower than BBB by S&P are sometimes referred to as
"high yield" or "junk" bonds. Investors should consider the risks associated
with high yield securities before investing in these Funds. Although each of the
Funds that invests in high yield securities reserves the right to do so at any
time, as of the date of this Statement of Additional Information, none of these
Funds invest or has the present intention to invest more than 5% of its assets
in high yield securities or junk bonds. Investment in high yield securities
generally provides greater income and increased opportunity for capital
appreciation than investments in higher quality securities, but it also
typically entails greater price volatility as well as principal and income risk.
High yield securities are regarded as predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments. The
market for these securities is relatively new, and many of the outstanding high
yield securities have not endured a major business recession. A long-term track
record on default rates, such as that for investment grade corporate bonds, does
not exist for this market. Analysis of the creditworthiness of issuers of high
yield securities may be more complex than for issuers of higher quality
debt/fixed income securities. Each Fund of the Trust that may purchase high
yield securities may continue to hold such securities following a decline in
their rating if in the opinion of the Adviser or the Sub-Adviser, as the case
may be, it would be advantageous to do so. Investments in high yield securities
that are eligible for purchase by certain of the Funds are described as
"speculative" by both Moody's and S&P.
Investing in high yield securities involves special risks in addition
to the risks associated with investments in higher rated fixed income
securities. While offering a greater potential opportunity for capital
appreciation and higher yields than investments in higher rated debt securities,
high yield securities typically entail greater potential price volatility and
may be less liquid than investment grade debt. High yield securities may be
regarded as predominately speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Analysis of the
creditworthiness of issuers of high yield securities may be more complex than
for issuers of higher quality debt securities, and achievement of a Fund's
investment objective may, to the extent of its investments in high yield
securities, depend more heavily on the Sub-Adviser's creditworthiness analysis
than would be the case if the Fund were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of high yield securities are likely to be sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the
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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.
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.
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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
depending part upon the ability of the Sub-Adviser to forecast interest rates
and other economic factors correctly. See "Mortgage Pass-Through Securities"
below. Certain debt securities are also secured with collateral consisting of
mortgage-related securities. See "Collateralized Mortgage Obligations" below.
Mortgage Pass-Through Securities. Mortgage Pass-Through Securities are
securities representing interests in "pools" of mortgage loans secured by
residential or commercial real property. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or
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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 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
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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 certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begin to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
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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.
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
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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 offered to investors, including Certificates for Automobile
ReceivablesSM ("CARSSM"). CARSSM represent undivided fractional interests in a
trust whose assets consist of a pool of motor vehicle retail installment sales
contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARSSM are passed through monthly to
certificate holders, and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the trust. An investor's return on CARSSM may
be affected by early prepayment of principal on the underlying vehicle sales
contracts. If the letter of credit is exhausted, the trust may be prevented from
realizing the full amount due on a sales contract because of state law
requirements and restrictions relating to foreclosure sales of vehicles and the
obtaining of deficiency judgments following such sales or because of
depreciation, damage or loss
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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, including the Renaissance Fund, may invest in so-called
"synthetic convertible securities," which are composed of two or more different
securities whose investment characteristics, taken together, resemble those of
convertible securities. For example, the Renaissance Fund may purchase a
non-convertible debt security and a warrant or option. The synthetic convertible
differs from the true convertible security in several respects. Unlike a true
convertible security, which is a single security having a unitary market value,
a synthetic convertible comprises two or more separate securities, each with its
own market value. Therefore, the "market value" of a synthetic convertible is
the sum of the values of its fixed income component and its convertible
component. For this reason, the values of a synthetic convertible and a true
convertible security may respond differently to market fluctuations.
Equity-Linked Securities
Each of the Structured Emerging Markets and Tax-Efficient Structured
Emerging Markets Funds may invest up to 15% of its net assets in equity-linked
securities. 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, International Growth, 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 governments or their subdivisions,
agencies and instrumentalities, international agencies and supranational
entities. The Structured Emerging Markets, Tax-Efficient Structured Emerging
Markets, International Growth, International and Global Innovation Funds may
also invest in common stocks issued by foreign companies. The Equity Income,
Value, Renaissance, Select Growth, Mid-Cap Equity, Growth, Target, Opportunity
and Innovation Funds each may invest up to 15% of their respective net assets in
securities which are traded principally in securities markets outside the United
States (Eurodollar certificates of deposit are excluded for purposes of these
limitations), and may invest without limit in securities of foreign issuers that
are traded in U.S. securities markets.
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The Enhanced Equity Fund may invest in common stock of foreign issuers if it is
included in the index from which stocks are selected.
Each of the Funds may invest in American Depository Receipts
("ADRs"). The Equity Income, Value, Renaissance, Growth, Target, Select Growth,
Mid-Cap Equity, Opportunity, Innovation, Structured Emerging Markets,
Tax-Efficient Structured Emerging Markets, International Growth, 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, 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.
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Special Risks of Investing in Russian and Other Eastern European
Securities. The International, Global Innovation, International Growth,
Tax-Efficient Structured Emerging Markets and Structured Emerging Markets Funds
may invest a portion of their assets in securities of issuers located in Russia
and in other Eastern European countries. The political, legal and operational
risks of investing in the securities of Russian and other Eastern European
issuers, and of having assets custodied within these countries, may be
particularly acute. Investments in Eastern European countries may involve acute
risks of nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. Also, certain Eastern European countries, which do not have market
economies, are characterized by an absence of developed legal structures
governing private and foreign investments and private property.
In addition, governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
a Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the 1940 Act
to act as foreign custodians of the Fund's cash and securities, the Fund's
investment in such countries may be limited or may be required to be effected
through intermediaries. The risk of loss through governmental confiscation may
be increased in such circumstances.
Investments in securities of Russian issuers may involve a particularly
high degree of risk and special considerations not typically associated with
investing in U.S. and other more developed markets, many of which stem from
Russia's continuing political and economic instability and the slow-paced
development of its market economy. Investments in Russian securities should be
considered highly speculative. Such risks and special considerations include:
(a) delays in settling portfolio transactions and the risk of loss arising out
of Russia's system of share registration and custody (see below); (b)
pervasiveness of corruption, insider trading, and crime in the Russian economic
system; (c) difficulties associated in obtaining accurate market valuations of
many Russian securities, based partly on the limited amount of publicly
available information; (d) the general financial condition of Russian companies,
which may involve particularly large amounts of inter-company debt; and (e) the
risk that the Russian tax system will not be reformed to prevent inconsistent,
retroactive and/or exorbitant taxation or, in the alternative, the risk that a
reformed tax system may result in the inconsistent and unpredictable enforcement
of the new tax laws. Also, there is the risk that the government of Russia or
other executive or legislative bodies may decide not to continue to support the
economic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries at the expense of other sectors or investors, a
return to the centrally planned economy that existed prior to the dissolution of
the Soviet Union, or the nationalization of privatized enterprises.
A risk of particular note with respect to direct investment in Russian
securities is the way in which ownership of shares of companies is normally
recorded. Ownership of shares (except where shares are held through depositories
that meet the requirements of the 1940 Act) is defined according to entries in
the company's share register and normally evidenced by "share extracts" from the
register or, in certain limited circumstances, by formal share certificates.
However, there is no central registration system for shareholders and these
services are carried out by the companies themselves or by registrars located
throughout Russia. The share registrars are controlled by the issuer of the
securities, and investors are provided with few legal rights against such
registrars. These registrars are not necessarily subject to effective state
supervision nor are they licensed with any governmental entity. It is possible
for a Fund to lose its registration through fraud, negligence or even mere
oversight. While a Fund will endeavor to ensure that its interest continues to
be appropriately recorded, which may involve a custodian or other agent
inspecting the share register and obtaining extracts of share registers through
regular confirmations, these extracts have no legal enforceability and it is
possible that subsequent illegal amendment or other fraudulent act may deprive
the Fund of its ownership rights or improperly dilute its interests. In
addition, while applicable Russian regulations impose liability on registrars
for losses resulting from their errors, it may be difficult for a Fund to
enforce any rights it may have against the registrar or issuer of the securities
in the event of loss of share registration.
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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, Mid-Cap Equity,
Growth, Target, Opportunity, Innovation, International, International Growth,
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, International Growth
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, International Growth, Structured
Emerging Markets and Tax-Efficient Structured Emerging Markets Funds may also
enter into forward foreign currency exchange contracts for purposes of
increasing exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one currency to another. To the extent that they do
so, the International, Global Innovation, International Growth, Structured
Emerging Markets and Tax-Efficient Structured Emerging Markets Funds will be
subject to the additional risk that the relative value of currencies will be
different than anticipated by the particular Fund's Sub-Adviser. A Fund may use
one currency (or a basket of currencies) to hedge against adverse changes in the
value of another currency (or a basket of currencies) when exchange rates
between the two currencies are positively correlated. A Fund will segregate
assets determined to be liquid by the Adviser or a Sub-Adviser in accordance
with procedures established by the Board of Trustees to cover forward currency
contracts entered into for non-hedging purposes. The Funds may also use foreign
currency futures contracts and related options on currencies for the same
reasons for which forward foreign currency exchange contracts are used.
Special Risks Associated with the Introduction of the Euro. The
introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the European Economic and Monetary Union
presents unique uncertainties for European securities in the markets in which
they trade and with respect to the operation of the Funds that invest in
securities denominated in European currencies and other European securities. The
introduction of the euro will result in the redenomination of European debt and
equity securities over a period of time. Uncertainties raised by the
introduction of the euro include whether the payment and operational systems
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of banks and other financial institutions will function correctly, whether
clearing and settlement payment systems developed for the new currency will be
suitable, the valuation and legal treatment of outstanding financial contracts
after January 1, 1999 that refer to existing currencies rather than the euro,
and possible adverse accounting or tax consequences that may arise from the
transition to the euro. These or other factors could cause market disruptions
and could adversely affect the value of securities and foreign currencies held
by the Funds.
Bank Obligations
Bank obligations in which the Funds may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. A Fund will not invest in
fixed time deposits which (1) are not subject to prepayment or (2) provide for
withdrawal penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more than 15% of its net assets (taken at market value at the time of
investment) would be invested in such deposits, repurchase agreements maturing
in more than seven days and other illiquid assets. Each Fund may also hold funds
on deposit with its sub-custodian bank in an interest-bearing account for
temporary purposes.
Each Fund limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. A Fund
also may invest in certificates of deposit of savings and loan associations
(federally or state chartered and federally insured) having total assets in
excess of $1 billion.
The Equity Income, Value, Renaissance, Growth, Target, Select Growth,
Mid-Cap Equity, Opportunity, Innovation, International, Structured Emerging
Markets, Tax-Efficient Structured Emerging Markets, International Growth 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.
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
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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, Mid-Cap Equity, Opportunity, Innovation,
Structured Emerging Markets, Tax-Efficient Structured Emerging Markets,
International, International Growth 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.
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
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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 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
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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, Mid-Cap Equity, Target, Opportunity, Innovation, International,
International Growth 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.
There can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position. Similarly, if restrictions on exercise were imposed, the Fund
might be unable to exercise an option it has purchased. Except to the extent
that a call option on an index written by the Fund is covered by an option on
the same index purchased by the Fund, movements in the index may result in a
loss to the Fund; however, such losses may be mitigated by changes in the value
of the Fund's securities during the period the option was outstanding.
For each of the International, International Growth, Renaissance,
Growth, Target, Opportunity and Innovation Funds, in the case of a written call
option on a securities index, the Fund will own corresponding securities whose
historic volatility correlates with that of the index.
Foreign Currency Options. The Equity Income, Global Innovation, Growth,
Innovation, International, International Growth, Mid-Cap Equity, Opportunity,
Renaissance, Select Growth, Structured Emerging Markets,
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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, International
Growth, Mid-Cap Equity, 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, International Growth, Mid-Cap Equity,
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, International Growth, Structured Emerging
Markets and Tax-Efficient Structured Emerging Markets Funds may invest to a
significant degree in Index Futures on stock indexes and related options
(including those which may trade outside of the United States) as an alternative
to purchasing individual stocks in order to adjust the Fund's exposure to a
particular market. These Funds may invest in Index Futures and related options
when a Sub-Adviser believes that there are not enough attractive securities
available to maintain the standards of diversification and liquidity set for a
Fund pending investment in such securities if or when they do become available.
Through the use of Index Futures and related options, a Fund may diversify risk
in its portfolio without incurring the substantial brokerage costs which may be
associated with investment in the securities of multiple issuers. A Fund may
also avoid potential market and liquidity problems which may result from
increases in positions already held by the Fund.
An interest rate, foreign currency or index futures contract provides
for the future sale by one party and purchase by another party of a specified
quantity of a financial instrument, foreign currency or the cash value of an
index at a specified price and time. An Index Future is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to
the difference between the value of a securities index ("Index") at the close of
the last trading day of the contract and the price at which the index contract
was originally written. Although the value of an Index might be a function of
the value of certain specified securities, no physical delivery of these
securities is made. A unit is the value of the relevant Index from time to time.
Entering into a contract to buy units is commonly referred to as buying or
purchasing a contract or holding a long position in an Index. Index Futures
contracts can be traded through all major commodity brokers. A Fund's purchase
and sale of Index Futures is limited to contracts and exchanges which have been
approved by the CFTC. A Fund will ordinarily be able to close open positions on
the futures exchange on which Index Futures are then traded at any time up to
and including the expiration day. As described below, a Fund will be required to
segregate initial margin in the name of the futures broker upon entering into an
Index Future. Variation margin will be paid to and received from the broker on a
daily basis as the contracts are marked to market. For example, when a Fund has
purchased an Index Future and the price of the relevant Index has risen, that
position will have increased in value and the Fund will receive from the broker
a variation margin payment equal to that increase in value. Conversely, when a
Fund has purchased an Index Future and the price of the relevant Index has
declined, the position would be less valuable and the Fund would be required to
make a variation margin payment to the broker.
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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 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
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broker of the amount one would owe the other if the futures contract expired. In
computing daily net asset value, each Fund will mark to market its open futures
positions.
A Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (i.e.,
with the same exchange, underlying security or index, and delivery month). If an
offsetting purchase price is less than the original sale price, the Fund
realizes a capital gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund realizes a capital gain, or if it is less, the Fund realizes a
capital loss. Any transaction costs must also be included in these calculations.
Limitations on Use of Futures and Futures Options. The Funds may only
enter into futures contracts or futures options which are standardized and
traded on a U.S. or foreign exchange or board of trade, or similar entity, or
quoted on an automated quotation system. The Funds may enter into positions in
futures contracts and related options for "bona fide hedging" purposes (as such
term is defined in applicable regulations of the CFTC), for example, to hedge
against changes in interest rates, foreign currency exchange rates or securities
prices. In addition, certain Funds may utilize futures contracts for investment
purposes. For instance, the International, International Growth, Structured
Emerging Markets and Tax-Efficient Structured Emerging Markets Funds may invest
to a significant degree in Index Futures on stock indexes and related options
(including those which may trade outside of the United States) as an alternative
to purchasing individual stocks in order to adjust their exposure to a
particular market. With respect to positions in futures and related options that
do not constitute bona fide hedging positions, a Fund will not enter into a
futures contract or futures option contract if, immediately thereafter, the
aggregate initial margin deposits relating to such positions plus premiums paid
by it for open futures option positions, less the amount by which any such
options are "in-the-money," would exceed 5% of the Fund's net assets. A call
option is "in-the-money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in-the-money"
if the exercise price exceeds the value of the futures contract that is the
subject of the option.
When purchasing a futures contract, a Fund will segregate (and
mark-to-market on a daily basis) assets determined to be liquid by the Adviser
or a Sub-Adviser in accordance with procedures established by the Board of
Trustees that, when added to the amounts deposited with a futures commission
merchant as margin, are equal to the total market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high or higher than the price
of the contract held by the Fund.
When selling a futures contract, a Fund will segregate (and
mark-to-market on a daily basis) assets determined to be liquid by the Adviser
or a Sub-Adviser in accordance with procedures established by the Board of
Trustees that are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an Index Future, a
portfolio with a volatility substantially similar to that of the Index on which
the futures contract is based), or by holding a call option permitting the Fund
to purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, a Fund will segregate
(and mark-to-market on a daily basis) assets determined to be liquid by the
Adviser or a Sub-Adviser in accordance with procedures established by the Board
of Trustees that, when added to the amounts deposited with a futures commission
merchant as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund
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may cover its position by entering into a long position in the same futures
contract at a price no higher than the strike price of the call option, by
owning the instruments underlying the futures contract, or by holding a separate
call option permitting the Fund to purchase the same futures contract at a price
not higher than the strike price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will segregate
(and mark-to-market on a daily basis) assets determined to be liquid by the
Adviser or a Sub-Adviser in accordance with procedures established by the Board
of Trustees that equal the purchase price of the futures contract, less any
margin on deposit. Alternatively, the Fund may cover the position either by
entering into a short position in the same futures contract, or by owning a
separate put option permitting it to sell the same futures contract so long as
the strike price of the purchased put option is the same or higher than the
strike price of the put option sold by the Fund.
Risks Associated with Futures and Futures Options. There are several
risks associated with the use of futures contracts and futures options as
hedging techniques. A purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. Some of the
risk may be caused by an imperfect correlation between movements in the price of
the futures contract and the price of the security or other investment being
hedged. The hedge will not be fully effective where there is such imperfect
correlation. Also, an incorrect correlation could result in a loss on both the
hedged securities in a Fund and the hedging vehicle, so that the portfolio
return might have been greater had hedging not been attempted. For example, if
the price of the futures contract moves more than the price of the hedged
security, a Fund would experience either a loss or gain on the future which is
not completely offset by movements in the price of the hedged securities. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. To compensate for imperfect
correlations, a Fund may purchase or sell futures contracts in a greater dollar
amount than the hedged securities if the volatility of the hedged securities is
historically greater than the volatility of the futures contracts. Conversely, a
Fund may purchase or sell fewer contracts if the volatility of the price of the
hedged securities is historically less than that of the futures contracts. The
risk of imperfect correlation generally tends to diminish as the maturity date
of the futures contract approaches. A decision as to whether, when and how to
hedge involves the exercise of skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends. Also, suitable hedging transactions may not be
available in all circumstances.
Additionally, the price of Index Futures may not correlate perfectly
with movement in the relevant index due to certain market distortions. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Second, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market, and as a result, the
futures market may attract more speculators than does the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. In addition, trading hours for foreign stock Index
Futures may not correspond perfectly to hours of trading on the foreign exchange
to which a particular foreign stock Index Future relates. This may result in a
disparity between the price of Index Futures and the value of the relevant index
due to the lack of continuous arbitrage between the Index Futures price and the
value of the underlying index.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and
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therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a futures or a futures option position, and that
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Additional Risks of Options on Securities, Futures Contracts, Options
on Futures Contracts and Forward Currency Exchange Contracts and Options
thereon. Options on securities, futures contracts, options on futures contracts,
and options on currencies may be traded on foreign exchanges. Such transactions
may not be regulated as effectively as similar transactions in the United
States; may not involve a clearing mechanism and related guarantees; and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities. Some foreign exchanges may be principal markets so that
no common clearing facility exists and a trader may look only to the broker for
performance of the contract. The value of such positions also could be adversely
affected by (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Trust's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (v) lesser
trading volume. In addition, unless a Fund hedges against fluctuations in the
exchange rate between the U.S. dollar and the currencies in which trading is
done on foreign exchanges, any profits that a Fund might realize in trading
could be eliminated by adverse changes in the exchange rate, or the Fund could
incur losses as a result of those changes. The value of some derivative
instruments in which the Funds may invest may be particularly sensitive to
changes in prevailing interest rates, and, like the other investments of the
Funds, the ability of a Fund to successfully utilize these instruments may
depend in part upon the ability of the Sub-Adviser to forecast interest rates
and other economic factors correctly. If the Sub-Adviser incorrectly forecasts
such factors and has taken positions in derivative instruments contrary to
prevailing market trends, the Funds could be exposed to risk of loss. In
addition, a Fund's use of such instruments may cause the Fund to realize higher
amounts of short-term capital gains (generally taxed to shareholders at ordinary
income tax rates) than if the Fund had not used such instruments.
Swap Agreements. The Tax-Efficient Equity, Structured Emerging Markets
and Tax-Efficient Structured Emerging Markets Funds may enter into equity index
swap agreements for purposes of attempting to gain exposure to the stocks making
up an index of securities in a market without actually purchasing those stocks.
Swap agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are calculated
with respect to a "notional amount," i.e., the return on or increase in value of
a particular dollar amount invested at a particular interest rate, or in a
"basket" of securities representing a particular index.
Most swap agreements entered into by the Funds calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Fund) and any accrued but
unpaid net amounts owed to a swap counter party will be covered by segregating
assets determined to be liquid by the Adviser or a Sub-Adviser in accordance
with procedures established by the Board of Trustees, to avoid any potential
leveraging of the Fund's portfolio. Obligations under swap agreements so covered
will not be construed to be "senior securities" for purposes of a Fund's
investment restriction concerning senior securities. A Fund will
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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.
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
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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, Small-Cap, Select Growth, Mid-Cap Equity, 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,
International Growth 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.
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
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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).
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
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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
agrees to make loans up to a maximum amount upon demand by the borrower during a
specified term. A revolving credit facility differs from a delayed funding loan
in that as the borrower repays the loan, an amount equal to the repayment may be
borrowed again during the term of the revolving credit facility. These
commitments may have the effect of requiring a Fund to increase its investment
in a company at a time when it might not otherwise decide to do so (including a
time wh/en the company's financial condition makes it unlikely that such amounts
will be repaid).
The Funds may acquire a participation interest in delayed funding loans
or revolving credit facilities from a bank or other financial institution. See
"Loan Participations and Assignments." The terms of the participation require a
Fund to make a pro rata share of all loans extended to the borrower and entitles
a Fund to a pro rata share of all payments made by the borrower. Delayed funding
loans and revolving credit facilities usually provide
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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.
Catastrophe Bonds
The Funds may invest in "catastrophe bonds." Catastrophe bonds are
fixed income securities, for which the return of principal and payment of
interest is contingent on the non-occurrence of a specific "trigger"
catastrophic event, such as a hurricane or an earthquake. They may be issued by
government agencies, insurance companies, reinsurers, special purpose
corporations or other on-shore or off-shore entities. If a trigger event causes
losses exceeding a specific amount in the geographic region and time period
specified in a bond, a Fund investing in the bond may lose a portion or all of
its principal invested in the bond. If no trigger event occurs, the Fund will
recover its principal plus interest. For some catastrophe bonds, the trigger
event or losses may be based on company wide losses, index-portfolio losses,
industry indices or readings of scientific instruments rather than specified
actual losses. Often the catastrophe bonds provide for extensions of maturity
that are mandatory, or optional at the discretion of the issuer, in order to
process and audit loss claims in those cases where a trigger event has, or
possibly has, occurred. In addition to the specified trigger events, catastrophe
bonds may also expose a Fund to certain unanticipated risks including but not
limited to issuer (credit) default, adverse regulatory or jurisdictional
interpretations and adverse tax consequences.
Catastrophe bonds are a relatively new type of financial instrument. As
such, there is no significant trading history of these securities, and there can
be no assurance that a liquid market in these instruments will develop. See
"Characteristics and Risks of Securities and Investment Techniques--Illiquid
Securities" in the Class A, B and C, Class D and Institutional Prospectuses.
Lack of a liquid market may impose the risk of higher transaction costs and the
possibility that a Fund may be forced to liquidate positions when it would not
be advantageous to do so. Catastrophe bonds are typically rated, and the Fund
will only invest in catastrophe bonds that meet the credit quality requirements
for the Fund.
Hybrid Instruments
The Funds may invest in "hybrid" or indexed securities. A hybrid
instrument can combine the characteristics of securities, futures, and options.
For example, the principal amount or interest rate of a hybrid could be tied
(positively or negatively) to the price of some commodity, currency or
securities index or another interest rate (each a "benchmark"). The interest
rate or (unlike most fixed income securities) the principal amount payable at
maturity of a hybrid security may be increased or decreased, depending on
changes in the value of the benchmark.
Hybrids can be used as an efficient means of pursuing a variety of
investment goals, including currency hedging, duration management, and increased
total return. Hybrids may not bear interest or pay dividends. The value of a
hybrid or its interest rate may be a multiple of a benchmark and, as a result,
may be leveraged and move (up or down) more steeply and rapidly than the
benchmark. These benchmarks may be sensitive to economic and political events,
such as commodity shortages and currency devaluations, which cannot be readily
foreseen by the purchaser of a hybrid. Under certain conditions, the redemption
value of a hybrid could be zero. Thus, an investment in a hybrid may entail
significant market risks that are not associated with a similar investment in a
traditional, U.S. dollar-denominated bond that has a fixed principal amount and
pays a fixed rate or floating rate of interest. The purchase of hybrids also
exposes a Fund to the credit risk of the issuer of the hybrids. These risks may
cause significant fluctuations in the net asset value of a Fund. Accordingly, no
Fund will invest more than 5% of its assets (taken at market value at the time
of investment) in hybrid instruments.
Certain issuers of structured products such as hybrid instruments may
be deemed to be investment companies as defined in the 1940 Act. As a result, a
Fund's investments in these products will be subject to limits applicable to
investments in investment companies and may be subject to restrictions contained
in the 1940 Act.
-28-
<PAGE>
Investment Strategies of the Portfolios - Incorporation by Reference
The 90/10 Portfolio, 60/40 Portfolio and 30/70 Portfolio invest all of
their assets in Underlying PIMCO Funds, which include certain Funds of the Trust
and series of PIMS as specified in the Retail Portfolio Prospectus and
Institutional Portfolio Prospectus. By investing in Underlying PIMCO Funds, the
Portfolios may be subject to some or all of the risks associated with the
securities, instruments and techniques utilized by the Funds described above.
They may also be subject to additional risks associated with other securities,
instruments and techniques utilized by Underlying Funds which are series of
PIMS. The PIMS series and their attendant risks as described in the current PIMS
prospectus for Institutional Class and Administrative Class shares and PIMS
statement of additional information, which are included in the PIMS registration
statement (File Nos. 033-12113 and 811-5028) on file with the Securities and
Exchange Commission. The current PIMS prospectus and statement of additional are
each on file with the Securities and Exchange Commission and are incorporated in
this document by reference. The PIMS documents may also be obtained free of
charge by calling PIMCO Funds Distributors LLC at 1-800-426-0107.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The investment restrictions set forth below are fundamental policies of
the Renaissance, Growth, Target, Opportunity, Innovation, International,
International Growth and 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 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;
-29-
<PAGE>
(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, 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, Small-Cap, Select Growth, Mid-Cap Equity, 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, 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:
(1) none of the above-mentioned Funds may with 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 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
-30-
<PAGE>
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 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.
-31-
<PAGE>
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 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.
-32-
<PAGE>
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;
(4) with respect to the Renaissance, Growth, Target,
Opportunity, Innovation, International, International Growth 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,
-33-
<PAGE>
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.
(9) 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.
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.
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<PAGE>
<TABLE>
<CAPTION>
Name, Address and Age Position(s) With the Trust Principal Occupation(s) During the Past Five Years
--------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
E. Philip Cannon Trustee Proprietor, Cannon & Company, an affiliate of
3838 Olympia Inverness Management LLC, a private equity
Houston, TX 77019 investment firm; Trustee of PIMS, PIMCO Variable
Age 59 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 and CAT; Chairman,
434 Stable Lane Executive Vice President and Director, Cunningham &
Lake Forest, IL 60045 Walsh, Inc., Chicago, an advertising agency;
Age 72 Chairman and Director, Moduline Industries, Inc., a
manufacturer of commercial windows and curtain
walls.
Gary A. Childress Trustee Private investor. Formerly, Chairman and Director,
11 Longview Terrace Bellefonte Lime Company, Inc., a calcitic lime
Madison, CT 06443 producer, and partner in GenLime, L.P., a dolomitic
Age 66 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 Financial Consultants; Director,
8 Cherry Hills Lane Wynn's International, Inc., a building supplies
Newport Beach, CA 92660 company; and Trustee, Pacific Select Fund.
Age 70 Formerly, Partner, Ernst & Young.
Kenneth M. Poovey* Trustee Chief Operating Officer and Member of the Executive
1345 Avenue of the Americas Committee of PIMCO Advisors
New York, NY 10150
Age 68
Lyman W. Porter Trustee Professor of Management at the University of
2639 Bamboo Street California, Irvine; and Trustee, Pacific Select Fund.
Newport Beach, CA 92660
Age 70
Alan Richards Trustee Retired Chairman of E.F. Hutton Insurance Group;
7381 Elegans Place Former Director of E.F. Hutton and Company, Inc.;
Carlsbad, CA 92009 Chairman of IBIS Capital, LLC, a reverse mortgage
Age 69 company; Director, Inspired Arts, Inc.; Former
Director of Western National Corporation, a
life insurance holding company.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name, Address and Age Position(s) With the Trust Principal Occupation(s) During the Past Five Years
--------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
W. Bryant Stooks Trustee President, Bryant Investments, Ltd.; Director,
9701 E. Happy Valley Rd. American Agritec LLC, a manufacturer of hydrophonics
# 15 products; and Director, Valley Isle Excursions,
Scottsdale, AZ 85255 Inc., a tour operator. Formerly, Trustee of PAF and
Age 59 CAT, President, Senior Vice President, Director and
Chief Executive Officer, Archirodon Group Inc., an
international construction firm; Partner, Arthur
Andersen & Co.
Gerald M. Thorne Trustee Director, VPI Inc., a plastics company, and American
5 Leatherwood Lane Orthodontics Corp. Formerly, Trustee of PAF and
Savannah, GA 31414 CAT; Director, Kaytee, Inc., a birdseed company;
Age 62 President and Director, Firstar National Bank of
Milwaukee; Chairman, President and Director, Firstar
National Bank of Sheboygan; Director, Bando-McGlocklin,
a small business investment company.
Stephen J. Treadway* Trustee, President and Executive Vice President, PIMCO Advisors; Chairman
2187 Atlantic Street Chief Executive Officer and President, PIMCO Funds Distributors LLC ("PFD");
Stamford, CT 06902 Chairman, Municipal Advantage Fund, Inc.; President,
Age 52 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.
Newton B. Schott, Jr. Vice President and Director, Executive Vice President, Chief
2187 Atlantic Street Secretary Administrative Officer, General Counsel and
Stamford, CT 06902 Secretary, PFD; Executive Vice President, The
Age 57 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 Manager Shareholder Services and
Age 37 Fund Administration, Pacific Investment Management
Company; Senior Vice President of PIMS, PVIT and PCM.
Formerly Vice President, Pacific Investment Management Company.
John P. Hardaway Treasurer Senior Vice President and Manager of Investment
Age 43 Operations Accounting, Pacific Investment Management
Company; Treasurer, PIMS, PVIT and PCM. Formerly,
Vice President, Pacific Investment Management
Company.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name, Address and Age Position(s) With the Trust Principal Occupation(s) During the Past Five Years
--------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
Joseph D. Hattesohl Assistant Treasurer Vice President and Manger of Financial Reporting and
Age 36 Taxation, Pacific Investment Management Company;
Assistant Treasurer, PIMS, PVIT and PCM. Formerly,
Manager of Fund Taxation, Pacific Investment
Management Company, Director of Financial Reporting,
Carl I. Brown & Co.
Garlin G. Flynn Assistant Secretary Specialist, Pacific Investment Management Company;
Age 53 Secretary, PIMS, PVIT and PCM. Formerly, Senior
Fund Administrator, Pacific Investment
Management Company; Senior Mutual Fund
Analyst, PIMCO Advisors Institutional Services.
</TABLE>
* Trustee, is an "interested person" of the Trust (as defined in Section
2(a)(19) of the 1940 Act).
Trustees' Compensation
Trustees, other than those affiliated with PIMCO Advisors, a
Sub-Adviser, or Pacific Investment Management Company, receive an annual
retainer of $47,000, plus $2,000 for each Board of Trustees meeting attended
($1,000 if the meeting is attended by telephone), and $1,000 for each Audit and
Performance Committee meeting attended, plus reimbursement of related expenses.
Each Audit and Performance Committee member receives an additional annual
retainer of $2,000, the Chairman of the Audit and Performance Committees
receives an additional annual retainer of $2,000, the Chairman of the
Independent Trustees receives an additional annual retainer of $6,000, and each
Vice Chairman of the Independent Trustees receives an additional annual retainer
of $3,000. If in the judgment of the Independent Trustees, it is necessary or
appropriate for any Independent Trustee, including the Chairman, to perform
services in connection with extraordinary Fund activities or circumstances, the
Trustee shall be compensated for such services at the rate of $2,000 per day,
plus reimbursement of reasonable expenses. Trustees do not currently receive any
pension or retirement benefits from the Trust or the Fund Complex (see below).
The Trust has adopted a deferred compensation plan for the Trustees, which went
into place during 1997, which permits the Trustees to defer their receipt of
compensation from the Trust, at their election, in accordance with the terms of
the plan.
-37-
<PAGE>
The following table sets forth information regarding compensation
received by those Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust for the fiscal year ended June 30, 1999:
<TABLE>
<CAPTION>
(1) (2) (3)
Total
Aggregate Compensation
Compensation from from Trust and
Name of Trustee Trust Fund Complex/1/
--------------- ----- ---------------
<S> <C> <C>
E. Philip Cannon/2/ $57,000.00 $57,000.00
Donald P. Carter $66,500.00 $66,500.00
Gary A. Childress $58,000.00 $58,000.00
Richard L. Nelson $58,500.00 $96,500.00
Lyman W. Porter/2/ $57,000.00 $96,000.00
Alan Richards $62,000.00 $100,000.00
Joel Segall/3/ $58,000.00 $58,000.00
W. Bryant Stooks $56,500.00 $56,500.00
Gerald M. Thorne/2/ $57,500.00 $57,500.00
</TABLE>
Investment Adviser
PIMCO Advisors serves as investment adviser to each of the Funds and
Portfolios pursuant to an investment advisory agreement ("Advisory Agreement")
between PIMCO Advisors and the Trust. PIMCO Advisors was organized as a limited
partnership under Delaware law in 1987. PIMCO 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 wholly owned by 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, Marcus Riess and William S. Thompson
PIMCO Advisors is located at 800 Newport Center Drive, Newport Beach,
California 92660. PIMCO Advisors and its subsidiary partnerships had
approximately $264 billion of assets under management as of March 31, 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.
____________________
/1/ The amounts listed in column (3) include total compensation paid
to the Trustees for their services as Trustees of the Trust (for all Trustees)
and Pacific Select Fund (for Messrs. Nelson, Porter, and Richards) for the
twelve-month period ended June 30, 1999. By virtue of having PIMCO Advisors or
an affiliate of PIMCO Advisors as investment adviser, the Trust and Pacific
Select Fund were considered to be part of the same "Fund Complex" for these
purposes.
/2/ The Trust has adopted a deferred compensation plan (the "Plan")
which went into place during fiscal 1997. Of the amounts listed in column (2),
the following Trustees elected to have the following amounts deferred from the
Trust and all investment companies in the Fund Complex, respectively: Cannon -
$57,000, $57,000; Porter - $57,000, $57,000; and Thorne - $57,500, $57,500.
/3/ Mr. Segall retired as a Trustee in December 1999.
-38-
<PAGE>
-39-
<PAGE>
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 Growth, Target, Opportunity, Innovation, Global
Innovation, Renaissance, International, Select Growth, Mid-Cap Equity and
International Growth Funds, PIMCO Advisors has engaged affiliates to serve as
Sub-Advisers. The PIMCO Equity Advisors division ("PIMCO Equity Advisors") of
PIMCO Advisors manages the investment portfolios of the Growth, Target,
Opportunity, Innovation, Global Innovation, Renaissance, Select Growth, Mid-Cap
Equity and International Growth Funds. Acting in this capacity, PIMCO Equity
Advisors is also referred to herein as a "Sub-Adviser." If a Sub-Adviser ceases
to manage the portfolio of a Fund, PIMCO Advisors will either assume full
responsibility for the management of that Fund, or retain a new Sub-Adviser
subject to the approval of the Trustees and, if required, the Fund's
shareholders.
PIMCO Advisors' Asset Allocation Committee is responsible for
determining how the assets of the 90/10 Portfolio, the 60/40 Portfolio and the
30/70 Portfolio are allocated and reallocated from time to time among the
Underlying PIMCO Funds. The Portfolios do not pay any fees to PIMCO Advisors in
return for these services under the Advisory Agreement. The Portfolios do,
however, indirectly pay a proportionate share of the advisory fees paid to PIMCO
Advisors and Pacific Investment Management Company by the Underlying PIMCO Funds
in which the Portfolios invest.
Under the terms of the Advisory Agreement, PIMCO Advisors is obligated
to manage the Funds and the Portfolios in accordance with applicable laws and
regulations. The investment advisory services of PIMCO Advisors to the Trust are
not exclusive under the terms of the Advisory Agreement. PIMCO Advisors is free
to, and does, render investment advisory services to others.
The Advisory Agreement will continue in effect with respect to a Fund
and Portfolio for two years from its effective date, and thereafter on a yearly
basis, provided such continuance is approved annually (i) by the holders of a
majority of the outstanding voting securities of the Fund or Portfolio, or by
the Board of Trustees, and (ii) by a majority of the Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the Advisory Agreement. The Advisory
Agreement may be terminated without penalty by vote of the Trustees or the 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.
-40-
<PAGE>
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 and Select Growth Funds.................................... .60%
Mid-Cap Equity Fund..................................................................... .63%
Opportunity and Innovation Funds........................................................ .65%
International Growth Fund............................................................... .75%
Small-Cap and Global Innovation Funds................................................... 1.00%
Micro-Cap Fund.......................................................................... 1.25%
</TABLE>
-41-
<PAGE>
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30,
1997 the Funds paid the Adviser (or its predecessor) the following amounts under
the Advisory Contract:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 6/30/99 6/30/98 6/30/97
---- ------- ------- -------
<S> <C> <C> <C>
Equity Income Fund $ 892,889 $ 795,252 $ 555,146
Value Fund 1,043,826 951,140 463,869
Small-Cap Value Fund 2,215,048 1,395,130 249,347
Select Growth Fund/(1)/ 413,258 504,760 234,333
Mid-Cap Equity Fund 74,646 53,956 48,656
Capital Appreciation Fund 5,057,813 3,627,790 1,953,374
Mid-Cap Fund/(1)/ 3,926,642 2,622,029 1,219,531
Micro-Cap Fund/(1)/ 3,035,025 2,759,876 1,390,317
Small-Cap Fund/(1)/ 574,447 411,785 327,245
Enhanced Equity Fund 238,001 199,467 292,187
Emerging Markets Fund/(1)/ N/A 349,026 568,277
International Developed Fund/(1)/ N/A 653,050 525,817
Balanced Fund/(1)/ 311,190 300,049 306,756
Renaissance Fund* 3,771,388 3,010,051 913,256
Growth Fund* 10,728,640 9,329,701 3,758,433
Target Fund* 5,837,985 6,607,151 2,887,743
Opportunity Fund* 3,171,024 5,172,363 2,324,663
Innovation Fund* 4,453,888 2,028,712 750,414
International Fund* 753,828 922,680 559,353
International Growth Fund** 58,010 24,756 N/A
Precious Metals Fund*/(1)/ 125,947 165,918 119,710
Tax Exempt Fund*/(1)/ N/A 144,515 66,977
Value 25 Fund/(1)/ 7,550 N/A N/A
Tax-Efficient Equity Fund 56,985 N/A N/A
Structured Emerging Markets Fund 156,322 N/A N/A
Tax-Efficient Structured Emerging Markets Fund 212,327 N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A 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 N/A N/A N/A
70/30 Portfolio N/A N/A N/A
90/10 Portfolio N/A N/A N/A
--- --- ---
TOTAL $47,116,679 $42,029,157 $19,515,404
</TABLE>
____________________
* Amounts for the year ended June 30, 1997 are for the period 1/18/97 through
6/30/97.
** Amounts for the year ended June 30, 1998 are for the period 12/31/97 through
6/30/98.
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
-42-
<PAGE>
In addition, the predecessors of the Renaissance, Growth, Target,
Opportunity, Innovation, International, Precious Metals and Tax Exempt Funds
(each of which is a former series of PAF which reorganized as a Fund of the
Trust on January 17, 1997) paid the Adviser the following amounts for the fiscal
period ended January 17, 1997 and the fiscal year ended September 30, 1996 under
separate management contracts between the Adviser and PAF:
<TABLE>
<CAPTION>
10/1/96 Year
to Ended
Fund 1/17/97 9/30/96
---- ------- -------
<S> <C> <C>
Renaissance Fund $ 653,744 $ 1,627,632
Growth Fund 3,370,567 9,987,541
Target Fund 2,584,257 7,295,767
Opportunity Fund 1,898,337 6,183,575
Innovation Fund 545,586 1,063,584
International Fund 537,647 1,872,608
Precious Metals Fund/(1)/ 107,290 397,969
Tax Exempt Fund/(1)/ 99,023 333,349
---------- -----------
TOTAL $9,796,451 $28,762,025
</TABLE>
____________________
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
Portfolio Management Agreements
PIMCO Equity Advisors manages the investment portfolios of the Growth,
Target, Opportunity, Innovation, Renaissance, Select Growth, Equity Income,
Value, Mid-Cap Equity and International Growth Funds. The Adviser employs
Sub-Advisers to provide investment advisory services to each other Fund pursuant
to portfolio management agreements (each a "Portfolio Management Agreement")
between the Adviser and the Fund's Sub-Adviser. Each Sub-Adviser retained by the
Adviser is an affiliate of the Adviser except for Blairlogie Capital Management
("Blairlogie"), which advises the International Fund. The Adviser currently has
eight subsidiary partnerships, the following three of which manage one or more
of the Funds: Parametric Portfolio Associates ("Parametric"), Cadence Capital
Management ("Cadence") and NFJ Investment Group ("NFJ"). On April 30, 1999, the
Adviser sold all of its ownership interest in Blairlogie. See "Blairlogie"
below.
Shareholders of each Fund (except the Innovation, Mid-Cap and Micro-Cap
Funds) and Portfolio have approved a proposal permitting PIMCO Advisors to enter
into new or amended portfolio management agreements with one or more
sub-advisers with respect to each Fund and Portfolio without obtaining
shareholder approval of such portfolio management agreements, and to permit such
sub-adviser(s) to manage the assets of each Fund and Portfolio pursuant to such
agreements. PIMCO Advisors is able to take these actions only to the extent
permitted by any exemption or exemptions that may be granted by the Securities
and Exchange Commission. Although the Trust has filed a request for such an
exemption or exemptions with the Securities and Exchange Commission, there is no
assurance that such exemption(s) will be granted, and the Trust reserves the
right to withdraw such request if the Trustees believe such action is in the
best interests of the Funds and Portfolios and their shareholders.
PIMCO Equity Advisors
---------------------
PIMCO Equity Advisors, a division of PIMCO Advisors, acts as the
Sub-Adviser and provides investment advisory services to the Growth, Target,
Opportunity, Innovation, Renaissance, Select Growth, Equity Income, Value,
Mid-Cap Equity and International Growth Funds. PIMCO Equity Advisors' address is
1345 Avenue of the Americas, 50th Floor, New York, NY 10105. Additional
information about PIMCO Advisors, including information regarding investment
advisory fees paid to PIMCO Advisors by the Growth, Target, Opportunity,
Innovation, Renaissance,
-43-
<PAGE>
Select Growth, Equity Income, Value, Mid-Cap Equity and International Growth
Funds, is provided above under "Investment Adviser." Prior to March 5, 1999,
Columbus Circle Investors ("Columbus Circle"), a former subsidiary partnership
of the Adviser, served as Sub-Adviser to the Growth, Target, Opportunity and
Innovation Funds. Columbus Circle served as Sub-Adviser to the Renaissance Fund
until May 7, 1999, and it served as Sub-Adviser to the Select Growth, Mid-Cap
Equity and International Growth Funds until July 1, 1999. On July 1, 1999, the
Adviser sold all of its ownership interest in Columbus Circle to certain of
Columbus Circle's employees. Prior to May 8, 2000, NFJ served as Sub-Adviser to
the Equity Income and Value Funds.
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 March 31, 2000, of
approximately $4.5 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, Micro-Cap and Small-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, .90% for the Small-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 March 31, 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.
-44-
<PAGE>
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 December 31, 1999, of approximately
$2.1 billion.
On or about May 8, 2000, PIMCO Equity Advisors is expected to assume
full portfolio management responsibility for the Equity Income and Value Funds
from NFJ.
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 December 31, 1999, of approximately $1.4
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
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, 1999, June 30, 1998 and June 30,
1997, the amount of portfolio management fees paid by the Adviser (or its
predecessor) to the applicable Sub-Adviser (or its predecessor) for each of the
Funds was as follows:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
06/30/99 06/30/98 06/30/97
-------- -------- --------
<S> <C> <C>
Equity Income Fund $ 694,469 $ 618,529 $ 492,429
Value Fund 811,864 739,776 388,966
Small-Cap Value Fund 1,845,873 1,162,608 224,788
Select Growth Fund/(1)/ 340,758 416,205 215,998
Mid-Cap Equity Fund 62,797 45,391 45,074
Capital Appreciation Fund 3,933,855 2,821,614 1,714,191
Mid-Cap Fund/(1)/ 3,054,054 2,039,356 1,059,242
Micro-Cap Fund/(1)/ 2,794,415 2,539,086 1,325,695
Small-Cap Fund/(1)/ 517,002 370,606 311,280
Enhanced Equity Fund 185,113 155,141 268,021
Emerging Markets Fund/(1)/ 133,867 307,963 501,411
</TABLE>
-45-
<PAGE>
<TABLE>
<S> <C> <C> <C>
International Developed Fund/(1)/ 509,210 544,208 478,789
Balanced Fund/(1)/ 212,316 212,532 228,898
Renaissance Fund* 2,033,332 1,906,366 575,288
Growth Fund* 4,727,674 6,344,197 2,544,364
Target Fund* 2,563,818 4,324,681 1,869,073
Opportunity Fund* 1,682,634 3,819,591 1,709,827
Innovation Fund* 1,325,219 1,186,016 435,246
International Fund* 540,637 671,040 348,938
International Growth Fund** 27,298 11,650 N/A
Precious Metal Fund*/(1)/ 73,469 96,785 66,070
Value 25 Fund/(1)/ 6,021 N/A N/A
Tax-Efficient Equity Fund 44,322 N/A N/A
Structured Emerging Markets Fund 121,584 N/A N/A
Tax-Efficient Structured Emerging Markets Fund 165,144 N/A N/A
Tax Exempt Fund*/(1)/ N/A 144,515 66,756
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A 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
----------- ----------- -----------
TOTAL $28,406,745 $30,477,856 $14,870,344
</TABLE>
____________________
* Amounts for the year ended June 30, 1997 are for the period 1/18/97 through
6/30/97.
** Amounts for the year ended June 30, 1998 are for the period 12/31/97
through 6/30/98.
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
The Adviser paid the Sub-Advisers for the predecessors of the
Renaissance, Growth, Target, Opportunity, Innovation, International, Precious
Metals and Tax Exempt Funds (each of which is a former series of PAF which
reorganized as a Fund of the Trust on January 17, 1997) the following amounts
for the fiscal period ended January 17, 1997 and the fiscal year ended September
30, 1996 under separate sub-advisory agreements between the Adviser and the
relevant Sub-Adviser:
<TABLE>
<CAPTION>
10/1/96 Year
to Ended
Fund 1/17/97 09/30/96
---- ------- --------
<S> <C> <C>
Renaissance Fund $ 326,864 $ 813,816
Growth Fund 1,685,284 4,993,770
Target Fund 1,292,168 3,647,884
Opportunity Fund 949,192 3,091,788
Innovation Fund 272,772 531,792
International Fund 268,824 936,304
Precious Metals Fund/(1)/ 53,837 198,985
Tax Exempt Fund/(1)/ 49,512 166,675
----------- -----------
TOTAL $ 4,898,453 $14,381,014
</TABLE>
____________________
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
-46-
<PAGE>
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 Company as sub-administrator to provide such services
pursuant to a sub-administration agreement (the "Sub-Administration Agreement").
PIMCO Advisors may also retain other affiliates to provide such services. In
addition, the Administrator arranges at its own expense for the provision of
legal, audit, custody, transfer agency and other services necessary for the
ordinary operation of the Funds and Portfolios, and is responsible for the costs
of registration of the Trust's shares and the printing of prospectuses and
shareholder reports for current shareholders. Under the Administration
Agreement, the Administrator has agreed to provide or procure these services,
and to bear these expenses, at the following annual rates for each Fund and
Portfolio (each expressed as a percentage of the Fund's or Portfolio's average
daily net assets attributable to the indicated class or classes of shares on an
annual basis):
Administrative Fee Rate
-----------------------
<TABLE>
<CAPTION>
Institutional and Class A, Class B,
Administrative and Class C Class D
Fund or Portfolio Classes* Shares* Shares**
----------------- ------- ------ ------
<S> <C> <C> <C>
Equity Income Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Tax-Efficient Equity Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Value Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Small-Cap Value Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Select Growth Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
Mid-Cap Equity Fund .25% N/A N/A
NFJ Value 25 Fund .25% N/A N/A
Mega-Cap Fund/(1)/ .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
Small-Cap Fund .25% .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
Enhanced Equity Fund .25% N/A N/A
Renaissance Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
</TABLE>
-47-
<PAGE>
<TABLE>
<CAPTION>
Institutional and Class A, Class B,
Administrative and Class C Class D
Fund or Portfolio Classes* Shares* Shares**
----------------- ------- ------ ------
<S> <C> <C> <C>
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 N/A
.35% of amounts in excess of $2.5 billion
Innovation Fund .25% .40% of first $2.5 billion .65%
.35% of amounts in excess of $2.5 billion
International Fund .50% .65% of first $2.5 billion N/A
.60% of amounts in excess of $2.5 billion
International Growth Fund .50% .65% of the first $2.5 billion .90%
.60% of amounts in excess of $2.5 billion
Global Innovation Fund(1) .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 Markets .50% N/A N/A
Fund
NFJ Equity Income .25% N/A N/A
NFJ Value .25% N/A N/A
90/10 Portfolio .10%*** .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
60/40 Portfolio .10%*** .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
30/70 Portfolio .10%*** .40% of first $2.5 billion N/A
.35% of amounts in excess of $2.5 billion
</TABLE>
* The Administrator receives administrative fees based on a Fund's or
Portfolio's average daily net assets attributable in the aggregate to its
Institutional and Administrative Class shares on the one hand, and to its Class
A, Class B and Class C shares on the other.
** As described below, the Administration Agreement includes a plan adopted in
conformity with Rule 12b-1 which provides for the payment of up to .25% of the
.65% (.85% and .90% with respect to Class D shares of the Global Innovation Fund
and the International Growth Fund, respectively) 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 the Mega-Cap and Global
Innovation 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.
-48-
<PAGE>
Except for the expenses paid by the Administrator, the Trust bears all
costs of its operations. The Trust is responsible for the following expenses:
(i) salaries and other compensation of any of the Trust's executive officers and
employees who are not officers, directors, stockholders, or employees of PIMCO
Advisors, Pacific Investment Management Company, 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."
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 Company upon 60 days' written notice to the other
party and, with respect to the services rendered to the Trust, at any time by
vote of a majority of the disinterested Trustees of the Trust. The
Sub-Administration Agreement will also terminate upon termination of the
Administration Agreement.
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30,
1997, the aggregate amount of the administration fees paid by the Funds and
Portfolios was as follows (Class A, Class B and Class C shares were not offered
prior to January 17, 1997 and Class D shares were not offered prior to April 8,
1998):
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 06/30/99 06/30/98 06/30/97
---- -------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $ 579,501 $ 487,106 $ 311,798
Value Fund 778,004 720,965 318,624
Small-Cap Value Fund 1,373,378 850,182 114,067
Select Growth Fund/(1)/ 181,254 221,386 102,634
Mid-Cap Equity Fund 29,621 21,411 19,291
Capital Appreciation Fund 3,129,528 2,144,151 1,093,013
</TABLE>
-49-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Mid-Cap Fund/(1)/ 2,641,971 1,722,412 729,997
Micro-Cap Fund/(1)/ 607,005 551,975 278,025
Small-Cap Fund/(1)/ 143,612 102,410 81,774
Enhanced Equity Fund 132,223 110,815 161,982
Emerging Markets Fund/(1)/ N/A 208,654 312,540
International Developed Fund/(1)/ N/A 555,314 437,490
Balanced Fund/(1)/ 220,148 186,627 170,134
Renaissance Fund* 2,513,413 2,006,144 605,566
Growth Fund* 8,581,473 7,463,761 2,993,370
Target Fund* 4,244,469 4,805,201 2,076,748
Opportunity Fund* 1,950,916 3,182,992 1,424,856
Innovation Fund* 2,740,592 1,248,438 458,154
International Fund* 877,968 1,090,440 567,025
International Growth Fund** 34,123 14,562 N/A
Precious Metals Fund*/(1)/ 94,460 124,438 84,947
Tax Exempt Fund*/(1)/ N/A 193,724 89,008
Value 25 Fund/(1)/ 5,790 N/A N/A
Tax-Efficient Equity Fund 49,326 N/A N/A
Structured Emerging Markets Fund 173,691 N/A N/A
Tax-Efficient Structured Emerging Markets Fund 235,919 N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A 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 20,123 N/A N/A
70/30 Portfolio 10,422 N/A N/A
90/10 Portfolio 14,344 N/A N/A
------ --- ---
TOTAL $31,363,276 $28,013,108 $12,431,043
----------- ----------- -----------
</TABLE>
* Amounts for the year ended June 30, 1997 are for the period from 1/17/97
through 6/30/97.
** Amounts for the year ended June 30, 1998 are for the period from 12/31/97
through 6/30/98.
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
The predecessor series of the Renaissance, Growth, Target, Opportunity,
Innovation, International, Precious Metals and Tax Exempt Funds (each a series
of PAF which reorganized as a Fund of the Trust on January 17, 1997) received
administrative services during fiscal years 1997 and 1996 under separate
management contracts between the Adviser and PAF on behalf of each such series.
See "Investment Adviser" above for the amounts paid to the Adviser by these
series under such management contracts during fiscal years 1997 and 1996.
Shares of the Portfolios were not offered during the periods listed
above.
DISTRIBUTION OF TRUST SHARES
Distributor and Multi-Class Plan
PIMCO Funds Distributors LLC (the "Distributor") serves as the
principal underwriter of each class of the Trust's shares pursuant to a
distribution contract (the "Distribution Contract") with the Trust. The
Distributor is a wholly-owned subsidiary of PIMCO Advisors. The Distributor,
located at 2187 Atlantic Street, Stamford, Connecticut 06902, is a broker-dealer
registered with the Securities and Exchange Commission. The Distribution
Contract is terminable with respect to a Fund, Portfolio or class of shares
without penalty, at any time, by the
-50-
<PAGE>
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.
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.
-51-
<PAGE>
Contingent Deferred Sales Charge and Initial Sales Charge
As described in the Class A, B and C Prospectus and the Retail
Portfolio Prospectus under the caption "Investment Options (Class A, B and C
Shares)," a contingent deferred sales charge is imposed upon certain redemptions
of Class A, Class B and Class C shares. No contingent deferred sales charge is
currently imposed upon redemptions of Class D, Institutional Class or
Administrative Class shares. Because contingent deferred sales charges are
calculated on a series-by-series basis, shareholders should consider whether to
exchange shares of one Fund or Portfolio for shares of another Fund or Portfolio
prior to redeeming an investment if such an exchange would reduce the contingent
deferred sales charge applicable to such redemption.
During the fiscal years ended June 30, 1999, June 30, 1998 and June 30,
1997, the Distributor received the following aggregate amounts in contingent
deferred sales charges on Class A shares, Class B shares and Class C shares of
the Funds and the Portfolios:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Class 6/30/99 6/30/98 6/30/97
----- ------- ------- -------
<S> <C> <C> <C>
Class A $ 5,341 $ 2,273 $ 40,456
Class B $2,063,747 $945,353 $789,851
Class C $ 618,030 $480,061 $533,975
</TABLE>
The Funds did not offer Class A, B and C shares in fiscal years prior
to the fiscal year ended June 30, 1997. However, during the fiscal year ended
September 30, 1996, the Distributor received the following amounts in contingent
deferred sales charges on shares of series of PAF which reorganized as the
following Funds of the Trust: Class A shares: Growth - $9,168, Target - $14 and
-------
Opportunity - $4,190. Class B shares: Renaissance - $8,722, Growth - $37,445,
-------
Target - $31,670, Innovation - $36,477, International - $6,359, Precious Metals
- $1,179 and Tax Exempt - $4,055. Class C shares: Renaissance - $12,809, Growth
-------
- $124,264, Target - $89,334, Opportunity - $37,154, Innovation - $29,110,
International - $22,016, Precious Metals - $15,384 and Tax Exempt - $1,596.
As described in the Class A, B and C Prospectus and the Retail
Portfolio Prospectus under the caption "Investment Options (Class A, B and C
Shares)," Class A shares of the Trust are sold pursuant to an initial sales
charge, which declines as the amount of the purchase reaches certain defined
levels. For the fiscal years ended June 30, 1999, June 30, 1998 and June 30,
1997, the Distributor received an aggregate of $7,013,745, $4,878,434 and
$2,927,636, respectively, and retained an aggregate of $904,586, $506,878 and
$369,546, respectively, in initial sales charges paid by Class A shareholders of
the Trust.
The Trust did not offer Class A shares in fiscal years prior to the
fiscal year ended June 30, 1997. However, during the fiscal year ended September
30, 1996, the Distributor received the following amounts in initial sales
charges paid by shareholders of PAF series which reorganized as the following
Funds of the Trust: Renaissance - $205,419, Growth - 549,330, Target - $852,363,
Opportunity - $176,391, Innovation - $685,093, International - $91,177, Precious
Metals - $72,503 and Tax Exempt - $37,180, and retained the following amounts:
Renaissance - $27,477, Growth - $83,657, Target - $126,693, Opportunity -
$29,605, Innovation - $114,091, International - $13,871, Precious Metals -
$7,738 and Tax Exempt - $3,140.
Distribution and Servicing Plans for Class A, Class B and Class C Shares
As stated in the Class A, B and C Prospectus and the Retail Portfolio
Prospectus under the caption "Investment Options -- Class A, B and C
Shares--Distribution and Servicing (12b-1) Plans," Class A, Class B and
-52-
<PAGE>
Class C shares of the Trust are continuously offered through participating
brokers which are members of the NASD and which have dealer agreements with the
Distributor, or which have agreed to act as introducing brokers.
Pursuant to separate Distribution and Servicing Plans for Class A,
Class B and Class C shares (the "Retail Plans"), the Distributor receives (i) in
connection with the distribution of Class B and Class C shares of the Trust,
certain distribution fees from the Trust, and (ii) in connection with personal
services rendered to Class A, Class B and Class C shareholders of the Trust and
the maintenance of shareholder accounts, certain servicing fees from the Trust.
Subject to the percentage limitations on these distribution and servicing fees
set forth below, the distribution and servicing fees may be paid with respect to
services rendered and expenses borne in the past with respect to Class A, Class
B and Class C shares as to which no distribution and servicing fees were paid on
account of such limitations.
The Distributor makes distribution and servicing payments to
participating brokers and servicing payments to certain banks and other
financial intermediaries in connection with the sale of Class B and Class C
shares and servicing payments to participating brokers, certain banks and other
financial intermediaries in connection with the sale of Class A shares. In the
case of Class A shares, these parties are also compensated based on the amount
of the front-end sales charge reallowed by the Distributor, except in cases
where Class A shares are sold without a front-end sales charge (although the
Distributor may pay brokers additional compensation in connection with sales of
Class A shares without a sales charge). In the case of Class B shares,
participating brokers and other financial intermediaries are compensated by an
advance of a sales commission by the Distributor. In the case of Class C shares,
part or all of the first year's distribution and servicing fee is generally paid
at the time of sale. Pursuant to the Distribution Agreement, with respect to
each Fund's or Portfolio's Class A, Class B and Class C shares, the Distributor
bears various other promotional and sales related expenses, including the cost
of printing and mailing prospectuses to persons other than current shareholders.
Class A Servicing Fees
----------------------
As compensation for services rendered and expenses borne by the
Distributor in connection with personal services rendered to Class A
shareholders of the Trust and the maintenance of Class A shareholder accounts,
the Trust pays the Distributor servicing fees up to the annual rate of .25%
(calculated as a percentage of each Fund's or Portfolio's average daily net
assets attributable to Class A shares).
Class B and Class C Distribution and Servicing Fees
---------------------------------------------------
As compensation for services rendered and expenses borne by the
Distributor in connection with the distribution of Class B and Class C shares of
the Trust, and in connection with personal services rendered to Class B and
Class C shareholders of the Trust and the maintenance of Class B and Class C
shareholder accounts, the Trust pays the Distributor servicing and distribution
fees up to the annual rates set forth below (calculated as a percentage of each
Fund's or Portfolio's average daily net assets attributable to Class B and Class
C shares, respectively):
<TABLE>
<CAPTION>
Servicing Distribution
Fee Fee
--------- ------------
<S> <C> <C>
All Funds and Portfolios .25% .75%
</TABLE>
The Retail Plans were adopted pursuant to Rule 12b-1 under the 1940 Act
and are of the type known as "compensation" plans. This means that, although the
Trustees of the Trust are expected to take into account the expenses of the
Distributor and its predecessors in their periodic review of the Retail Plans,
the fees are payable to compensate the Distributor for services rendered even if
the amount paid exceeds the Distributor's expenses.
-53-
<PAGE>
The distribution fee applicable to Class B and Class C shares may be
spent by the Distributor on any activities or expenses primarily intended to
result in the sale of Class B or Class C shares, respectively, including
compensation to, and expenses (including overhead and telephone expenses) of,
financial consultants or other employees of the Distributor or of participating
or introducing brokers who engage in distribution of Class B or Class C shares,
printing of prospectuses and reports for other than existing Class B or Class C
shareholders, advertising, and preparation, printing and distributions of sales
literature. The servicing fee, which is applicable to Class A, Class B and Class
C shares of the Trust, may be spent by the Distributor on personal services
rendered to shareholders of the Trust and the maintenance of shareholder
accounts, including compensation to, and expenses (including telephone and
overhead expenses) of, financial consultants or other employees of participating
or introducing brokers, certain banks and other financial intermediaries who aid
in the processing of purchase or redemption requests or the processing of
dividend payments, who provide information periodically to shareholders showing
their positions in a Fund's or Portfolio's shares, who forward communications
from the Trust to shareholders, who render ongoing advice concerning the
suitability of particular investment opportunities offered by the Trust in light
of the shareholders' needs, who respond to inquiries from shareholders relating
to such services, or who train personnel in the provision of such services.
Distribution and servicing fees may also be spent on interest relating to
unreimbursed distribution or servicing expenses from prior years.
Many of the Distributor's sales and servicing efforts involve the Trust
as a whole, so that fees paid by Class A, Class B or Class C shares of any Fund
or Portfolio may indirectly support sales and servicing efforts relating to the
other Funds' or Portfolios' shares of the same class. In reporting its expenses
to the Trustees, the Distributor itemizes expenses that relate to the
distribution and/or servicing of a single Fund's or Portfolio's shares, and
allocates other expenses among the Funds or Portfolios based on their relative
net assets. Expenses allocated to each Fund or Portfolio are further allocated
among its classes of shares annually based on the relative sales of each class,
except for any expenses that relate only to the sale or servicing of a single
class. The Distributor may make payments to brokers (and with respect to
servicing fees only, to certain banks and other financial intermediaries) of up
to the following percentages annually of the average daily net assets
attributable to shares in the accounts of their customers or clients:
All Funds and Portfolios/(1)/
<TABLE>
<CAPTION>
Servicing Distribution
Fee Fee
--------- ------------
<S> <C> <C>
Class A .25% N/A
Class B/(2)/ .25% None
Class C (purchased before July 1, 1991) .25% None
Class C/(3)/ (purchased on or after July .25% .65%
1, 1991)
</TABLE>
1. Applies, in part, to Class A, Class B and Class C shares of the Trust
issued to former shareholders of PIMCO Advisors Funds in connection with
the reorganizations/mergers of series of PIMCO Advisors Funds as/with Funds
of the Trust in transactions which took place on January 17, 1997
2. Payable only with respect to shares outstanding for one year or more.
3. Payable only with respect to shares outstanding for one year or more except
in the case of shares for which no payment is made to the party at the time
of sale.
The Distributor may from time to time pay additional cash bonuses or other
incentives to selected participating brokers in connection with the sale or
servicing of Class A, Class B and Class C shares of the Funds or Portfolios. On
some occasions, such bonuses or incentives may be conditioned upon the sale of a
specified minimum dollar amount of the shares of a Fund or Portfolio and/or all
of the Funds or Portfolios together or a particular class of shares, during a
specific period of time. The Distributor currently expects that such additional
-54-
<PAGE>
bonuses or incentives will not exceed .50% of the amount of any sale. In its
capacity as administrator for the Funds and Portfolios, PIMCO Advisors may pay
participating brokers and other intermediaries for sub-transfer agency and other
services.
If in any year the Distributor's expenses incurred in connection with
the distribution of Class B and Class C shares and, for Class A, Class B and
Class C shares, in connection with the servicing of shareholders and the
maintenance of shareholder accounts, exceed the distribution and/or servicing
fees paid by the Trust, the Distributor would recover such excess only if the
Retail Plan with respect to such class of shares continues to be in effect in
some later year when such distribution and/or servicing fees exceed the
Distributor's expenses. The Trust is not obligated to repay any unreimbursed
expenses that may exist at such time, if any, as the relevant Retail Plan
terminates.
Each Retail Plan may be terminated with respect to any Fund or
Portfolio to which the Plan relates by vote of a majority of the Trustees who
are not interested persons of the Trust (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or
the Distribution Contract ("disinterested Retail Plan Trustees"), or by vote of
a majority of the outstanding voting securities of the relevant class of that
Fund or Portfolio. Any change in any Retail Plan that would materially increase
the cost to the class of shares of any Fund or Portfolio to which the Plan
relates requires approval by the affected class of shareholders of that Fund or
Portfolio. The Trustees review quarterly written reports of such costs and the
purposes for which such costs have been incurred. Each Retail Plan may be
amended by vote of the Trustees, including a majority of the disinterested
Retail Plan Trustees, cast in person at a meeting called for the purpose. As
long as the Retail Plans are in effect, selection and nomination of those
Trustees who are not interested persons of the Trust shall be committed to the
discretion of such disinterested Trustees.
The Retail Plans will continue in effect with respect to each Fund and
Portfolio, and each class of shares thereof, for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the disinterested Retail Plan Trustees and (ii) by the vote of a
majority of the entire Board of Trustees cast in person at a meeting called for
the purpose of voting on such approval.
If a Retail Plan is terminated (or not renewed) with respect to one or
more Funds or Portfolios, or classes thereof, it may continue in effect with
respect to any class of any Fund or Portfolio as to which it has not been
terminated (or has been renewed).
The Trustees believe that the Retail Plans will provide benefits to
the Trust. In this regard, the Trustees believe that the Retail Plans will
result in greater sales and/or fewer redemptions of Trust shares, although it is
impossible to know for certain the level of sales and redemptions of Trust
shares that would occur in the absence of the Retail Plans or under alternative
distribution schemes. Although the expenses of the Funds and Portfolios are
essentially fixed, the Trustees believe that the effect of the Retail Plans on
sales and/or redemptions may benefit the Trust by reducing expense ratios and/or
by affording greater flexibility to the Sub-Advisers. From time to time,
expenses of the Distributor incurred in connection with the sale of Class B and
Class C shares of the Trust, and in connection with the servicing of Class B and
Class C shareholders and the maintenance of shareholder accounts, may exceed the
distribution and servicing fees collected by the Distributor. The Trustees
consider such unreimbursed amounts, among other factors, in determining whether
to cause the Funds and Portfolios to continue payments of distribution and
servicing fees in the future with respect to Class B and Class C shares.
Payments Pursuant to Class A Plans
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30,
1997, the Trust paid the Distributor an aggregate of $2,635,864, $2,017,316 and
$1,147,572, respectively, pursuant to the Class A Retail Plan. Such payments
were allocated among the operational Funds and Portfolios as follows:
-55-
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
---- -------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $ 37,477 $ 20,227 $ 938
Value Fund 51,171 46,720 14,876
Small-Cap Value Fund 226,167 91,688 2,770
Select Growth Fund/(1)/ N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 224,084 75,035 5,510
Mid-Cap Fund/(1)/ 251,954 72,631 12,246
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 697 108
International Developed Fund/(1)/ N/A 2,903 169
Balanced Fund/(1)/ 23,696 12,278 173
Renaissance Fund 214,100 130,230 53,527
Growth Fund 464,918 403,013 290,828
Target Fund 347,814 394,300 288,012
Opportunity Fund 338,303 531,993 320,127
Innovation Fund 406,854 164,089 99,910
International Fund 29,153 42,700 34,195
International Growth Fund N/A N/A N/A
Precious Metals Fund/(1)/ 8,880 13,370 14,218
Tax Exempt Fund/(1)/ N/A 15,442 9,965
Value 25 Fund/(1)/ 1,189 N/A N/A
Tax-Efficient Equity Fund 7,937 N/A N/A
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A 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 1,312 N/A N/A
70/30 Portfolio 348 N/A N/A
90/10 Portfolio 504 N/A 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, 1999, the amounts collected pursuant to
the Class A Retail Plan were used as follows by the Distributor: sales
commissions and other compensation to sales personnel, $2,135,047; preparing,
printing and distributing sales material and advertising (including preparing,
printing and distributing prospectuses to non-shareholders) and other expenses
(including data processing, legal and operations), $500,814. These totals,
allocated among (i) compensation and (ii) sales material and other expenses for
each Fund and Portfolio, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Compensation Expenses Total
------------ -------- -----
<S> <C> <C> <C>
Equity Income Fund $ 30,356 $ 7,121 $ 37,477
Value Fund 41,449 9,722 51,171
Small-Cap Value Fund 183,195 42,972 226,167
Select Growth Fund/(1)/ N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
</TABLE>
-56-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital Appreciation Fund 181,508 42,576 224,084
Mid-Cap Fund/(1)/ 204,083 47,871 251,954
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)/ 19,194 4,502 23,696
Renaissance Fund 173,421 40,679 214,100
Growth Fund 376,584 88,334 464,918
Target Fund 281,729 66,085 347,814
Opportunity Fund 274,025 64,278 338,303
Innovation Fund 329,552 77,302 406,854
International Fund 23,614 5,539 29,153
International Growth Fund N/A N/A N/A
Precious Metals Fund/(1)/ 7,193 1,687 8,880
Tax Exempt Fund/(1)/ N/A N/A N/A
Value 25 Fund/(1)/ 963 226 1,189
Tax-Efficient Equity Fund 6,429 1,508 7,937
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A N/A N/A
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 1,063 249 1,312
70/30 Portfolio 282 66 348
90/10 Portfolio 408 96 504
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
The Trust did not offer Class A shares in fiscal years prior to the
fiscal year ended June 30, 1997. For the fiscal year ended September 30, 1996,
PAF paid the Distributor an aggregate of $1,556,119 pursuant to a Distribution
and Servicing Plan applicable to the Class A shares of PAF (the "PAF Class A
Plan"), which is similar to the Class A Plan of the Trust. Such payments were
allocated among the predecessors of the following Funds (each of which was
formerly a series of PAF which reorganized as a series of the Trust on January
17, 1997) as follows:
<TABLE>
<CAPTION>
Year Ended
Sept. 30, 1996
--------------
<S> <C>
Renaissance Fund $ 38,973
Growth Fund 351,506
Target Fund 338,598
Opportunity Fund 308,794
Innovation Fund 88,089
International Fund 42,411
Precious Metals Fund/(1)/ 21,416
Tax Exempt Fund/(1)/ 10,288
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
-57-
<PAGE>
The remainder of the total payments made under the PAF Class A Plan for
such fiscal years was allocated among other series of PAF which either merged
with Funds of the Trust or merged with/reorganized as series of PIMS, an
affiliated mutual fund family, in transactions which took place on January 17,
1997.
Payments Pursuant to Class B Plans
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30,
1997, the Trust paid the Distributor an aggregate of $7,649,186, $4,549,168 and
$1,670,623, respectively, pursuant to the Class B Retail Plan. Such payments
were allocated among the operational Funds and Portfolios as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
---- -------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $ 174,783 $ 80,992 $ 5,019
Value Fund 332,761 311,768 101,067
Small-Cap Value Fund 984,479 611,536 17,419
Select Growth Fund/(1)/ N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 483,520 165,015 5,077
Mid-Cap Fund/(1)/ 834,091 528,760 104,374
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 4,696 633
International Developed Fund/(1)/ N/A 21,969 2,256
Balanced Fund/(1)/ 109,348 42,373 2,223
Renaissance Fund 1,133,814 603,997 204,965
Growth Fund 996,276 660,761 351,684
Target Fund 703,506 727,857 450,009
Opportunity Fund 428 N/A N/A
Innovation Fund 1,707,917 629,537 332,295
International Fund 84,644 85,359 53,098
International Growth Fund N/A N/A N/A
Precious Metals Fund/(1)/ 40,742 41,484 21,713
Tax Exempt Fund/(1)/ N/A 33,064 18,818
Value 25 Fund/(1)/ 3,700 N/A N/A
Tax-Efficient Equity Fund 28,316 N/A N/A
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A 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 15,370 N/A N/A
70/30 Portfolio 8,250 N/A N/A
90/10 Portfolio 7,240 N/A N/A
</TABLE>
(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, 1999, the amounts collected
pursuant to the Class B Retail Plan were used as follows by the Distributor:
sales commissions and other compensation to sales personnel, $6,195,840;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations),
-58-
<PAGE>
$1,453,345. 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 $ 141,574 $ 33,209 $ 174,783
Value Fund 269,536 63,225 332,761
Small-Cap Value Fund 797,428 187,051 984,479
Select Growth Fund/(1)/ N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 391,651 91,869 483,520
Mid-Cap Fund/(1)/ 675,614 158,477 834,091
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)/ 88,572 20,776 109,348
Renaissance Fund 918,389 215,425 1,133,814
Growth Fund 806,984 189,292 996,276
Target Fund 569,840 133,666 703,506
Opportunity Fund 347 81 428
Innovation Fund 1,383,413 324,504 1,707,917
International Fund 68,562 16,082 84,644
International Growth Fund N/A N/A N/A
Precious Metals Fund/(1)/ 33,001 7,741 40,742
Tax Exempt Fund/(1)/ N/A N/A N/A
Value 25 Fund/(1)/ 2,997 703 3,700
Tax-Efficient Equity Fund 22,936 5,380 28,316
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A 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 12,450 2,920 15,370
70/30 Portfolio 6,683 1,568 8,250
90/10 Portfolio 5,864 1,376 7,240
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
The Trust did not offer Class B shares in fiscal years prior to the
fiscal year ended June 30, 1997. For the fiscal year ended September 30, 1996,
PAF paid the Distributor an aggregate of $1,839,931 pursuant to a Distribution
and Servicing Plan applicable to the Class B shares of PAF (the "PAF Class B
Plan"), which is similar to the Class B Plan of the Trust. Such payments were
allocated among the predecessors of the following Funds (each of which was
formerly a series of PAF which reorganized as a series of the Trust on January
17, 1997) as follows:
-59-
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Sept. 30, 1996
--------------
<S> <C>
Renaissance Fund $ 62,195
Growth Fund 211,778
Target Fund 241,125
Opportunity Fund N/A
Innovation Fund 166,747
International Fund 289,719
Precious Metals Fund/(1)/ 14,083
Tax Exempt Fund/(1)/ 14,673
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
The remainder of the total payments made under the PAF Class B Plan for
such fiscal years was allocated among other series of PAF which either merged
with Funds of the Trust or merged with/reorganized as series of PIMS, an
affiliated mutual fund family, in transactions which took place on January 17,
1997.
Payments Pursuant to Class C Plans
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30,
1997, the Trust paid the Distributor an aggregate of $43,907,220, $42,819,673
and $28,944,078, respectively, pursuant to the Class C Retail Plan. Such
payments were allocated among the operational Funds and Portfolios as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
---- -------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $ 230,353 $ 139,875 $ 13,919
Value Fund 779,730 784,829 245,893
Small-Cap Value Fund 1,113,794 814,232 39,558
Select Growth Fund/(1)/ N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 748,698 392,705 28,078
Mid-Cap Fund/(1)/ 1,225,691 951,993 197,365
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 14,813 5,070
International Developed Fund/(1)/ N/A 40,459 4,936
Balanced Fund/(1)/ 110,967 41,412 1,876
Renaissance Fund 4,288,538 3,887,867 2,024,245
Growth Fund 18,591,740 16,386,591 11,107,219
Target Fund 8,510,832 9,707,945 7,238,372
Opportunity Fund 3,521,632 5,829,510 4,950,118
Innovation Fund 3,440,411 1,834,958 1,149,018
International Fund 1,083,209 1,421,443 1,354,452
International Growth Fund N/A N/A N/A
Precious Metals Fund/(1)/ 133,650 181,565 255,508
Tax Exempt Fund/(1)/ N/A 389,476 328,451
Value 25 Fund/(1)/ 4,980 N/A N/A
Tax-Efficient Equity Fund 50,345 N/A N/A
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A N/A N/A
</TABLE>
-60-
<PAGE>
<TABLE>
<S> <C> <C> <C>
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 29,671 N/A N/A
70/30 Portfolio 16,395 N/A N/A
90/10 Portfolio 26,585 N/A N/A
</TABLE>
(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, 1999, the amounts collected pursuant to
the Class C Retail Plan were used as follows by the Distributor: sales
commissions and other compensation to sales personnel, $35,564,849; preparing,
printing and distributing sales material and advertising (including preparing,
printing and distributing prospectuses to non-shareholders) and other expenses
(including data processing, legal and operations), $8,342,372. These totals,
allocated among (i) compensation and (ii) sales material and other expenses for
each Fund and Portfolio, were as follows:
<TABLE>
<CAPTION>
Sales Material
Compensation and Other Expenses Total
------------ ------------------- -----
<S> <C> <C> <C>
Equity Income Fund $ 186,586 $ 43,767 $ 230,353
Value Fund 631,581 148,149 779,730
Small-Cap Value Fund 902,173 211,621 1,113,794
Select Growth Fund/(1)/ N/A N/A N/A
Mid-Cap Equity Fund N/A N/A N/A
Capital Appreciation Fund 606,445 142,253 748,698
Mid-Cap Fund/(1)/ 992,810 232,881 1,225,691
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)/ 89,883 21,084 110,967
Renaissance Fund 3,473,716 814,822 4,288,538
Growth Fund 15,059,309 3,532,431 18,591,740
Target Fund 6,893,774 1,617,058 8,510,832
Opportunity Fund 2,852,522 669,110 3,521,632
Innovation Fund 2,786,733 653,678 3,440,411
International Fund 877,399 205,810 1,083,209
International Growth Fund N/A N/A N/A
Precious Metals Fund/(1)/ 108,257 25,394 133,650
Tax Exempt Fund/(1)/ N/A N/A N/A
Value 25 Fund/(1)/ 4,034 946 4,980
Tax-Efficient Equity Fund 40,779 9,566 50,345
Structured Emerging Markets Fund N/A N/A N/A
Tax-Efficient Structured Emerging Markets Fund N/A N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A 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 24,034 5,637 29,671
70/30 Portfolio 13,280 3,115 16,395
90/10 Portfolio 21,534 5,051 26,585
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of
Additional Information for information about these Funds.
-61-
<PAGE>
The Trust did not offer Class C shares in fiscal years prior to the fiscal
year ended June 30, 1997. For the fiscal year ended September 30, 1996, PAF paid
the Distributor an aggregate of $41,704,155 pursuant to a Distribution and
Servicing Plan applicable to the Class C shares of PAF (the "PAF Class C Plan"),
which is similar to the Class C Plan of the Trust. Such payments were allocated
among the predecessors of the following Funds (each of which was formerly a
series of PAF Fund which reorganized as a series of the Trust on January 17,
1997) as follows:
<TABLE>
<CAPTION>
Year Ended
Sept. 30, 1996
<S> <C>
Renaissance Fund $ 1,965,449
Growth Fund 13,593,775
Target Fund 8,684,223
Opportunity Fund 7,455,633
Innovation Fund 899,377
International Fund 1,858,512
Precious Metals Fund(1) 430,849
Tax Exempt Fund(1) 499,738
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
The remainder of the total payments made under the PAF Class C Plan for
such fiscal years was allocated among other series of PAF which either merged
with Funds of the Trust or merged with/reorganized as series of PIMS, an
affiliated mutual fund family, in transactions which took place on January 17,
1997.
From time to time, expenses of principal underwriters incurred in
connection with the distribution of Class B and Class C shares of the Funds and
Portfolios, and in connection with the servicing of Class A, Class B and Class C
shareholders of the Funds and Portfolios and the maintenance of Class A, Class B
and Class C shareholder accounts, may exceed the distribution and/or servicing
fees collected by the Distributor. As noted above, Class A, Class B and Class C
Distribution and Servicing Plans, which are similar to the Trust's current
Retail Plans, were in effect prior to January 17, 1997 in respect of series of
PAF that were predecessors of certain of the Funds listed below. The remaining
Funds and the Portfolios did not offer Class A, Class B or Class C shares prior
to January 17, 1997. As of June 30, 1999, such expenses were approximately
$18,240,00 in excess of payments under the Class A Plan, $29,500,00 in excess of
payments under the Class B Plan and $2,068,00 in excess of payments under the
Class C Plan.
The allocation of such excess (on a pro rata basis) among the Funds and
Portfolios listed below as of June 30, 1999 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Balanced Fund/(1)/ $ 45,000 $ 398,000 $ 59,000
Capital Appreciation Fund 617,000 1,471,000 125,000
Emerging Markets Fund/(1)/ (3,000) 25,000 9,000
Equity Income Fund 116,000 579,000 118,000
Growth Fund 6,987,000 4,479,000 (4,815,000)
Innovation Fund 728,000 7,949,000 1,820,000
International Developed Fund/(1)/ 33,000 76,000 (2,000)
International Fund 641,000 368,000 1,541,000
Mid-Cap Fund 1,242,000 2,468,000 340,000
Opportunity Fund 2,772,000 3,000 (5,601,000)
</TABLE>
-62-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Precious Metals Fund/(1)/ 98,000 333,000 186,000
Renaissance Fund 1,095,000 3,832,000 1,279,000
Small-Cap Value Fund 652,000 3,845,000 389,000
Target Fund 3,041,000 2,590,000 6,109,000
Value Fund 170,000 733,000 352,000
Value 25 Fund/(1)/ (1,000) 16,000 3,000
Tax-Efficient Equity Fund 14,000 154,000 34,000
Global Innovation Fund N/A N/A N/A
Select Growth Fund N/A N/A N/A
60/40 Portfolio (1,000) 91,000 57,000
70/30 Portfolio (2,000) 41,000 35,000
90/10 Portfolio (4,000) 49,000 30,000
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
The allocation of such excess (on a pro rata basis) among the Funds and
Portfolios, calculated as a percentage of net assets of each Fund listed below
as of June 30, 1999, was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Balanced Fund/(1)/ 0.46% 3.23% 0.45%
Capital Appreciation Fund 0.68 2.67 0.15
Emerging Markets Fund/(1)/ N/A N/A N/A
Equity Income Fund 0.67 2.66 0.45
Growth Fund 3.07 3.35 -0.23
Innovation Fund 0.23 2.26 0.31
International Developed Fund/(1)/ N/A N/A N/A
International Fund 3.40 3.88 1.52
Mid-Cap Fund 1.00 2.91 0.30
Opportunity Fund 2.28 1.20 -1.81
Precious Metals Fund/(1)/ 1.25 8.49 1.62
Renaissance Fund 1.21 3.03 0.29
Small-Cap Value Fund 0.61 3.96 0.34
Target Fund 1.79 3.29 0.67
Value Fund 0.76 2.02 0.44
Value 25 Fund/(1)/ -0.35 1.90 0.36
Tax-Efficient Equity Fund 0.21 2.42 0.32
Select Growth Fund N/A N/A N/A
Global Innovation Fund N/A N/A N/A
60/40 Portfolio -0.05 2.49 0.58
70/30 Portfolio -0.49 2.36 0.70
90/10 Portfolio -0.62 2.55 0.38
</TABLE>
(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.
-63-
<PAGE>
Under the terms of the Administrative Distribution Plan, the Trust is
permitted to reimburse, out of the assets attributable to the Administrative
Class shares of each applicable Fund or Portfolio, in an amount up to 0.25% on
an annual basis of the average daily net assets of that class, financial
intermediaries for costs and expenses incurred in connection with the
distribution and marketing of Administrative Class shares and/or the provision
of certain shareholder services to its customers that invest in Administrative
Class shares of the Funds or Portfolios. Such services may include, but are not
limited to, the following: providing facilities to answer questions from
prospective investors about a Fund or Portfolio; receiving and answering
correspondence, including requests for prospectuses and statements of additional
information; preparing, printing and delivering prospectuses and shareholder
reports to prospective shareholders; complying with federal and state securities
laws pertaining to the sale of Administrative Class shares; and assisting
investors in completing application forms and selecting dividend and other
account options.
Under the terms of the Administrative Services Plan, the Trust is
permitted to reimburse, out of the assets attributable to the Administrative
Class shares of each Fund or Portfolio, in an amount up to 0.25% on an annual
basis of the average daily net assets of that class, financial intermediaries
that provide certain administrative services for Administrative Class
shareholders. Such services may include, but are not limited to, the following:
receiving, aggregating and processing shareholder orders; furnishing shareholder
sub-accounting; providing and maintaining elective shareholder services such as
check writing and wire transfer services; providing and maintaining
pre-authorized investment plans; communicating periodically with shareholders;
acting as the sole shareholder of record and nominee for shareholders;
maintaining accounting records for shareholders; answering questions and
handling correspondence from shareholders about their accounts; and performing
similar account administrative services.
The same entity may be the recipient of fees under both the
Administrative Distribution Plan and the Administrative Services Plan, but may
not receive fees under both plans with respect to the same assets. Fees paid
pursuant to either Plan may be paid for shareholder services and the maintenance
of shareholder accounts, and therefore may constitute "service fees" for
purposes of applicable rules of the National Association of Securities Dealers,
Inc. Each Plan has been adopted in accordance with the requirements of Rule
12b-1 under the 1940 Act and will be administered in accordance with the
provisions of that rule, except that shareholders will not have the voting
rights set forth in Rule 12b-1 with respect to the Administrative Services Plan
that they will have with respect to the Administrative Distribution Plan.
Each Administrative Plan provides that it may not be amended to
increase materially the costs which Administrative Class shareholders may bear
under the Plan without the approval of a majority of the outstanding voting
securities of the Administrative Class, and by vote of a majority of both (i)
the Trustees of the Trust and (ii) those Trustees ("disinterested Administrative
Plan Trustees") who are not "interested persons" of the Trust (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of the Plan or any agreements related to it, cast in person at a meeting called
for the purpose of voting on the Plan and any related amendments.
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.
-64-
<PAGE>
Each Administrative Plan is a "reimbursement plan," which means that
fees are payable to the relevant financial intermediary only to the extent
necessary to reimburse expenses incurred pursuant to such plan. Each
Administrative Plan provides that expenses payable under the Plan may be carried
forward for reimbursement for up to twelve months beyond the date in which the
expense is incurred, subject to the limit that not more than 0.25% of the
average daily net assets of Administrative Class shares may be used in any month
to pay expenses under the Plan. Each Administrative Plan requires that
Administrative Class shares incur no interest or carrying charges.
Rules of the NASD limit the amount of distribution fees that may be
paid by mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that some, if not
all, of the fees paid pursuant to both Administrative Plans will qualify as
"service fees" and therefore will not be limited by NASD rules.
Institutional and Administrative Class shares of the Trust may also be
offered through certain brokers and financial intermediaries ("service agents")
that have established a shareholder servicing relationship with the Trust on
behalf of their customers. The Trust pays no compensation to such entities other
than service and/or distribution fees paid with respect to Administrative Class
shares. Service agents may impose additional or different conditions than the
Trust on the purchase, redemption or exchanges of Trust shares by their
customers. Service agents may also independently establish and charge their
customers transaction fees, account fees and other amounts in connection which
purchases, sales and redemption of Trust shares in addition to any fees charged
by the Trust. Each service agent is responsible for transmitting to its
customers a schedule of any such fees and information regarding any additional
or different conditions regarding purchases and redemptions. Shareholders who
are customers of service agents should consult their service agents for
information regarding these fees and conditions.
Payments Pursuant to the Administrative Plans
For the fiscal years ended June 30, 1999, June 30, 1998 and June 30,
1997, the Trust paid qualified service providers an aggregate of $1,120,693,
$502,216 and $132,422, respectively, pursuant to the Administrative Services
Plan and the Administrative Distribution Plan.
Of these aggregate totals, $602,519, $362,416 and $128,406,
respectively, were paid pursuant to the Administrative Services Plan and/or the
Administrative Distribution Plan for the Funds and Portfolios listed below and
were allocated among the operational Funds and Portfolios as Follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
---- -------- -------- --------
<S> <C> <C> <C>
Equity Income Fund $ 29,362 $ 25,885 $ 16,938
Value Fund 39,528 11,304 0
Small-Cap Value Fund 40,618 22,930 12,276
Select Growth Fund/(1)/ 176,827 211,557 79,366
Mid-Cap Equity Fund 7,757 1,846 0
Mid-Cap Fund/(1)/ 234,913 64,116 4,723
Micro-Cap Fund/(1)/ 7,665 8,918 1,898
Enhanced Equity Fund 41,681 9,207 0
International Developed Fund/(1)/ N/A 6,653 13,205
Renaissance Fund 507 N/A N/A
Growth Fund 1,939 N/A N/A
Target Fund 1,725 N/A N/A
Opportunity Fund 633 N/A N/A
International Fund 17,126 N/A N/A
Tax-Efficient Equity Fund 2,213 N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A N/A N/A
</TABLE>
-65-
<PAGE>
<TABLE>
<S> <C> <C> <C>
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 9 N/A N/A
70/30 Portfolio 9 N/A N/A
90/10 Portfolio 9 N/A N/A
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about these Funds.
The additional portions of the aggregate totals, $518,174, $139,800 and
$4,016, respectively, were paid pursuant to the Administrative Services Plan
only for the Capital Appreciation, Emerging Markets and Small-Cap Funds, and
were allocated among these Funds as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 06/30/99 06/30/98 06/30/97
---- -------- -------- --------
<S> <C> <C> <C>
Capital Appreciation Fund $514,736 $137,462 $ 3,297
Emerging Markets Fund(1) N/A 1,802 582
Small-Cap Fund 3,438 536 137
</TABLE>
(1) Please see the section captioned "The Trust" in this Statement of Additional
Information for information about this Fund.
The remaining Funds did not make payments under either Administrative
Plan. The Administrative Plans were not in effect in prior fiscal years.
Plan for Class D Shares
As described above under "Management of the Trust--Fund Administrator,"
the Trust's Administration Agreement includes a plan (the "Class D Plan")
adopted in conformity with Rule 12b-1 under the 1940 Act which provides for the
payment of up to .25% of the Class D administrative fees as reimbursement for
expenses in respect of activities that may be deemed to be primarily intended to
result in the sale of Class D shares.
Specifically, the Administration Agreement provides that the
Administrator shall provide in respect of Class D shares (either directly or by
procuring through other entities, including various financial services firms
such as broker-dealers and registered investment advisers ("Service
Organizations")) some or all of the following services and facilities in
connection with direct purchases by shareholders or in connection with products,
programs or accounts offered by such Service Organizations ("Special Class D
Services"): (i) facilities for placing orders directly for the purchase of a
Fund's Class D shares and tendering a Fund's Class D shares for redemption; (ii)
advertising with respect to a Fund's Class D shares; (iii) providing information
about the Funds; (iv) providing facilities to answer questions from prospective
investors about the Funds; (v) receiving and answering correspondence, including
requests for prospectuses and statements of additional information; (vi)
preparing, printing and delivering prospectuses and shareholder reports to
prospective shareholders; (vii) assisting investors in applying to purchase
Class D shares and selecting dividend and other account options; and (viii)
shareholder services provided by a Service Organization that may include, but
are not limited to, the following functions: receiving, aggregating and
processing shareholder orders; furnishing shareholder sub-accounting; providing
and maintaining elective shareholder services such as check writing and wire
transfer services; providing and maintaining pre-authorized investment plans;
communicating periodically with shareholders; acting as the sole shareholder of
record and nominee for shareholders; maintaining accounting records for
shareholders; answering questions and handling correspondence from shareholders
about their accounts; issuing confirmations for transactions by shareholders;
performing similar account administrative services; providing such shareholder
communications and recordkeeping services as may be required for any program for
which the Service Organization is a sponsor that relies on Rule 3a-4 under the
1940 Act; and providing such other similar services as may reasonably be
requested to the extent the Service Organization is permitted to do so under
applicable statutes, rules, or regulations.
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<PAGE>
The Administrator has entered into an agreement with the Distributor
under which the Distributor is compensated for providing or procuring certain of
the Special Class D Services at the rate of 0.25% per annum of all assets
attributable to Class D shares sold through the Distributor.
The Trust and the Administrator understand that some or all of the
Special Class D Services provided pursuant to the Administration Agreement may
be deemed to represent services primarily intended to result in the sale of
Class D shares. The Administration Agreement includes the Class D Plan to
account for this possibility. The Administration Agreement provides that any
portion of the fees paid thereunder in respect of Class D shares representing
reimbursement for the Administrator's and the Distributor's expenditures and
internally allocated expenses in respect of Class D Services of any Fund shall
not exceed the rate of 0.25% per annum of the average daily net assets of such
Fund attributable to Class D shares.
In accordance with Rule 12b-1 under the 1940 Act, the Class D Plan may
not be amended to increase materially the costs which Class D shareholders may
bear under the Plan without the approval of a majority of the outstanding Class
D shares, and by vote of a majority of both (i) the Trustees of the Trust and
(ii) those Trustees ("disinterested Class D Plan Trustees") who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to it, cast in person at a meeting called for the purpose of
voting on the Plan and any related amendments. The Class D Plan may not take
effect until approved by vote of a majority of both (i) the Trustees of the
Trust and (ii) the disinterested Class D Plan Trustees. In addition, the Class D
Plan may not take effect unless it is approved by the vote of a majority of the
outstanding Class D shares and it shall continue in effect only so long as such
continuance is specifically approved at least annually by the Trustees and the
disinterested Class D Plan Trustees.
With respect to the Class D Plan, the Administration Agreement requires
the Administrator to present reports as to out-of-pocket expenditures and
internal expense allocations of the Administrator and the Distributor at least
quarterly and in a manner that permits the disinterested Class D Plan Trustees
to determine that portion of the Class D administrative fees paid thereunder
which represents reimbursements in respect of Special Class D Services.
Rules of the NASD limit the amount of distribution fees that may be
paid by mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to the Class D Plan will qualify as "service
fees" and therefore will not be limited by NASD rules.
For the fiscal years ended June 30, 1999 and June 30, 1998, the Trust
paid qualified service providers an aggregate of $22,580 and $353, respectively,
pursuant to the Class D Plan. Such payments were allocated among the Funds as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund 6/30/99 6/30/98
---- ------- -------
<S> <C> <C>
Capital Appreciation Fund $ 581 $ 56
Mid-Cap Fund/(1)/ 606 63
Equity Income Fund 325 56
Renaissance Fund 309 63
Value Fund 252 53
Tax-Efficient Equity Fund 1,843 N/A
Innovation Fund 18,664 61
</TABLE>
(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.
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<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 in the Class A, B and C Prospectus, the Class D Prospectus
and the Retail Portfolio Prospectus under the caption "How to Buy and Sell
Shares-- Exchanging Shares," and in the Institutional Prospectus and the
Institutional Portfolio Prospectus under the caption "Purchases, Redemptions and
Exchanges--Exchange Privilege," a shareholder may exchange shares of any Fund or
Portfolio for shares of the same class of any other Fund or Portfolio of the
Trust that is available for investment, or any series of PIMS, on the basis of
their respective net asset values. The original purchase date(s) of shares
exchanged for purposes of calculating any contingent deferred sales charge will
carry over to the investment in the new Fund or Portfolio. For example, if a
shareholder invests in Class C shares of one Fund and 6 months later (when the
contingent deferred sales charge upon redemption would normally be 1%) exchanges
his shares for Class C shares of another Fund, no sales charge would be imposed
upon the exchange, but the investment in the other Fund would be subject to the
1% contingent deferred sales charge until one year after the date of the
shareholder's investment in the first Fund as described in the Class A, B and C
Prospectus and the Retail Portfolio Prospectus under "Alternative Purchase
Arrangements." With respect to Class B or Class C shares, or Class A shares
subject to a contingent deferred sales charge, if less than all of an investment
is exchanged, any portion of the investment attributable to capital appreciation
and/or reinvested dividends or capital gains distributions will be exchanged
first, and thereafter any portions exchanged will be from the earliest
investment made in the Fund or Portfolio from which the exchange was made. For
federal income tax purposes, an exchange is treated as a sale of shares and
generally results in a capital gain or loss.
Orders for exchanges accepted prior to the close of regular trading on
the New York Stock Exchange on any day the Trust is open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after the close of regular
trading on the New York Stock Exchange on any business day will be executed at
the respective net asset values determined at the close of the next business
day.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to adopt a policy of terminating the exchange privilege of any
shareholder who makes more than a specified number of exchanges in a 12 month
period or in any calendar year. For example, the Trust currently limits the
number of "round trip" exchanges an investor may make. An investor makes a
"round trip" exchange when the investor purchases shares of a particular Fund or
Portfolio, subsequently exchanges those shares for shares of a different Fund or
Portfolio and then exchanges back into the originally purchased Fund or
Portfolio. The Trust has the right to refuse any exchange for any investor who
completes (by making the exchange back into the shares of the originally
purchased Fund or Portfolio) more than six round trip exchanges in any
twelve-month period. Although the Trust has no current intention of terminating
or modifying
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<PAGE>
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 expensive investment options (such as derivative instruments) and
lower levels of liquidity in foreign and underdeveloped markets.
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<PAGE>
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 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
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<PAGE>
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, 1999, June 30, 1998 and June 30, 1997, the
following amounts of brokerage commissions were paid by the Funds and
Portfolios:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
Fund 6/30/99 6/30/98 6/30/97
---- ------- ------- ------
<S> <C> <C> <C>
Equity Income Fund $ 370,906 $239,458 $161,012
Value Fund 590,816 437,002 203,403
Small-Cap Value Fund 973,236 810,211 146,551
Capital Appreciation Fund 2,099,694 1,384,393 889,931
Mid-Cap Fund/(1)/ 1,648,830 1,115,609 634,436
Micro-Cap Fund/(1)/ 381,825 237,969 315,009
Small-Cap Fund/(1)/ 149,013 71,734 113,103
Enhanced Equity Fund 34,926 61,193 196,460
Emerging Markets Fund/(1)/ 94,539 238,241 591,312
International Developed Fund/(1)/ 266,609 326,193 498,041
Balanced Fund/(1)/ 108,337 91,788 197,598
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Select Growth Fund/(1)/ 154,017 219,194 114,173
Mid-Cap Equity Fund 53,303 44,404 31,940
Renaissance Fund* 4,009,076 2,539,296 717,040
Growth Fund* 4,502,200 4,154,740 2,632,126
Target Fund* 3,661,375 5,577,623 2,584,198
Opportunity Fund* 1,778,867 1,345,809 1,187,818
Innovation Fund* 782,662 412,457 224,529
International Fund* 566,950 785,827 748,412
International Growth Fund** 77,095 26,179 N/A
Precious Metals Fund*/(1)/ 105,266 98,635 81,251
Tax Exempt Fund*/(1)/ N/A N/A 0
Value 25 Fund/(1)/ 15,802 N/A N/A
Tax-Efficient Equity Fund 28,136 N/A N/A
Structured Emerging Markets Fund 85,087 N/A N/A
Tax-Efficient Structured Emerging Markets Fund 153,831 N/A N/A
Mega-Cap Fund N/A N/A N/A
Global Innovation Fund N/A 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 1,646 N/A N/A
70/30 Portfolio 348 N/A N/A
90/10 Portfolio 65 N/A N/A
----------- ----------- -----------
TOTAL $22,684,457 $20,217,955 $12,268,343
</TABLE>
____________________
* Amounts for the year ending June 30, 1997 are for the period 1/18/97 through
6/30/97.
** Amounts for the year ended June 30, 1998 are for the period from
12/31/97 through 6/30/98.
(1) Please see the section captioned "The Trust" in
this Statement of Additional Information for information about these Funds.
For the fiscal period ended January 17, 1997 and the fiscal year ended September
30, 1996, the following amounts of brokerage commissions were paid by the
predecessors of the Funds listed below (each of which was a series of PAF during
such periods and reorganized as a Fund of the Trust on January 17, 1997):
<TABLE>
<CAPTION>
10/1/96 Year
to Ended
Fund 1/17/97 9/30/96
---- ------- -------
<S> <C> <C>
Renaissance Fund $ 363,501 $ 993,617
Growth Fund 1,064,573 2,985,777
Target Fund 1,375,601 3,080,238
Opportunity Fund 505,221 1,757,263
Innovation Fund 105,556 228,473
International Fund 393,808 1,530,476
Precious Metals Fund(1) 53,096 79,838
Tax Exempt Fund(1) 0 0
---------- -----------
TOTAL $3,861,356 $10,655,682
</TABLE>
(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
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<PAGE>
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.
In reliance on the "safe harbor" provided by Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Adviser and
Sub-Advisers may cause the Trust to pay broker-dealers which provide them with
"brokerage and research services" (as defined in the 1934 Act) an amount of
commission for effecting a securities transaction for the Trust in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
Consistent with the Rules of the NASD and subject to seeking the most
favorable price and execution available and such other policies as the Trustees
may determine, the Adviser or Sub-Advisers may also consider sales of shares of
the Trust as a factor in the selection of broker-dealers to execute portfolio
transactions for the Trust.
The Adviser or a Sub-Adviser may place orders for the purchase and sale
of exchange-listed portfolio securities with a broker-dealer that is an
affiliate of the Adviser or Sub-Adviser where, in the judgment of the Adviser or
Sub-Adviser, such firm will be able to obtain a price and execution at least as
favorable as other qualified broker-dealers.
Pursuant to rules of the SEC, a broker-dealer that is an affiliate of
the Adviser or a Sub-Adviser may receive and retain compensation for effecting
portfolio transactions for a Fund on a national securities exchange of which the
broker-dealer is a member if the transaction is "executed" on the floor of the
exchange by another broker which is not an "associated person" of the affiliated
broker-dealer, and if there is in effect a written contract between the Adviser
or Sub-Adviser and the Trust expressly permitting the affiliated broker-dealer
to receive and retain such compensation.
SEC rules further require that commissions paid to such an affiliated
broker-dealer, the Adviser, or Sub-Adviser by a Fund on exchange transactions
not exceed "usual and customary brokerage commissions." The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time."
Portfolio Turnover
A change in the securities held by a Fund is known as "portfolio
turnover." With the exception of the Tax-Efficient Structured Emerging Markets
and Tax-Efficient Equity Funds (which may attempt to minimize portfolio turnover
as a tax-efficient management strategy), the Sub-Advisers manage the Funds
without regard generally to restrictions on portfolio turnover. The use of
futures contracts and other derivative instruments with
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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 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,
Mid-Cap Equity and International Growth Funds, these Funds may experience
increased turnover due to the differences, if any, between the portfolio
management strategies of Columbus Circle or NFJ, as the case may be, and PIMCO
Equity Advisors. See "Management of the Trust--Portfolio Management Agreements."
NET ASSET VALUE
As indicated in the Prospectuses under the heading "How Fund Shares
are Priced," the net asset value ("NAV") of a class of a Fund's or Portfolio's
shares is determined by dividing the total value of a Fund's or Portfolio's
portfolio investments and other assets attributable to that class, less any
liabilities, by the total number of shares outstanding of that class.
For purposes of calculating the NAV, portfolio securities and other
assets for which market quotes are available are stated at market value. Market
value is generally determined on the basis of last reported sales prices, or if
no sales are reported, based on quotes obtained from a quotation reporting
system, established market makers, or pricing services. Certain securities or
investments for which daily market quotes are not readily available may be
valued, pursuant to guidelines established by the Board of Trustees, with
reference to other securities or indices. Short-term investments having a
maturity of 60 days or less are generally valued at amortized
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cost. Exchange traded options, futures and options on futures are valued at the
settlement price determined by the exchange. Other securities for which market
quotes are not readily available are valued at fair value as determined in good
faith by the Board of Trustees or persons acting at their direction.
Investments initially valued in currencies other than the U.S. dollar
are converted to U.S. dollars using exchange rates obtained from pricing
services. As a result, the NAV of a Fund's shares may be affected by changes in
the value of currencies in relation to the U.S. dollar. The value of securities
traded in markets outside the United States or denominated in currencies other
than the U.S. dollar may be affected significantly on a day that the New York
Stock Exchange is closed and an investor is not able to purchase, redeem or
exchange shares. In particular, calculation of the NAV of the International
Growth, Structured Emerging Markets, Tax-Efficient Structured Emerging Markets,
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, 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.
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
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gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies ("Qualifying Income Test") and (b)
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the value of the Fund's or Portfolio's total assets is
represented by cash, cash items (including receivables), U.S. Government
securities, securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's or Portfolio's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of any one issuer or of
two or more issuers which the Fund or Portfolio controls and which are engaged
in the same, similar or related trades or businesses. In order to qualify for
the special tax treatment accorded regulated investment companies, each Fund and
Portfolio must distribute each taxable year an amount at least equal to the sum
of (i) 90% of its investment company taxable income (which includes dividends,
interest and net short-term capital gains in excess of any net long-term capital
losses) and (ii) 90% of its tax exempt interest, net of expenses allocable
thereto. For purposes of the Qualifying Income Test, the Treasury Department is
authorized to promulgate regulations under which gains from foreign currencies
(and options, futures, and forward contracts on foreign currency) would not
constitute qualifying income if such gains are not directly related to investing
in securities (or options and futures with respect to stock or securities). To
date, such regulations have not been issued.
In years when a Fund or Portfolio distributes amounts in excess of its
earnings and profits, such distributions may be treated in part as a return of
capital. A return of capital is not taxable to a shareholder and has the effect
of reducing the shareholder's basis in the shares.
Distributions
As a regulated investment company, each Fund and Portfolio generally
will not be subject to U.S. federal income tax on its investment company taxable
income and net capital gains (that is, any net long-term capital gains in excess
of the sum of net short-term capital losses and capital loss carryovers from
prior years) designated by the Fund or Portfolio as capital gain dividends, if
any, that it distributes to shareholders on a timely basis. Each Fund and
Portfolio intends to distribute to its shareholders, at least annually,
substantially all of its investment company taxable income and any net capital
gains. In addition, amounts not distributed by a Fund or Portfolio on a timely
basis in accordance with a calendar year distribution requirement are subject to
a nondeductible 4% excise tax. To avoid the tax, each Fund and Portfolio must
distribute during each calendar year an amount at least equal to the sum of (1)
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) 98% of its capital gains in excess of its capital
losses (and adjusted for certain ordinary losses) for the twelve month period
ending on October 31 of the calendar year, and (3) all ordinary income and
capital gains for previous years that were not distributed during such years. A
distribution will be treated as paid on December 31 of the calendar year if it
is declared by a Fund or Portfolio in October, November or December of that year
to shareholders of record on a date in such a month and paid by the Fund or
Portfolio during January of the following year.
Shareholders subject to U.S. federal income tax will be subject to tax
on dividends received from a Fund or Portfolio, regardless of whether received
in cash or reinvested in additional shares. Such distributions will be taxable
to shareholders (other than those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received. To avoid application of the excise
tax, each Fund and Portfolio intends to make its distributions in accordance
with the calendar year distribution requirement.
Distributions received by tax-exempt shareholders generally will not
be subject to federal income tax to the extent permitted under applicable tax
law. All shareholders must treat dividends, other than capital gain dividends,
exempt-interest dividends, if any, and dividends that represent a return of
capital to shareholders, as ordinary income. In particular, distributions
derived from short-term gains will be treated as ordinary income.
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Dividends, if any, derived from interest on certain U.S. Government securities
may be exempt from state and local taxes, although interest on mortgage-backed
U.S. Government securities is generally not so exempt. While the Tax-Efficient
Equity and Tax-Efficient Structured Emerging Markets Funds seek to minimize
taxable distributions, the Funds may be expected to earn and distribute taxable
income and may also be expected to realize and distribute capital gains from
time to time.
Dividends designated by a Fund as capital gain dividends derived from
the Fund's net capital gains are taxable to shareholders as long-term capital
gains (generally subject to a 20% tax rate for shareholders who are individuals)
except as provided by an applicable tax exemption. Any distributions that are
not from a Fund's net investment income or net capital gains may be
characterized as a return of capital to shareholders or, in some cases, as
capital gain. Each Fund will advise shareholders annually of the amount and
nature of the dividends paid to them.
The tax status of each Fund and Portfolio and the distributions which
it may make are summarized in the Prospectuses under the captions "Fund
Distributions" and "Tax Consequences." All dividends and distributions of a Fund
or Portfolio, whether received in shares or cash, are taxable and must be
reported on each shareholder's federal income tax return.
A portion of the dividends paid by Funds that invest in stock of U.S.
corporations may qualify for the deduction for dividends received by
corporations (subject generally to a 46-day holding period requirement).
Dividends paid by the other Funds generally are not expected to qualify for the
deduction for dividends received by corporations.
Distributions of net capital gains, if any, designated as capital gain
dividends, are taxable as long-term capital gains (generally subject to a 20%
tax rate for shareholders who are individuals), regardless of how long the
shareholder has held a Fund's or Portfolio's shares and are not eligible for the
dividends received deduction. Any distributions that are not from a Fund's
investment company taxable income or net capital gains may be characterized as a
return of capital to shareholders or, in some cases, as capital gain. The tax
treatment of dividends and distributions will be the same whether a shareholder
reinvests them in additional shares or elects to receive them in cash. A
Portfolio will not be able to offset gains realized by one Fund in which such
Portfolio invests against losses realized by another Fund in which such
Portfolio invests. A Portfolio's use of the fund-of-funds structure could
therefore affect the amount, timing and character of distributions to
shareholders. In addition, Funds that invest in other investment companies will
not be able to offset gains realized by one underlying investment company
against losses realized by another underlying investment company. A Fund's
investment in other investment companies could therefore affect the amount,
timing and character of distributions to shareholders of such Fund.
Taxable shareholders should note that the timing of their investment
or redemptions could have undesirable tax consequences. Dividends and
distributions on shares of a Fund or Portfolio are generally subject to federal
income tax as described herein to the extent they do not exceed the Fund's or
Portfolio's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when the net asset value of a Fund or Portfolio reflects
gains that are either unrealized, or realized but not distributed. Such realized
gains may be required to be distributed even when a Fund's or Portfolio's net
asset value also reflects unrealized losses.
Sales of Shares
Upon the disposition of shares of a Fund or Portfolio (whether by
redemption, sale or exchange), a shareholder will realize a gain or loss. Such
gain or loss will be capital gain or loss if the shares are capital assets in
the shareholder's hands, and will be long-term or short-term generally depending
upon the shareholder's holding period for the shares. Long-term capital gains
will generally be taxed at a federal income tax rate of 20% to shareholders who
are individuals. Any loss realized on a disposition will be disallowed to the
extent the shares
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disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of shares held by the shareholder for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of capital gain dividends received by the shareholder with
respect to such shares. Depending on a Portfolio's percentage ownership in an
Underlying PIMCO Fund both before and after a redemption, a Portfolio's
redemption of shares of such Fund may cause the Portfolio to be treated as not
receiving capital gain income on the amount by which the distribution exceeds
the Portfolio's tax basis in the shares of the Underlying PIMCO Fund, but
instead to be treated as receiving a dividend taxable as ordinary income on the
full amount of the distribution. This could cause shareholders of a Portfolio to
recognize higher amounts of ordinary income than if the shareholders had held
the shares of the Underlying PIMCO Funds directly.
Backup Withholding
A Fund or Portfolio may be required to withhold 31% of all taxable
distributions payable to shareholders who fail to provide the Fund or Portfolio
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal tax liability.
Options, Futures, Forward Contracts and Swap Agreements
To the extent such investments are permissible for a Fund, the Fund's
transactions in options, futures contracts, hedging transactions, forward
contracts, straddles and foreign currencies will be subject to special tax rules
(including mark-to-market, constructive sale, straddle, wash sale and short sale
rules), the effect of which may be to accelerate income to the Fund, defer
losses to the Fund, cause adjustments in the holding periods of the Fund's
securities, convert long-term capital gains into short-term capital gains and
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders, including the Portfolios.
Passive Foreign Investment Companies
Investment by a Fund in certain "passive foreign investment companies"
could subject the Fund to a U.S. federal income tax (including interest charges)
on distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to Fund shareholders. However, the Fund may elect to treat a
passive foreign investment company as a "qualified electing fund," in which case
the Fund will be required to include its share of the company's income and net
capital gains annually, regardless of whether it receives any distribution from
the company. The Fund also may make an election to mark the gains (and to a
limited extent losses) in such holdings "to the market" as though it had sold
and repurchased its holdings in those PFICs on the last day of the Fund's
taxable year. Such gains and losses are treated as ordinary income and loss. The
QEF and mark-to-market elections may have the effect of accelerating the
recognition of income (without the receipt of cash) and increase the amount
required to be distributed for the Fund to avoid taxation. Making either of
these elections therefore may require a Fund to liquidate other investments
(including when it is not advantageous to do so) to meet its distribution
requirement, which also may accelerate the recognition of gain and affect a
Fund's total return.
Foreign Currency Transactions
A Fund's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency options,
futures contracts and forward contracts (and similar instruments) may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
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Foreign Taxation
Income received by the Funds from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Adviser and each Sub-Adviser intends to manage the Funds
with the intention of minimizing foreign taxation in cases where it is deemed
prudent to do so. If more than 50% of the value of a Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, such
Fund will be eligible to elect to "pass-through" to the Fund's shareholders the
amount of eligible foreign income and similar taxes paid by the Fund. If this
election is made, a shareholder generally subject to tax will be required to
include in gross income (in addition to taxable dividends actually received) his
pro rata share of the foreign taxes paid by the Fund, and may be entitled either
to deduct (as an itemized deduction) his or her pro rata share of foreign taxes
in computing his taxable income or to use it as a foreign tax credit against his
or her U.S. federal income tax liability, subject to certain limitations. In
particular, shareholders must hold their shares (without protection from risk of
loss) on the ex-dividend date and for at least 15 more days during the 30-day
period surrounding the ex-dividend date to be eligible to claim a foreign tax
credit with respect to a gain dividend. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Each shareholder will
be notified within 60 days after the close of the Fund's taxable year whether
the foreign taxes paid by the Fund will "pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his or her
total foreign source taxable income. For this purpose, if the pass-through
election is made, the source of the electing Fund's income will flow through to
shareholders of the Trust. With respect to such Funds, gains from the sale of
securities will be treated as derived from U.S. sources and certain currency
fluctuation gains, including fluctuation gains from foreign currency-denominated
debt securities, receivables and payables will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income, and to certain other types of
income. Shareholders may be unable to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the Fund. The foreign tax
credit can be used to offset only 90% of the revised alternative minimum tax
imposed on corporations and individuals and foreign taxes generally are not
deductible in computing alternative minimum taxable income. Although a Portfolio
may itself be entitled to a deduction for such taxes paid by an Underlying PIMCO
Fund in which the Portfolio invests, the Portfolio will not be able to pass any
such credit or deduction through to its own shareholders. In addition, a Fund
which invests in other investment companies may not be able to pass any such
credit or deduction for taxes paid by the underlying investment company through
to its own shareholders.
Original Issue Discount 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.
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Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by a Fund in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. A Fund may make one or more of the elections applicable to debt
securities having market discount, which could affect the character and timing
of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by a Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
Each Fund that holds the foregoing kinds of securities may be required
to pay out as an income distribution each year an amount which is greater than
the total amount of cash interest the Fund actually received. Such distributions
may be made from the cash assets of the Fund or by liquidation of portfolio
securities, if necessary. The Fund may realize gains or losses from such
liquidations. In the event the Fund realizes net capital gains from such
transactions, its shareholders may receive a larger capital gain distribution,
if any, than they would in the absence of such transactions.
Other Taxation
Pursuant to Treasury Department regulations, certain expenses of
nonpublicly offered regulated investment companies, including advisory fees, 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.
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.
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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.
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
-81-
<PAGE>
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 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.
-82-
<PAGE>
For the one month period ended September 30, 1999, the yields of the
Equity Income, Value and Renaissance Funds and the 60/40 and 30/70 Portfolios
were as follows (Class D shares were not offered during the period listed):
<TABLE>
<CAPTION>
Institutional Administrative
-------------- ---------------
Fund Class Class Class A Class B Class C Class D
---- ----- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Fund 3.37% 3.12% 2.80% 2.19% 2.19% 2.96%
Value Fund 2.37% 2.12% 1.87% 1.20% 1.20% 1.95%
Renaissance Fund 0.38% 0.11% -0.05% -0.84% -0.84% -0.06%
60/40 Portfolio 4.53% 4.28% 3.75% 3.20% 3.20% N/A
30/70 Portfolio 5.39% 5.14% 4.62% 4.08% 4.08% N/A
</TABLE>
The yield of a Fund or Portfolio will vary from time to time depending
upon market conditions, the composition of its portfolio and operating expenses
of the Trust allocated to the Fund or Portfolio or its classes of shares. These
factors, possible differences in the methods used in calculating yield should be
considered when comparing a Fund's or Portfolio's yield to yields published for
other investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's or Portfolio's various
classes of shares. These yields do not take into account any applicable
contingent deferred sales charges.
The Trust, in its advertisements, may refer to pending legislation
from time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time in
the future, yields and total return may be higher or lower than past yields and
there can be no assurance that any historical results will continue.
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,
Innovation and International Growth Funds reflects the results of operations
under these Funds' previous Sub-Adviser. These Funds would not necessarily have
achieved the results shown under their current investment management
arrangements. The Mega Cap, Global Innovation, NFJ Equity Income, NFJ Value and
NFJ Value 25 Funds did not offer shares during the periods ended June 30, 1999,
and therefore no performance information is shown for these Funds.
-83-
<PAGE>
The table below sets forth the average annual total return of certain
classes of shares of the following Funds for periods ended June 30, 1999. For
periods prior to the "Inception Date" of a particular class of a Fund's shares,
total return presentations for the class are based on the historical performance
of Institutional Class shares of the Fund (the oldest class) adjusted, as
necessary, to reflect any current sales charges (including any contingent
deferred sales charges) associated with the newer class and any different
operating expenses associated with the newer class, such as 12b-1 distribution
and servicing fees (which are not paid by the Institutional Class) and
administrative fee charges.
<TABLE>
<CAPTION>
Average Annual Total Return for Periods Ended June 30, 1999*
-------------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
Fund Class** 1 Year 5 Years of Fund Date of Date of Class
(Annualized) Fund
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Institutional 12.56% 21.02% 16.89% 03/08/91 03/08/91
Administrative 12.31% 20.72% 16.61% 11/30/94
Class A 6.08% 19.21% 15.66% 1/20/97
Class B 6.50% 19.48% 15.71% 1/20/97
Class C 10.31% 19.66% 15.58% 1/20/97
Class D 12.21% 20.56% 16.45% 4/8/98
-------------------------------------------------------------------------------------------------------------
Value Institutional 12.30% 21.23% 17.09% 12/30/91 12/30/91
Administrative 11.91% 20.93% 16.79% 8/21/97
Class A 5.78% 19.40% 15.75% 1/13/97
Class B 6.17% 19.67% 15.83% 1/13/97
Class C 10.06% 19.87% 15.77% 1/13/97
Class D 12.00% 20.79% 16.65% 4/8/98
-------------------------------------------------------------------------------------------------------------
Small-Cap Value Institutional -5.11% 15.78% 14.43% 10/1/91 10/1/91
Administrative -5.40% 15.48% 14.14% 11/1/95
Class A -10.70% 14.03% 13.15% 1/20/97
Class B -10.75% 14.24% 13.22% 1/20/97
Class C -7.12% 14.48% 13.14% 1/20/97
-------------------------------------------------------------------------------------------------------------
Capital Institutional 10.57% 24.49% 19.51% 3/8/91 3/8/91
Appreciation Administrative 10.30% 24.18% 19.22% 7/31/96
Class A 4.08% 22.61% 18.23% 1/20/97
Class B 4.39% 22.94% 18.30% 1/20/97
Class C 8.34% 23.10% 18.17% 1/20/97
Class D 10.17% 24.00% 19.04% 4/8/98
-------------------------------------------------------------------------------------------------------------
Mid-Cap Institutional 0.33% 20.56% 16.91% 8/26/91 8/26/91
Administrative 0.31% 20.29% 16.63% 11/30/94
Class A -5.63% 18.73% 15.60% 1/13/97
Class B -5.58% 18.99% 15.67% 1/13/97
Class C -1.76% 19.20% 15.59% 1/13/97
Class D 0.25% 20.16% 16.49% 4/8/98
-------------------------------------------------------------------------------------------------------------
Micro-Cap Institutional -12.66% 19.33% 17.61% 6/25/93 6/25/93
Administrative -12.90% 19.03% 17.32% 4/1/96
-------------------------------------------------------------------------------------------------------------
Small-Cap Institutional -14.99% 11.38% 16.99% 1/7/91 1/7/91
Administrative -15.26% 11.21% 16.76% 9/27/95
-------------------------------------------------------------------------------------------------------------
Enhanced Equity Institutional 17.95% 25.44% 17.73% 2/11/91 2/11/91
Administrative 17.63% 25.10% 17.42% 8/21/97
-------------------------------------------------------------------------------------------------------------
International Institutional 28.62% N/A 44.97% 12/31/97 12/31/97
Growth
-------------------------------------------------------------------------------------------------------------
</TABLE>
-84-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
Select Growth*** Institutional 24.27% 27.09% 27.06% 12/28/94 12/28/94
Administrative 23.75% 26.69% 26.67% 5/31/95
-------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Institutional 23.18% N/A 24.24% 12/28/94 12/28/94
-------------------------------------------------------------------------------------------------------------
Structured Institutional 29.21% N/A 29.21% 6/30/98 6/30/98
Emerging Markets
-------------------------------------------------------------------------------------------------------------
Tax-Efficient Institutional 33.39% N/A 33.39% 6/30/98 6/30/98
Structured
Emerging Markets
-------------------------------------------------------------------------------------------------------------
</TABLE>
* The information for the Select Growth Fund is for periods ending December
31, 1999. Average annual total return presentations for a particular class
of shares assume payment of the current maximum sales charge (if any)
applicable to that class at the time of purchase and assume that the
maximum CDSC (if any) for Class A, Class B and Class C shares was deducted
at the times, in the amounts, and under the terms discussed in the Class A,
B and C Prospectus.
** For all Funds listed above, Class A, Class B, Class C, Class D and
Administrative Class total return presentations for periods prior to the
Inception Date of a particular class reflect the prior performance of
Institutional Class shares of the Fund (the oldest class) adjusted to
reflect the actual sales charges (none in the case of Class D and the
Administrative Class) of the newer class. The adjusted performance also
reflects the higher Fund operating expenses applicable to Class A, Class B,
Class C, Class D and Administrative Class shares. These include (i) 12b-1
distribution and servicing fees, which are not paid by the Institutional
Class and are paid by Class B and Class C (at a maximum rate of 1.00% per
annum) and Class A and the Administrative Class (at a maximum rate of .25%
per annum), and may be paid by Class D (at a maximum rate of .25% per
annum) and (ii) administrative fee charges associated with Class A, Class B
and Class C shares (a maximum differential of .15% per annum) and Class D
shares (a maximum differential of 0.40% per annum).
*** The investment objective and policies of the Select Growth Fund were
changed effective April 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 Fund, was a series of PAF prior to its reorganization as a
Fund of the Trust on January 17, 1997) for periods ended June 30, 1999.
Accordingly, "Inception Date of Fund" for these Funds refers to the inception
date of the PAF predecessor series. Since Class C shares were offered since the
inception of each PAF series, total return presentations for periods prior to
the Inception Date of the other classes (with the exception of Class D,
Institutional Class and Administrative Class shares of the Innovation Fund,
Institutional Class and Administrative Class shares of the Target Fund and
Administrative Class shares of the Tax-Efficient Equity Fund) are based on the
historical performance of Class C shares, adjusted to reflect any current sales
charges (including any contingent deferred sales charges) associated with the
newer class and any different operating expenses associated with the newer
class, such as 12b-1 distribution and servicing fees and administrative fee
charges. As described below, performance presentations for periods prior to the
Inception Date of Class D, Institutional Class and Administrative Class shares
of the Innovation Fund, Institutional Class and Administrative Class shares of
the Target Fund and Administrative Class Shares of the Tax-Efficient Equity Fund
are based on the historical performance of Class A shares.
-85-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for Periods Ended June 30, 1999*
------------------------------------------------------------------------------------------------------------------------------
Since Inception Inception Date
Inception Date of Fund of Class
Fund Class*** 1 Year 5 Years 10 Years of Fund
(Annualized)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Renaissance** Class A 3.90% 21.45% 14.26%(#) 14.22%(#) 4/18/88 2/1/91
Class B 4.22% 21.71% 14.31% 14.26% 5/22/95
Class C 8.17% 21.91% 14.05% 13.94% 4/18/88
Class D 10.01% 22.84%(#) 14.91%(#) 14.80%(#) 4/8/98
Institutional 10.24%(#) 23.28%(#) 15.34%(#) 15.24%(#) 12/30/97
Administrative 9.91%(#) 22.96%(#) 15.05%(#) 14.94%(#) 8/31/98
------------------------------------------------------------------------------------------------------------------------------
Growth Class A 12.13% 22.65% 17.13%(#) 18.35%(#) 2/24/84 10/26/90
Class B 12.72% 22.93% 17.19% 18.39% 5/23/95
Class C 16.76% 23.11% 16.93% 17.91% 2/24/84
Class D 18.64%(#) 24.02%(#) 17.80%(#) 18.79%(#) 4/1/99
Institutional 19.11%(#) 24.51%(#) 18.27%(#) 19.26%(#) 4/1/99
Administrative 18.86% 24.21% 17.98% 18.97%
------------------------------------------------------------------------------------------------------------------------------
Target Class A 57.10% 28.28% N/A 24.13% 12/17/92 12/17/92
Class B 60.05% 28.62% N/A 24.19% 5/22/95
Class C 64.05% 28.77% N/A 24.19% 12/17/92
Class D 66.25% 29.74% N/A 25.13% 6/1/00
Institutional 66.50%(#) 30.31%(#) N/A 25.66%(#) 4/1/99
Administrative 66.28%(#) 30.02%(#) N/A 25.37%(#) 4/1/99
------------------------------------------------------------------------------------------------------------------------------
Opportunity Class A -1.74% 14.50% 17.18%(#) 17.08%(#) 2/24/84 12/17/90
Class B -0.95% 14.72% 17.25% 17.11% 4/1/99
Class C 2.36% 14.94% 16.99% 16.65% 2/24/84
Institutional 4.42%(#) 16.27%(#) 18.33%(#) 17.99%(#) 4/1/99
Administrative 4.21%(#) 15.99%(#) 18.04%(#) 17.70%(#) 4/1/99
------------------------------------------------------------------------------------------------------------------------------
Innovation Class A 52.48% N/A N/A 36.53% 12/22/94 12/22/94
Class B 55.17% N/A N/A 37.07% 5/22/95
Class C 59.20% N/A N/A 37.21% 12/22/94
Class D 61.62% N/A N/A 38.30% 4/8/98
Institutional 61.96%(#) N/A N/A 38.79%(#) 3/5/99
Administrative 61.60%(#) N/A N/A 38.45%(#) Not yet offered
------------------------------------------------------------------------------------------------------------------------------
International** Class A -9.57% 3.73% 6.00%(#) 6.86%(#) 8/25/86 2/1/91
Class B -9.42% 3.79% 6.06% 6.90% 5/22/95
Class C -6.01% 4.10% 5.80% 6.53% 8/25/86
Institutional -3.89%(#) 5.34%(#) 7.04%(#) 7.77%(#) 9/30/98
Administrative -4.43%(#) 5.01%(#) 6.74%(#) 7.48%(#) 9/30/98
------------------------------------------------------------------------------------------------------------------------------
Tax-Efficient Class A N/A 9.55% 7/10/98 7/10/98
Equity Class B N/A 10.10% 7/10/98
Class C N/A 14.10% 7/10/98
Class D N/A 15.90% 7/10/98
Institutional N/A 16.35%(#) 7/2/99
Administrative N/A 16.10% 9/30/98
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The information for the Target Fund is for the periods ended December 31,
1999. 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.
-86-
<PAGE>
*** 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 and Administrative Class shares of the Tax-
Efficient Equity Fund) reflect the prior performance of Class C shares of
the Fund, adjusted to reflect the actual sales charges (or no sales charges
in the case of Class D, Institutional Class and Administrative Class
shares) of the newer class. The adjusted performance also reflects any
different operating expenses associated with the newer class. These include
(i) 12b-1 distribution and servicing fees, which are paid by Class C and
Class B (at a maximum rate of 1.00% per annum) and Class A and the
Administrative Class (at a maximum rate of .25% per annum), may be paid by
Class D (at a maximum rate of .25% per annum), and are not paid by the
Institutional Class and (ii) administrative fee charges, which are lower
than Class C charges for the Institutional and Administrative Classes (a
maximum differential of .15% per annum) and higher for Class D (a maximum
differential of .25% per annum). (Administrative fee charges are the same
for Class A, B and C shares.) Performance presentations for periods prior
to the Inception Date of Class D, Institutional Class and Administrative
Class shares of the Innovation Fund, Class D, Institutional Class and
Administrative Class shares of the Target Fund and Administrative Class
Shares of the Tax-Efficient Equity Fund are based on the historical
performance of Class A shares (which were also offered since inception of
the Fund), adjusted in the manner described above.
Note also that, prior to January 17, 1997, Class A, Class B and Class C
shares of the former PAF series were subject to a variable level of
expenses for such services as legal, audit, custody and transfer agency
services. As described in the Class A, B and C Prospectus, for periods
subsequent to January 17, 1997, Class A, Class B and Class C shares of the
Trust are subject to a fee structure which essentially fixes these expenses
(along with other administrative expenses) under a single administrative
fee based on the average daily net assets of a Fund attributable to Class
A, Class B and Class C shares. Under the current fee structure, the Growth
Fund, Target Fund, Opportunity Fund and International Fund are expected to
have higher total Fund operating expenses than their predecessors had under
the fee structure for PAF (prior to January 17, 1997). All other things
being equal, such higher expenses have an adverse effect on total return
performance for these Funds after January 17, 1997.
(#) Where noted, the method of adjustment used in the table above for
periods prior to the Inception Date of the noted classes of the noted Funds
resulted in performance for the period shown which is higher than if the
historical Class C or Class A share performance (i.e., the older class used
for prior periods) were not adjusted to reflect the lower operating
expenses of the newer class. The following table shows the lower
performance figures that would be obtained if the performance for newer
classes with lower operating expenses were calculated by essentially
tacking to such classes' actual performance the actual performance (with
adjustment for actual sales charges) of the older Class of shares, with
their higher operating expenses, for periods prior to the initial offering
date of the newer class (i.e., the total return presentations below are
based, for periods prior to the Inception Date of the noted classes, on the
historical performance of the older class adjusted to reflect the current
sales charges (if any) associated with the newer class, but not reflecting
lower operating expenses associated with the newer class, such as lower
administrative fee charges and/or 12b-1 distribution and servicing fee
charges).
-87-
<PAGE>
Total Return for Periods Ended June 30, 1999*
(with no adjustment for operating expenses of the noted
classes for periods prior to their inception dates)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Since Inception
of Fund
Fund Class 1 Year 5 Years 10 Years (Annualized)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Renaissance Class A -- -- 14.12% 14.01%
Class D -- 22.16% 14.16% 14.04%
Institutional 10.24% 22.30% 14.23% 14.10%
Administrative 9.72% 22.05% 14.11% 14.00%
----------------------------------------------------------------------------------------------
Growth Class A -- -- 17.01% 17.97%
Institutional 18.10% 23.18% 16.96% 17.93%
Administrative 18.06% 23.17% 16.96% 17.93%
----------------------------------------------------------------------------------------------
Target Institutional 66.34% 29.87% -- 25.22%
Administrative 66.22% 29.85% -- 25.21%
----------------------------------------------------------------------------------------------
Opportunity Class A -- -- 17.06% 16.69%
Institutional 3.50% 15.01% 17.02% 16.67%
Administrative 3.50% 15.01% 17.02% 16.67%
----------------------------------------------------------------------------------------------
Innovation Institutional 61.53% -- -- 38.28%
----------------------------------------------------------------------------------------------
International Class A -- -- 5.87% 6.59%
Institutional -4.20% 4.31% 5.90% 6.61%
Administrative -4.66% 4.21% 5.85% 6.57%
----------------------------------------------------------------------------------------------
Tax-Efficient Institutional -- -- -- 15.90%
Equity
----------------------------------------------------------------------------------------------
</TABLE>
* The information for the Target Fund is for the periods ended December 31,
1999.
The following table sets forth the average annual total return of each
class of shares of the Portfolios for periods ended June 30, 1999. Total return
presentations for periods prior to the Inception Date of Institutional Class and
Administrative Class shares are based on the historical performance of Class A
shares (which were offered since the inception of the Portfolios), adjusted to
reflect that there are no sales charges associated with Institutional Class and
Administrative Class shares and any different operating expenses associated with
these newer classes, such as lower 12b-1 distribution and servicing fees and/or
administrative fee charges.
-88-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for Periods Ended June 30, 1999*
-----------------------------------------------------------------------------------------------------------
Since Inception Inception
of Portfolio Date of Inception
Portfolio Class** 1 Year (Annualized) Portfolio Date of Class
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
90/10 Portfolio Class A N/A 16.91% 9/30/98 9/30/98
Class B N/A 18.03% 9/30/98
Class C N/A 22.03% 9/30/98
Institutional N/A 24.17%(#) 3/1/99
Administrative N/A 23.94%(#) 3/1/99
-----------------------------------------------------------------------------------------------------------
60/40 Portfolio Class A N/A 9.17% 9/30/98 9/30/98
Class B N/A 9.83% 9/30/98
Class C N/A 13.82% 9/30/98
Institutional N/A 15.95%(#) 3/1/99
Administrative N/A 15.74%(#) 3/1/99
-----------------------------------------------------------------------------------------------------------
30/70 Portfolio Class A N/A 2.11% 9/30/98 9/30/98
Class B N/A 1.29% 9/30/98
Class C N/A 5.27% 9/30/98
Institutional N/A 7.32%(#) 3/1/99
Administrative N/A 7.12%(#) 3/1/99
-----------------------------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of shares
assume payment of the current maximum sales charge (if any) applicable to that
class at the time of purchase and assume that the maximum CDSC (if any) for
Class A, B and C shares was deducted at the times, in the amounts, and under the
terms discussed in the Retail Portfolio Prospectus.
** Institutional Class and Administrative Class total return presentations for
the Portfolios for periods prior to the Inception Date of these classes reflect
the prior performance of Class A shares, adjusted to reflect that there are no
sales charges associated with Institutional Class and Administrative Class
shares. The adjusted performance also reflects any different operating expenses
associated with the newer classes. These include (i) 12b-1 distribution and
servicing fees, which are the same for Class A and the Administrative Class but
are not paid by the Institutional Class and (ii) administrative fee charges,
which are lower than Class A charges for the Institutional and Administrative
Classes (a differential of .30% per annum).
(#) Where noted, the method of adjustment used in the table above for periods
prior to the Inception Date of the noted classes of the Portfolios resulted in
performance for the period shown which is higher than if the historical Class A
share performance were not adjusted to reflect the lower operating expenses of
the newer class. The following table shows the lower performance figures that
would be obtained if the performance for the newer classes with lower operating
expenses were calculated by essentially tacking to such classes' actual
performance the actual performance (with adjustment for actual sales charges) of
Class A shares, with their higher operating expenses, for periods prior to the
initial offering date of the newer class (i.e., the total return presentations
below are based, for periods prior to the Inception Date of the noted classes,
on the historical performance of Class A shares adjusted to reflect the current
sales charges (if any) associated with the newer class, but not reflecting lower
operating expenses associated with the newer class, such as lower administrative
fee charges and/or 12b-1 distribution and servicing fee charges).
-89-
<PAGE>
Total Return for Periods Ended June 30, 1999
(with no adjustment for operating expenses of the noted
classes for periods prior to their inception dates)
----------------------------------------------------------------
Since
Inception
of Portfolio
Portfolio Class** 1 Year (Annualized)
----------------------------------------------------------------
90/10 Portfolio Institutional N/A 23.89%
Administrative N/A 23.79%
----------------------------------------------------------------
60/40 Portfolio Institutional N/A 15.11%
Administrative N/A 15.08%
----------------------------------------------------------------
30/70 Portfolio Institutional N/A 7.08%
Administrative N/A 6.99%
----------------------------------------------------------------
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
-90-
<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 1998 (as well as a
cumulative return and average annual return for this period) for the S&P 500 and
Treasury bills (using the formula set forth after the table) as well as the
rates of inflation (based on the Consumer Price Index) during such periods.
-91-
<PAGE>
<TABLE>
<CAPTION>
Consumer Price
Period S&P 500 Treasury Bills Index
------ ------- -------------- --------------
<S> <C> <C> <C>
1973 -14.7 6.9 8.8
1974 -26.5 8.0 12.2
1975 37.2 5.8 7.0
1976 23.8 5.0 4.8
1977 -7.2 5.1 6.8
1978 6.5 7.2 9.0
1979 18.4 10.4 13.3
1980 32.4 11.2 12.4
1981 -4.9 14.7 8.9
1982 21.4 10.5 3.8
1983 22.5 8.8 3.8
1984 6.3 9.9 3.9
1985 32.2 7.7 3.8
1986 18.5 6.1 1.1
1987 5.2 5.5 4.4
1988 16.8 6.3 4.4
1989 31.5 8.4 4.6
1990 -3.2 7.8 6.1
1991 30.5 5.6 3.1
1992 7.7 3.5 2.9
1993 10.1 2.9 2.7
1994 1.3 3.9 2.7
1995 37.4 5.6 2.7
1996 23.1 5.2 3.3
1997 33.4 5.3 1.7
1998 28.6 4.9 1.6
---------------------------------------------------------------------------------------------------------
Cumulative Return
1973-1998 2,667.2% 478.0% 285.6%
---------------------------------------------------------------------------------------------------------
Average Annual Return
1973-1998 13.6% 7.0% 5.3%
---------------------------------------------------------------------------------------------------------
</TABLE>
The average returns for Treasury bills were computed using the
following method. For each month during a period, the Treasury bill having the
shortest remaining maturity (but not less than one month) was selected. (Only
the remaining maturity was considered; the bill's original maturity was not
considered). The return for the selected Treasury bill was computed based on the
price of the bill as of the last trading day of the previous month and the price
on the last trading day of the current month. The price of the bill (P) at each
time (t) is given by:
P\\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, 1998 (as well as a
cumulative return and average annual return for this period) for stocks of
medium-sized companies (based on the Standard & Poor's Mid-Cap Index), stocks of
small companies (based on the Russell 2000 Index) and stocks of larger companies
(based on the S&P 500).
-92-
<PAGE>
<TABLE>
<CAPTION>
Small Mid-Size Large
Period Companies Companies Companies
------ --------- --------- ---------
<S> <C> <C> <C>
1981 (2/28 -12/31) 1.8 10.6 -2.5
1982 25.0 22.7 21.4
1983 29.1 26.1 22.5
1984 -7.3 1.2 6.3
1985 31.1 36.0 32.2
1986 5.7 16.2 18.5
1987 -8.8 -2.0 5.2
1988 24.9 20.9 16.8
1989 16.2 35.6 31.5
1990 -19.5 -5.1 -3.2
1991 46.1 50.1 30.5
1992 18.4 11.9 7.7
1993 18.9 14.0 10.1
1994 -1.8 -3.6 1.3
1995 28.4 30.9 37.6
1996 16.5 19.2 22.9
1997 22.8 32.3 33.4
1998 -2.6 19.1 28.6
-----------------------------------------------------------------------------------------
Cumulative Return
2/28/81-12/31/98 10.5% 1,784.5% 1,616.9%
-----------------------------------------------------------------------------------------
Average Annual Return
2/28/81-12/31/98 12.4% 17.9% 17.3%
-----------------------------------------------------------------------------------------
</TABLE>
From time to time, the Trust may use, in its advertisements and other
information, data concerning the average price-to-earnings ("P/E") ratios of
"Value Stocks" and "Growth Stocks." For these purposes, the P/E ratios of Value
Stocks are measured by the P/E ratios of the stocks comprising the Russell 1000
Value Index, and the P/E ratios of Growth Stocks are measured by the P/E ratios
of the stocks comprising the Russell 1000 Growth Index. Both the Russell 1000
Value Index and Russell 1000 Growth Index are unmanaged indexes, and it is not
possible to invest directly in either index. The table below sets forth the
average P/E ratio of Value Stocks and the Average P/E ratio of Growth Stocks for
the period beginning December 31, 1992 and ending March 31, 1999.
<TABLE>
<CAPTION>
Average P/E ratio
-----------------
Period
Ending Growth Stocks Value Stocks
------ ------------- ------------
<S> <C> <C>
12/31/92 21.76 21.40
3/31/93 21.59 22.36
6/30/93 20.86 21.41
9/30/93 20.25 21.05
12/31/93 18.33 17.84
3/31/94 18.07 17.69
6/30/94 16.70 16.31
9/30/94 15.98 15.28
12/31/94 15.98 14.97
3/31/95 15.80 14.62
6/30/95 16.50 14.87
9/30/95 17.85 16.17
12/31/95 17.91 15.82
3/31/96 18.24 16.07
6/30/96 18.57 15.93
9/30/96 18.88 15.80
</TABLE>
-93-
<PAGE>
<TABLE>
<S> <C> <C>
12/31/96 20.45 17.03
3/31/97 20.28 16.78
6/30/97 22.85 18.44
9/30/97 23.80 19.60
12/31/97 22.93 19.06
3/31/98 26.46 21.32
6/30/98 26.55 20.69
9/30/98 25.77 19.31
12/31/98 31.31 22.92
3/31/99 39.46 24.33
</TABLE>
Advertisements and information relating to the Growth Fund may use data
comparing the performance of a hypothetical investment in Growth Stocks, Value
Stocks, "Bonds" and "Savings Accounts." For these purposes, the performance of
an investment in "Bonds" is measured by the Lehman Aggregate Bond Index, an
unmanaged index representative of the U.S. taxable fixed income universe. It is
not possible to invest in this index. The performance of an investment in
"Savings Accounts" is measured by the return on 3-month U.S. Treasury bills.
Similarly, advertisements and information relating to the Renaissance Fund may
use data comparing the performance of a hypothetical investment in "Stocks,"
Bonds and Savings Accounts. For these purposes, the performance of the
investment in "Stocks" is measured by the S&P 500, while the performance of
Bonds and Savings Accounts is measured as discussed above. The table below sets
forth the value at March 31, 1999 of a hypothetical $10,000 investment in
Stocks, Growth Stocks, Value Stocks, Bonds and Savings Accounts made at March
31, 1979.
<TABLE>
<CAPTION>
Asset Category March 31, 1999 Value of $10,000 Investment made at March 31, 1979
-------------- -----------------------------------------------------------------
<S> <C>
Growth Stocks $247,076
Value Stocks $231,697
Stocks $126,624
Bonds $ 67,584
Savings Accounts $ 39,985
</TABLE>
Advertisements and information may compare the average annual total
return of the Growth, Renaissance and Innovation Funds with that of the Lipper
Growth Fund Average, Lipper Equity Income Fund Average and Lipper Science &
Technology Fund Average, respectively. The Innovation Fund may also be compared
to the S&P 500. The Lipper Growth Fund Average is a total-return performance
average of funds that are tracked by Lipper, Inc. and have an investment
objective of long-term growth. The Lipper Equity Income Fund Average is a
total-return performance average of funds tracked by Lipper that have an
investment objective of income and growth through investment in stocks. The
Lipper Science and Technology Fund Average is a total-return performance average
of funds tracked by Lipper with an investment objective of capital appreciation
through investment in technology-oriented companies. None of the averages take
into account sales charges. It is not possible to invest directly in the
averages. The average annual total return of the Growth Fund, the Renaissance
Fund, the Innovation Fund, the Lipper Growth Fund Average, the Lipper Equity
Income Fund Average and the Lipper Science and Technology Fund Average are set
forth below. The inception date of the Growth and Opportunity Funds is February
24, 1984. The inception date of the Innovation Fund is December 27, 1994. The
inception date of the Mid-Cap Fund is August 26, 1991.
<TABLE>
<CAPTION>
Average Annual Total Return
(for periods ending 3/31/99)
-----------------------------------------------------
Fund
1 Year 3 Years 5 Years 10 Years Inception
------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Growth Fund 29.0% 27.4% 23.6% 19.4% 19.1%
Lipper Growth Fund Average 13.6% 21.7% 20.4% 16.3% 15.6%
</TABLE>
-94-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Renaissance Fund 5.5% 23.9% 20.7% 15.0% --
Lipper Equity Income Fund Average 0.7% 16.9% 17.2% 13.6% --
Innovation Fund 68.7% 39.0% -- -- 38.3%
Lipper Science and Technology 52.3% 27.3% -- -- 27.4%
Fund Average
S&P 500 18.5% 28.1% -- -- 30.0%
Opportunity Fund -- -- -- 17.6% 16.9%
Lipper Capital Appreciation -- -- -- 13.6% 12.8%
Fund Average
Target Fund 12.6% 17.5% 19.0% -- 18.8%
Lipper Mid-Cap Fund 0.2% 14.0% 15.8% -- 14.0%
Average
Capital Appreciation Fund -- 23.2% `22.0% -- 18.9%
Lipper Capital Appreciation -- 15.1% 16.5% -- 14.4%
Fund Average
Mid-Cap Fund -- 14.9% 16.8% -- 15.7%
Lipper Capital Appreciation -- 14.0% 15.8% -- 14.2%
Fund Average
</TABLE>
From time to time, the Trust may use, in its advertisements and other
information, data comparing the average annual total return of "Small-Caps,"
which are stocks represented by the Ibbotson's Small Company Stock Total Return
Index, and "Large-Caps," which are stocks represented by the Ibbotson's Large
Company Stock Total Return Index. Both indexes are unmanaged indexes, and it is
not possible to invest directly in either index. For example, for the period
from December 31, 1925 through December 31, 1998, the average annual total
return of Small-Caps was 12.4%, and for Large-Caps was 11.2%.
Advertisements and other information and other information relating to
the Funds may list the annual total returns of certain asset classes during
specified years. In such advertisements, the return of "Small Company Stocks"
will be measured by the Russell 2000 Index of small company stocks, the returns
of "Large Company Stocks" will be measured by the S&P 500, and the return of
"Intermediate-Term Government Bonds" will be measured by a one-bond portfolio
with a 5-year maturity as measured by Ibbotson Associates. The following table
sets for the average return of these asset classes for the specified years.
<TABLE>
<CAPTION>
Domestic Asset Class Annual Total Return
--------------------- -------------------
<S> <C> <C>
1990 Intermediate-Term Government Bonds +9.7%
1991 Small Company Stocks +22.9%
1992 Small Company Stocks +31.5%
1993 Small Company Stocks +21.0%
1994 U.S. Treasury Bills +3.9%
1995 Large Company Stocks +37.4%
1996 Large Company Stocks +23.0%
1997 Large Company Stocks +33.4%
1998 Large Company Stocks +28.6%
</TABLE>
Advertisements and other information relating to the Innovation Fund
may include information pertaining to the number of home internet subscriptions
and cellular phone users and sales of personal computers.
-95-
<PAGE>
The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
1997/1998 costs of college (using tuition and fees only) and an assumed rate of
increase for such costs. For example, the table below sets forth the projected
cost of four years of college at a public college and a private college assuming
a steady increase in both cases of 3% per year. In presenting this information,
the Trust is making no prediction regarding what will be the actual growth rate
in the cost of a college education, which may be greater or less than 3% per
year and may vary significantly from year to year. The Trust makes no
representation that an investment in any of the Funds will grow at or above the
rate of growth of the cost of a college education.
Potential College Cost Table
<TABLE>
<CAPTION>
Start Public Private Start Public Private
Year College College Year College College
---- ------- ------- ---- ------- -------
<S> <C> <C> <C> <C> <C>
1997 $13,015 $57,165 2005 $16,487 $72,415
1998 $13,406 $58,880 2006 $16,982 $74,587
1999 $13,808 $60,646 2007 $17,491 $76,825
2000 $14,222 $62,466 2008 $18,016 $79,130
2001 $14,649 $64,340 2009 $18,557 $81,504
2002 $15,088 $66,270 2010 $19,113 $83,949
2003 $15,541 $68,258 2011 $19,687 $86,467
2004 $16,007 $70,306 2012 $20,278 $89,061
</TABLE>
Costs assume a steady increase in the annual cost of college of 3% per year from
a 1996-97 base year amount. Actual rates of increase may be more or less than 3%
and may vary.
In its advertisements and other materials, the Trust may compare the returns
over periods of time of investments in stocks, bonds and treasury bills to each
other and to the general rate of inflation. For example, the average annual
return of each category* during the period from 1974 through 1998 was:
Stocks: 14.9%
Bonds: 9.9%
T-Bills: 7.0%
Inflation: 5.2%
* Returns of unmanaged indexes do not reflect past or future
performance of any of the Funds or Portfolios of PIMCO
Funds: Multi-Manager Series. Stocks are represented by
Ibbotson's Large Company Stock Total Return Index. Bonds are
represented by Ibbotson's Long-term Corporate Bond Index.
Treasury bills are represented by Ibbotson's Treasury Bill
Index and Inflation is represented by the Cost of Living
Index. These are all unmanaged indexes, which can not be
invested in directly. While Treasury bills are insured and
offer a fixed rate of return, both the principal and yield
of investment securities will fluctuate with changes in
market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989,
updated in Stocks, Bonds, Bills and Inflation 1999 Yearbook,
Ibbotson Associates, Chicago. All rights reserved.
The Trust may also compare the relative historic returns and range of
returns for an investment in each of common stocks, bonds and treasury bills to
a portfolio that blends all three investments. For example, over the 20 years
from 1979 through 1998, the average annual return of stocks comprising the
Ibbotson's Large Company Stock Total Return Index ranged from -4.91% to 37.4%
while the annual return of a hypothetical portfolio comprised 40% of such common
stocks, 40% of bonds comprising the Ibbotson's Long-term Corporate bond Index
and 20% of Treasury bills comprising the Ibbottson's Treasury Bill Index (a
"mixed portfolio") would have ranged
-96-
<PAGE>
from -1.00% to 28.19% over the same period. The average annual returns of each
investment category* for each of the years from 1979 through 1998 is set forth
in the following table.
<TABLE>
<CAPTION>
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
---- ------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1979 18.44% -4.18% 10.38% 13.31% 7.78%
1980 32.42% 2.61% 11.24% 12.40% 14.17%
1981 -4.91% -0.96% 14.71% 8.94% 0.59%
1982 21.41% 43.79% 10.54% 3.87% 28.19%
1983 22.51% 4.70% 8.80% 3.80% 12.64%
1984 6.27% 16.39% 9.85% 3.95% 11.03%
1985 32.16% 30.90% 7.72% 3.77% 26.77%
1986 18.47% 19.85% 6.16% 1.13% 16.56%
1987 5.23% -0.27% 5.46% 4.41% 3.08%
1988 16.81% 10.70% 6.35% 4.42% 12.28%
1989 31.49% 16.23% 8.37% 4.65% 20.76%
1990 -3.17% 6.87% 7.52% 6.11% 2.98%
1991 30.55% 19.79% 5.88% 3.06% 21.31%
1992 7.67% 9.39% 3.51% 2.90% 7.53%
1993 10.06% 13.17% 2.89% 2.75% 9.84%
1994 1.31% -5.76% 3.90% 2.67% -1.00%
1995 37.40% 27.20% 5.60% 2.70% 26.90%
1996 23.10% 1.40% 5.20% 3.30% 10.84%
1997 33.40% 12.90% 7.10% 1.70% 19.94%
1998 28.58% 10.76% 4.86% 1.61% 16.70%
</TABLE>
* Returns of unmanaged indexes do not reflect past or future
performance of any of the Funds or Portfolios of PIMCO Funds: Multi-
Manager Series. Stocks are represented by Ibbotson's Large Company
Stock Total Return Index. Bonds are represented by Ibbotson's Long-
term Corporate Bond Index. Treasury bills are represented by
Ibbotson's Treasury Bill Index and Inflation is represented by the
Cost of Living Index. Treasury bills are all unmanaged indexes,
which can not be invested in directly. While Treasury bills are
insured and offer a fixed rate of return, both the principal and
yield of investment securities will fluctuate with changes in market
conditions. Source: Ibbotson, Roger G., and Rex A. Sinquefiled,
Stocks, Bonds, Bill and Inflation (SBBI), 1989, updated in Stocks,
Bonds, Bills and Inflation 1999 Yearbook, Ibbotson Associates,
Chicago. All rights reserved.
The Trust may use in its advertisements and other materials examples
designed to demonstrate the effect of compounding when an investment is
maintained over several or many years. For example, the following table shows
the annual and total contributions necessary to accumulate $200,000 of savings
(assuming a fixed rate of return) over various periods of time:
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
-97-
<PAGE>
a long-term, regular investment program, and is in no way
representative of any past or future performance of a Fund
or Portfolio of PIMCO Funds: Multi-Manager Series. There
can be no guarantee that you will be able to find an
investment that would provide such a return at the times
you invest and an investor in any of the Funds or Portfolio
of PIMCO Funds: Multi-Manager Series should be aware that
certain of the Funds and Portfolios of PIMCO Funds: Multi-
Manager Series have experienced and may experience in the
future periods of negative growth.
The Trust may set forth in its advertisements and other materials
information regarding the relative reliance in recent years on personal savings
for retirement income versus reliance on Social Security benefits and company
sponsored retirement plans. For example, the following table offers such
information for 1998:
% of Income for Individuals
Aged 65 Years and Older in 1997*
-------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
1997 43% 57%
* For individuals with an annual income of at least $51,000. Other includes
personal savings, earnings and other undisclosed sources of income. Source:
Social Security Administration.
Articles or reports which include information relating to performance,
rankings and other characteristics of the Funds and Portfolios may appear in
various national publications and services including, but not limited to: The
Wall Street Journal, Barron's, Pensions and Investments, Forbes, Smart Money,
Mutual Fund Magazine, The New York Times, Kiplinger's Personal Finance, Fortune,
Money Magazine, Morningstar's Mutual Fund Values, CDA Investment Technologies
and The Donoghue Organization. Some or all of these publications or reports may
publish their own rankings or performance reviews of mutual funds, including the
Funds, and may provide information relating to the Adviser and the Sub-Advisers,
including descriptions of assets under management and client base, and opinions
of the author(s) regarding the skills of personnel and employees of the Adviser
or the Sub-Advisers who have portfolio management responsibility. From time to
time, the Trust may include references to or reprints of such publications or
reports in its advertisements and other information relating to the Funds and
Portfolios.
From time to time, the Trust may set forth in its advertisements and
other materials information about the growth of a certain dollar-amount invested
in one or more of the Funds or Portfolios over a specified period of time and
may use charts and graphs to display that growth.
From time to time, the Trust may set forth in its advertisements and
other materials the names of and additional information regarding investment
analysts employed by the Sub-Advisers who assist with portfolio management and
research activities on behalf of the Funds.
Ibbotson Associates ("Ibbotson") has analyzed the risk and returns of
the Funds and relevant benchmark market indexes in a variety of market
conditions. Based on its independent research and analysis, Ibbotson may
develop, from time to time, model portfolios of the Funds and series of PIMS
which indicate how, in Ibbotson's opinion, a hypothetical investor with a 5+
year investment horizon might allocate his or her assets among the Funds and
series of PIMS. Ibbotson bases its model portfolios on five levels of investor
risk tolerance which it developed and defines as ranging from "Very
Conservative" (low volatility; emphasis on capital preservation, with some
growth potential) to "Very Aggressive" (high volatility; emphasis on long-term
growth potential). However, neither Ibbotson nor the Trust offers Ibbotson's
model portfolios as investments. Moreover, neither the Trust, the
-98-
<PAGE>
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.
Compliance Efforts Related to the Euro
A computer system problem 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.
The Trust's shares do not have cumulative voting rights. Therefore,
the holders of more than 50% of the outstanding shares may elect the entire
Board of Trustees, in which case the holders of the remaining shares would not
be able to elect any Trustees.
To avoid potential conflicts of interest, the 90/10 Portfolio, 60/40
Portfolio and 30/70 Portfolio will vote shares of each Underlying PIMCO Fund
which they own in proportion to the votes of all other shareholders in the
Underlying PIMCO Fund.
Certain Ownership of Trust Shares
As of March 15, 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. As of March 15, 2000, the
following persons owned of record or beneficially 5% or more of the noted class
of shares of the following Funds:
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
---------- ---------------------
<S> <C> <C>
PIMCO Capital Appreciation Fund
Institutional
Donaldson Lufkin & Jenrette** 2,139,263.644 13.29%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Charles Schwab & Co., Inc. - Reinvest ** 2,118,544.866 13.16%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
MAC & Co. A/C ALNF5039832 999,870.979 6.21%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Administrative
Certain Employee (Fidelity) ** 2,527,889.941 31.43%
100 Magetian KWIC
Covington, Kentucky 41015
Invesco Trust Company FBO 2,448,186.814 30.44%
Reynolds & Reynolds 401k Plan
P.O. Box 77405
Atlanta, Georgia 30357
First Union National Bank ** 1,278,244.980 15.90%
401 S. Tryon Street, FRB-3
Charlotte, North Carolina 28202
New York Life Trust Company ** 435,271.898 5.41%
51 Madison Avenue, Room 117A
New York, New York 10010
Class A
Merrill Lynch Pierce Fenner & Smith Inc. ** 804,134.927 25.17%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-100-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
---------- ---------------------
<S> <C> <C>
Carn & Co. 02087501 602,020.485 18.84%
American Yazaki Employee Savings
and Retirement Plan
Attn: Mutual Funds - Star
P.O. Box 96211
Washington, D.C. 20090-6211
Prudential Bank & Trust Co. 223,140.498 6.98%
Defined Contribution Plan
FBO Plan Participants
30 Scranton Office Park
Scranton, Pennsylvania 18507-1755
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 398,906.767 16.35%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 428,941.317 13.58%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc. - Reinvest.** 15,388.433 99.00%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Enhanced Equity Fund
Institutional
CMTA-GMPP & Allied Workers Pension 413,340.550 25.09%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
BAC Local #19 Pension Trust 298,527.827 18.12%
Attn: Allied Administrators Inc.
777 Davis Street
San Francisco, California 94126-2500
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
---------- ---------------------
<S> <C> <C>
California Race Track Association 222,004.290 13.47%
P.O. Box 67
LaVerne, California 91750
Asbestos Workers Local #87 153,252.951 9.30%
Employee Defined Contribution Pension Trust
1635 N.E. Loop 410, #700
San Antonio, Texas 78209
90/10 Portfolio 137,445.837 8.34%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Fort Wayne Newspaper Inc. 125,829.775 7.64%
600 W. Main Street
Fort Wayne, Indiana 46802
60/40 Portfolio 99,353.077 6.03%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
PIMCO Equity Income Fund
Institutional
Bank of New York Western Trust Co. 1,462,833.175 17.03%
as Trustee for
Pacific Life Insurance Company R.I.S.P.
700 S. Flower Street, 2nd Floor
Los Angeles, California 90017
AM Castle & Co Emp Pension Equity Seg 1,439,294.708 16.76%
A/C #22-39912
P.O. Box 92956
Chicago, Illinois 60675-2956
Miter & Co. 1,272,142.068 14.81%
C/O Marshall & Ilsley Trust Co. (Plymouth Tube)
P.O. Box 2977
Milwaukee, Wisconsin 53201
</TABLE>
-102-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
---------- ---------------------
<S> <C> <C>
Northern Trust Co. TTEE FBO 806,643.115 9.39%
Mazda Motor of America
A/C #22-89188
P.O. Box 92956
Chicago, Illinois 60675-2956
Northern Trust Company as Trustee for 794,636.801 9.25%
Brush Wellman Inc.
P.O. Box 92956
Chicago, Illinois 60675-0001
Administrative
First Union National Bank ** 490,506.697 62.54%
401 S. Tyon Street, FRB-3
CMG Fiduciary Operations Funds Group
Mail Code CMG-2-1151
Charlotte, North Carolina 28288-1151
Invesco Trust Co. TTEE 171,568.887 21.87%
Pasco Acquisition Inc. & Affiliates 401k Plan
P.O. Box 77405
Atlanta, Georgia 30357
Invesco Trust Co. TTEE FBO Lykes Retirement 97,558.808 12.44%
Savings Plan
P.O. Box 77405
Atlanta, Georgia 30357
Class A
Carn & Co. ** 277,136.563 23.00%
USI Insurance Services Corporation
401(k) Plan
P.O. Box 96211
Washington, D.C. 20090-6211
Merrill Lynch Pierce Fenner & Smith Inc. ** 158,689.905 13.17%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Khosrow B. Semnani 104,042.948 8.64%
P.O. Box 3508
Salt Lake City, Utah 84110-3508
</TABLE>
-103-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
----------- ---------------------
<S> <C> <C>
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 176,234.552 13.20%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 151,521.085 10.83%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc. - Reinvest ** 9,796.940 100.00%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Global Innovation Fund
Institutional Class
PIMCO Advisors L.P. 300,000.000 100.00%*
800 Newport Center Drive
Newport Beach, California 92660
PIMCO Growth Fund
Institutional Class
Pacific Mutual Life Insurance Co. 219,034.270 57.05%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
Bac Local #19 Pension Trust 49,325.119 12.85%
c/o Allied Administrators Inc.
777 Davis Street
San Francisco, CA 94111
Pacific Life Foundation 37,155.061 9.68%
Attn: Michele Myszka
700 Newport Center Drive
Newport Beach, California 92660
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
----------- ---------------------
<S> <C> <C>
90/10 Portfolio 28,087.976 7.32%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Administrative Class
Chase Bank of Texas, N.A. Trustee 271,907.885 61.35%
1111 Fannin, 10th Floor
Houston, Texas 77002
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 486,880.155 7.20%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 1,310,696.010 23.31%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 8,904,696.782 12.66%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Innovation Fund
Institutional Class
Pacific Mutual Life Insurance Co. 139,148.627 46.76%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
PIMCO Advisors 401(k) Savings & Invest. Plan 64,672.210 21.73%
c/o Carn & Co.
P.O. Box 96211
Washington, D.C. 20090
Alpine Trust & Asset Management 38,105.816 12.81%
225 North 5th Street
Grand Junction, Colorado 81501
</TABLE>
-105-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
----------- ---------------------
<S> <C> <C>
Pacific Life Foundation 17,490.937 5.88%
Attn: Michele Myszka
700 Newport Center Drive
Newport Beach, California 92660
Administrative Class
PIMCO Advisors L.P. 100.301 100.00%
800 Newport Center Drive
Newport Beach, California 92660
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 2,642,995.254 15.85%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 3,253,751.721 15.63%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 4,128,680.231 13.98%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc. - Reinvest.** 662,906.935 71.91%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO International Fund
Institutional
90/10 Portfolio 283,734.859 56.51%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
</TABLE>
-106-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
----------- ---------------------
<S> <C> <C>
60/40 Portfolio 181,573.461 36.16%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
30/70 Portfolio 36,832.427 7.34%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Class A
Trout Trading Fund Pledged Coll. 153,102.337 6.84%
A/C for Credit Lyonnais
c/o Prudential Securities Inc.
Washington Mall One
Church Street, 4th Floor
Hamilton HM11
Merrill Lynch Pierce Fenner & Smith Inc.** 152,404.873 6.81%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 109,427.204 11.64%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 988,288.561 10.50%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO International Growth Fund
Institutional
PIMCO Advisors L.P. 348,273.405 58.40%*
800 Newport Center Drive, 6th Floor
Newport Beach, CA 92660
Charles Schwab & Co., Inc. - Reinvest.** 236,489.595 39.65%*
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
-107-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------ -----------------------
<S> <C> <C>
PIMCO Mega-Cap Fund
Institutional
PIMCO Advisors L.P. 300,100.418 100.00%*
800 Newport Center Drive, 6th Floor
Newport Beach, California 92660
PIMCO Micro-Cap Fund
Institutional
Charles Schwab & Co., Inc. - Reinvest.** 1,819,521.738 19.04%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Dominion Resources 1,572,192.506 16.45%
c/o Bost & Co.
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
University of Southern California 1,054,372.511 11.04%
Treasurer's Office
University Park, BKS 402
Los Angeles, California 90089-2541
Oberlin College 984,714.133 10.31%
c/o Mac & Co.
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Public Service of New Mexico 883,353.905 9.25%
c/o Mac & Co.
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
U.S. Bank National Assoc. Custodian 676,025.739 6.50%
Comm. Invest Group-Cadence
Trust Mutual Funds
P.O. Box 64010
St. Paul, Minnesota 55164
The Northern Trust Company Trustee 599,955.053 5.77%
Toyota Directed Retirement Trust
P.O. Box 92956
Chicago, Illinois 60675
</TABLE>
-108-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
Administrative
Centurion Trust Company 89,390.375 37.50%
FBO Omnibus/Centurion Capital Management
2425 EB Camelback Road, Suite 530
Phoenix, Arizona 85016
Northern Trust as Trustee for 87,391.742 36.67%
Sunday School Board
dba LifeWay Christian Resources
P.O. Box 92956
Chicago, Illinois 60675
New York Life Trust Company ** 56,020.438 23.50%
51 Madison Avenue, Room 117A
New York, New York 10010
PIMCO Mid-Cap Equity Fund
Institutional
IFTC as Custodian for 156,011.921 52.78%*
John W. Barnum
5175 Tilden Street, N.W.
Washington, D.C. 20016-1961
PIMCO Advisors L.P. 115,623.878 39.12%*
800 Newport Center Dr., 6th Floor
Newport Beach, California 92660
PIMCO Mid-Cap Fund
Institutional
Charles Schwab & Co., Inc. - Reinvest ** 5,468,354.130 25.93%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Norwest Bank Minnesota NA Custodian FBO 1,629,566.599 7.73%
Parkview Memorial Hospital
c/o Mutual Fund Processing
733 Marquette Avenue MS 0036
Minneapolis, Minnesota 55479-0036
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
Ameritech Savings Plan for Salaried Employees 1,386,617.149 6.57%
c/o State Street Bank & Trust Co. as Trustee
105 Rosemont Road
Westwood, Massachusetts 02090
Administrative
Certain Employee (Fidelity) ** 2,144,318.319 49.45%
100 Magellan KW1C
Covington, Kentucky 41015
UMB TTEE FBO Andrew Profit Sharing Trust 400,418.354 9.23%
JP Morgan/American Century
P.O. Box 419784
Kansas City, Missouri 64141
First Union National Bank ** 313,451.902 7.23%
401 S. Tryon Street, FRB-3
Charlotte, North Carolina 28202
New York Life Trust Company 267,765.963 6.17%
51 Madison Avenue
Room 117A
New York, New York 10010
Class A
Merrill Lynch Pierce Fenner & Smith Inc. ** 2,526,663.961 48.12%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 636,306.600 21.54%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 568,958.887 16.03%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-110-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
Class D
Charles Schwab & Co., Inc. - Reinvest.** 11,983.271 99.80%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Opportunity Fund
Institutional Class
LaSalle Bank, N.A., Custodian 257,853.052 40.54%
AMFAC - 408039428
P.O. Box 1443
Chicago, Illinois 60690
Pacific Mutual Life Insurance Co. 132,145.995 20.78%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
West Central Initiative Endowment 108,991.329 17.14%
c/o Norwest Bank MN NA
P.O. Box 1533
Minneapolis, Minnesota 55480
AAR Corp. 72,647.841 11.42%
c/o Northern Trust Co.
P.O. Box 92956
Chicago, Illinois 60675
Administrative Class
Chase Bank of Texas, N.A., Trustee 232,586.034 75.86%
1111 Fannin, 10th Floor
Houston, Texas 77002
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 718,876.042 15.28%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
American Express Trust Company 541,136.684 11.50%
FBO WESCO Distribution Inc.
Retirement Savings Plan
733 Marquette Avenue
Minneapolis, Minnesota 55402-2309
</TABLE>
-111-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 3,147,845.871 21.08%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Renaissance Fund
Institutional Class
National Investor Services Corp. 8,079.041 99.14%
for the Exclusive Benefit of our Customers
55 Water Street, 32nd Floor
New York, New York 10041
Administrative
MetLife Defined Contribution Group 44,292.988 91.62%
c/o Chase Manhattan Bank Trustee
770 Broadway, 10th Floor
New York, New York 10003
Eastern Bank & Trust FBO APB 4,053.162 8.38%
217 Essex Street
Salem, Massachusetts 01970
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 700,084.195 14.59%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 1,438,509.306 21.70%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 3,487,212.624 14.87%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-112-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
Class D
Charles Schwab & Co., Inc. - Reinvest.** 2,514.357 46.92%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
National Investor Services Corp. 2,094.762 39.09%
for the Exclusive Benefit of our Customers
55 Water Street, 32nd Floor
New York, New York 10041
PIMCO Advisors L.P. 749.261 13.98%
800 Newport Center Drive
Newport Beach, California 92660
PIMCO Select Growth Fund
Institutional
PIMCO Advisors L.P. 47,089.945 76.15%*
800 Newport Center Dr., 6th Floor
Newport Beach, California 92660
National Financial Services Corp. for 11,241.082 18.18%
Exclusive Benefit of their Customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
Administrative
Donaldson Lufkin & Jenrette** 921.965 44.59%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303
PIMCO Advisors L.P. 542.018 26.21%
800 Newport Center Dr., 6th Floor
Newport Beach, California 92660
Norwest Bank MN NA 435.087 21.91%
FBO Hanna & Morton LLP Emp. 401K
2700 Snelling Avenue, Suite 300
Minneapolis, Minnesota 55479
</TABLE>
-113-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
National Financial Services Corp. for 148.122 7.16%
Exclusive Benefit of their Customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
PIMCO Small-Cap Fund
Institutional
DMNH Foundation 779,461.357 24.71%
2001 Colorado Blvd.
City Park
Denver, Colorado 00008-0205
Berklee College of Music, Inc. 595,741.955 18.89%
1140 Boylston Street
Boston, Massachusetts 02215-3693
Auburn Theological Seminiary 330,487.906 10.48%
3041 Broadway
New York, New York 10027-5710
Consolidated Cigar Inc. 329,747.203 10.45%
c/o Northern Trust TTEE
P.O. Box 92956
Chicago, Illinois 60675
Regents of the University of Colorado 290,131.614 9.20%
4840 Pearl East Circle, Suite 103
Boulder, Colorado 80301-2408
Rockdale Health System Inc. 218,390.614 6.92%
1412 Milstead Ave., N.E.
Conyers, Georgia 30012-3877
PIMCO Small-Cap Value Fund
Institutional
Charles Schwab & Co., Inc. Rein** 141,062.248 6.64%
Attn: Mutual Funds Dept
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
-114-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
PIMCO Advisors 401(k) Savings & Invest. Plan 140,252.700 6.60%
c/o Carn & Co.
P.O. Box 96211
Washington, D.C. 20090
Empire Health Systems 403(b) Low Risk Acct. 133,801.219 6.29%
c/o US Bank National Association
P.O. Box 64010
St. Paul, Minnesota 55164
Donaldson Lufkin & Jenrette** 128,750.806 6.06%
Pershing Division
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Wendel & Co. 119,905.985 5.64%
c/o The Bank of New York
P.O. Box 1066, Wall Street Station
New York, New York 10268
Administrative
National Financial Services Corporation for the 261,387.842 26.38%
Exclusive Benefit of Our Customers**
1 World Trade Center
200 Liberty Street
New York, New York 10281
First Union National Bank ** 199,580.332 20.14%
1525 West WT Harris Boulevard NC 1151
Charlotte, North Carolina 28288-1151
Norwest Bank MN NA FBO 62,000.892 6.26%
Heller Financial Corp. Def. Comp. #13581311
P.O. Box 1533
Minneapolis, Minnesota 55480-1533
Class A
Merrill Lynch Pierce Fenner & Smith Inc. ** 2,329,389.869 30.08%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-115-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
Norwest Bank MN NA 789,303.936 10.19%
Dain Rauscher Retirement Plan
#13281312 DTD 1/97
Attn: EBS MS 0035
510 Marquette, Suite 500
Minneapolis, Minnesota 55479-0035
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,199,415.033 27.37%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 1,282,728.727 24.32%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Structured Emerging Markets Fund
Institutional
Rhode Island Foundation 955,315.005 24.19%
Attn: Michael Jenkenson
70 Elm Street
Providence, Rhode Island 02903
Berklee College of Music, Inc. 562,163.537 14.24%
1140 Boylston Street
Boston, Massachusetts 02215-3693
Hartford Foundation 356,606.997 9.03%
159 E. Main Street
Rochester, New York 14638
Munsen-Williams-Proctor Institute 317,937.259 8.05%
Attn: Anthony Spiridigloizzi
310 Genesee Street
Utica, New York 13502
The Reeves Foundation 286,810.624 7.26%
115 Summit Avenue
Summit, New Jersey 07901
</TABLE>
-116-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
Brockton Health Corp. Endowment 222,238.242 5.63%
Attn: Steven Connolly
680 Centre Street
Brockton, Massachusetts 02402-3395
Desert Mutual Retiree Med. & Life Pl. Tr. 214,378.592 5.43%
60 East South Temple Street
Salt Lake City, Utah 84147
PIMCO Target Fund
Institutional Class
Pacific Mutual Life Insurance Co. 234,099.426 54.13%
Employees Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
BAC Local #19 Pension Trust 47,948.427 11.09%
c/o Allied Administrators Inc.
777 Davis Street
San Francisco, California 94111
90/10 Portfolio 46,207.436 10.68%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Pacific Life Foundation 41,851.610 9.38%
Attn: Michele Myszka
700 Newport Center Drive
Newport Beach, California 92660
60/40 Portfolio 27,104.339 6.27%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 1,433,986.893 14.68%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-117-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 1,786,075.319 27.69%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 13,913,212.365 24.00%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
PIMCO Tax-Efficient Equity Fund
Institutional
Loni Austin Parrish UAW 12,574.156 13.13%
Joan D. Austin Dtd. 12-26-86
FBO Ashley Nicole Parrish
C/O Austin Industries
P.O. Box 1060
Newberg, Oregon 97132
Loni Austin Parrish UAW 11,199.270 11.69%
G. Kenneth Austin Jr. Dtd. 12-26-86
FBO Ashley Nicole Parrish
C/O Austin Industries
P.O. Box 1060
Newberg, Oregon 97132
Loni Austin Parrish UAW 10,745.961 11.22%
G. Kenneth Austin Jr. Dtd. 9-26-88
FBO Jessica Danielle Parrish
C/O Austin Industries
P.O. Box 1060
Newberg, Oregon 97132
Loni Austin Parrish UAW 10,745.961 11.22%
Joan D. Austin Dtd. 9-26-88
FBO Jessica Danielle Parrish
C/O Austin Industries
P.O. Box 1060
Newberg, Oregon 97132
</TABLE>
-118-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------- -----------------------
<S> <C> <C>
Scott N. Parrish 9,066.183 9.46%
C/O Austin Industries
P.O. Box 1060
Newberg, Oregon 97132
US Bank National Association Custodian 8,626.782 9.01%
JD Gray Irrv. Trust FBO JGG Dtd. 5-13-99
Trust Mutual Funds #97349240
P.O. Box 64010
St. Paul, Minnesota 55164
US Bank National Association Custodian 8,579.271 8.96%
JD Gray Irrv. Trust FBO SWG Dtd. 5-13-99
Trust Mutual Funds #97349230
P.O. Box 64010
St. Paul, Minnesota 55164
US Bank National Association Custodian 8,264.126 8.63%
FBO T.G. Gearhart Dtd. 5-13-99
Trust Mutual Funds #97349260
P.O. Box 64010
St. Paul, Minnesota 55164
US Bank National Association Custodian 7,921.337 8.27%
JD Gray Irrv. Trust FBO M.E. Gray Dtd. 5-13-99
Trust Mutual Funds #97349250
P.O. Box 64010
St. Paul, Minnesota 55164
US Bank National Association Custodian 7,425.686 7.75%
JD Gray Irrv. Trust FBO GBH Dtd. 5-13-99
Trust Mutual Funds #97349270
P.O. Box 64010
St. Paul, Minnesota 55164
Administrative
Centurion Trust Company 1,093,145.712 70.82%
FBO Omnibus/Centurion Capital Management
2425 EB Camelback Road, Suite 530
Phoenix, Arizona 85016
Class A
Merrill Lynch Pierce Fenner & Smith Inc.** 79,532.318 10.57%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
-119-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
---------- ---------------------
<S> <C> <C>
NFSC FEBO #0C8-332321 49,164.208 6.54%
The Robb Charitable Trust
Richard A. Robb
U/A 09/04/1990
56 Pilgrim Road
Marblehead, Massachusetts 01945-1750
Dain Rauscher Inc. FBO 44,283.521 5.89%
Michael G. King and Elizabeth W. King
Long Term Account JT TEN/WROS
14800 164th Place N.E.
Seattle, WA 98101
LEWCO Securities Corp. 42,824.236 5.69%
FBO A/C #H10-690959-1-01
34 Exchange Place, 4th Floor
Jersey City, New Jersey 07311
Class B
Merrill Lynch Pierce Fenner & Smith Inc.** 190,858.790 21.88%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc.** 304,644.529 23.66%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
PIMCO Advisors L.P. 932.836 100.00%
800 Newport Center Drive
Newport Beach, California 92660
PIMCO Tax-Efficient Structured Emerging Markets Fund
Institutional
Alscott Investments, LLC 1,002,480.560 16.03%
501 Baybrook Court
Boise, Idaho 83706
</TABLE>
-120-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
---------- ---------------------
<S> <C> <C>
Charles Schwab & Co., Inc. - Reinvest.** 729,222.679 11.66%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
Rede & Company (Weyerhaeuser) 708,643.576 11.33%
4380 S.W. Macadam, Suite 450
Portland, Oregon 97201
Waycrosse, Inc./International Equity Fund II 629,689.755 10.07%
P. O. Box 9300, MS 28
Minneapolis, Minnesota 55440-9300
Ruby Trust 593,483.297 9.49%
499 Park Avenue
New York, New York 10022
Alscott Investments, LLC 483,727.227 7.74%
501 Baybrook Court
Boise, Idaho 83706
Topaz Trust 351,055.597 5.61%
499 Park Avenue
New York, New York 10022
PIMCO Value Fund
Institutional
Pacific Mutual Life Insurance Co. 1,124,638.355 22.57%
Employee's Retirement Plan Trust
700 Newport Center Drive
Newport Beach, California 92660
CMTA-GMPP & Allied Workers Pension Trust 896,538.909 17.99%
c/o Associated Third Party Administrator
1640 South Loop Road
Alameda, California 94502
BAC Local #19 Pension Trust 647,511.208 12.99%
Attn: Allied Administrators Inc.
777 Davis Street
San Francisco, California 94126-2500
Pacific Life Foundation 511,575.652 10.27%
700 Newport Center Drive
Newport Beach, California 92660-6307
</TABLE>
-121-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
---------- ---------------------
<S> <C> <C>
California Race Track Association 447,403.850 8.98%
P.O. Box 60014
Arcadia, California 91006-6014
90/10 Portfolio 310,139.719 6.22%
PIMCO Funds Asset Allocation Series
800 Newport Center Drive
Newport Beach, California 92660
Fort Wayne Newspaper Inc. 253,587.773 5.09%
600 W. Main Street
Fort Wayne, Indiana 46802
Class A
Teamsters Union Loc. No. 52 Pension Fund 342,145.533 20.18%
Attn: Dennis Vadini
3150 Chester Avenue
Cleveland, Ohio 44114
Merrill Lynch Pierce Fenner & Smith Inc. ** 114,119.438 6.91%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 507,889.898 20.61%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class C
Merrill Lynch Pierce Fenner & Smith Inc. ** 477,037.129 9.66%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc. - Reinvest ** 1,322.192 54.19%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104-4122
PIMCO Advisors L.P. 883.960 36.23%
800 Newport Center Drive
Newport Beach, California 92660
</TABLE>
-122-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
---------- ---------------------
<S> <C> <C>
90/10 Portfolio
Institutional
PIMCO Advisors L.P. 974.818 100.00%
800 Newport Center Drive
Newport Beach, California 92660
Administrative
PIMCO Advisors L.P. 973.813 100.00%
800 Newport Center Drive
Newport Beach, California 92660
Class A
Charles Baumstark and Daniel Baumstark TTEES 17,483.451 19.28%
Herman Lumber Company Pension Plan DTD 1/1/99
603 Market Street, P.O. Box 500
Hermann, Missouri 65041
Class B
Donaldson Lufkin Jenrette 9,397.462 5.08%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303
60/40 Portfolio
Institutional
PIMCO Advisors 401(k) Savings & Invest. Plan 3,382.197 76.90%
c/o Carn & Co.
P.O. Box 96211
Washington, D.C. 20090
PIMCO Advisors L.P. 1,015.730 23.10%
800 Newport Center Drive
Newport Beach, California 92660
Administrative
PIMCO Advisors L.P. 1,013.636 100.00%
800 Newport Center Drive
Newport Beach, California 92660
</TABLE>
-123-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------ -----------------------
<S> <C> <C>
Class A
Charles Baumstark and Daniel Baumstark TTEES 70,274.372 29.76%
Herman Lumber Company Pension Plan DTD 1/1/99
603 Market Street, P.O. Box 500
Hermann, Missouri 65041
BSDT CUST Rollover IRA FBO 35,514.502 15.04%
Edmund A. Louie
1165 Corvallis Drive
San Jose, California 95120
BSDT Cust. IRA 24,662.427 10.45%
FBO Lloyd B. Bremer
7841 Bouma Circle
La Palma, CA 90623
Class B
Merrill Lynch Pierce Fenner & Smith Inc. ** 28,250.042 8.19%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Painewebber For the Benefit of 19,546.275 5.67%
Painewebber FBO
Elizabeth B. Stoeffler
P.O. Box 3321
Weehawken, New Jersey 07087-8154
Class C
John H. & Susan Hutchison TTEES 94,805.861 11.78%
Jack & Susan Hutchison Living TR
DTD 10/30/1985
2441 Bayshore Drive
Newport Beach, California 92663
30/70 Portfolio
Institutional
PIMCO Advisors L.P. 1,058.162 100.00%
800 Newport Center Drive
Newport Beach, California 92660
Administrative
PIMCO Advisors L.P. 1,055.575 100.00%
800 Newport Center Drive
Newport Beach, California 92660
</TABLE>
-124-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------ -----------------------
<S> <C> <C>
Class A
Stuart B. Crawford & Virginia Crawford 7,637.878 19.11%
JT TEN WROS NOT TC
4929 Whitcomb Drive
Madison, Wisconsin 53711
Donaldson Lufkin Jenrette 6,843.885 17.12%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303
Donaldson Lufkin Jenrette 5,603.816 14.02%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303
Mei W. Quinn 5,387.525 13.48%
TOD Howard Wong and Tom E. McGrath
Subject to FDISG TOD Rules
2425 W. New Street
Blue Island, Illinois 60406
Charles Baumstark and Daniel Baumstark TTEES 3,012.427 7.54%
Hermann Lumber Company Pension Plan DTD 1/1/99
603 Market Street, P.O. Box 500
Hermann, Missouri 65041
Raymond James & Assoc. Inc. 2,490.040 6.23%
FAO Carolyn Union Grdn
FBO Jessica M. Pearce
A/C# 79537630
Route 3, Box 364
Lake City, Florida 32025
Raymond James & Assoc. Inc. 2,490.040 6.23%
FAO Carolyn Union Grdn
FBO Carolyn L. Pearce
A/C# 79537625 (Pass)
Route 3, Box 364
Lake City, Florida 32025
</TABLE>
-125-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------ -----------------------
<S> <C> <C>
NFSC FEBO #ORP-030368 2,336.750 5.85%
NFSC/FMTC IRA
FBO Jack A. Wedner
4729-D La Villa Marina
Marina del Rey, California 90292
Class B
BSDT CUST IRA 23,710.719 14.75%
FBO Miriam P. Squillace
1941 E. River Road
Livingston, Montana 59047-9146
A. G. Edwards & Sons, Inc. C/F 19,877.893 12.37%
Dr. James R. Drake
IRA Account
3004 Brownwood Drive
Chattanooga, Tennessee 37404-6309
Merrill Lynch Pierce Fenner & Smith Inc. ** 18,515.097 11.52%
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
Janney Montgomery Scott, Inc. 14,346.098 8.93%
A/C 1021-6717
Joseph L. Abriola & Gloria C. Abriola JT TEN
1801 Market Street
Philadelphia, Pennsylvania 19103-1675
N. F. Verratti, Inc. 10,196.900 6.34%
Profit Sharing Plan DTD 1-1-1983
Nicholas F. Verratti, Jr. TTEE
450 Knowlton Road
Media, Pennsylvania 19063
Joseph L. Abriola (IRA) 9,221.657 5.74%
JMS Inc. CUST FBO
A/C 1021-6665
2 Steeplechase Lane
Blue Bell, Pennsylvania 19422-2460
Class C
Jeffrey Le B. Morse 53,703.028 11.25%
P.O. Box 127
Sextonville, Wisconsin 53584
</TABLE>
-126-
<PAGE>
<TABLE>
<CAPTION>
Shares of Percentage of
Beneficial Outstanding Shares of
Ownership Class Owned
------------ -----------------------
<S> <C> <C>
John P. Bohlman TTEE 46,011.071 9.64%
Bohlman Drug Store Inc. PSP
1028 Wisconsin Ave.
Boscobel, Wisconsin 53805
Sheila T. Fitzgerald 45,237.196 9.48%
1325 Buttermilk Lane
Reston, Virginia 20190
Rachel G. Pontzer 34,361.708 7.20%
18040 33rd Place North
Minneapolis, Minnesota 55447
Louis D. Gura IRA 32,667.883 6.84%
c/o First Clearing Corporation
85 Dogwood Terrace
Ramsey, New Jersey 07446
</TABLE>
---------------------------------------------
* Entity owned 25% or more of the outstanding shares of beneficial interest of
the Fund, and therefore may be presumed to "control" the Fund, as that term is
defined in the 1940 Act.
** Shares are believed to be held only as nominee.
Custodian
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.
-127-
<PAGE>
Codes of Ethics
The Trust, PIMCO Advisors, 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.
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, 1999, for
the fiscal year then ended, including notes thereto, and the reports of
PricewaterhouseCoopers LLP thereon, each dated August 13, 1999, are incorporated
by reference from the Trust's five June 30, 1999 Annual Reports. One Annual
Report (the "Retail Annual Report") corresponds to the Class A, B and C
Prospectus, another (the "Institutional Annual Report") corresponds to the
Institutional Prospectus, another (the "Class D Annual Report") corresponds to
the Class D Prospectus, another (the "Retail Portfolio Annual Report")
corresponds to the Retail Portfolio Prospectus and the fifth (the "Institutional
Portfolio Annual Report") corresponds to the Institutional Portfolio Prospectus.
The Trust's June 30, 1999 Annual Reports were filed electronically with the SEC
on September 9, 1999 (Accession No. 0001017062-99-001593).
Unaudited financial statements for the Select Growth and Target Funds
only, as of December 31, 1999, for the period then ended, including notes
thereto, are incorporated by reference from the Trust's December 31, 1999 Semi-
Annual Reports for Institutional and Administrative Class shares and for Class
A, B and C shares. The Trust's December 31, 1999 Semi-Annual Reports were filed
electronically with the SEC on March 7, 2000
-128-
<PAGE>
(Accession No. 0001017062-00-000663). No information from the Semi-Annual
Reports is incorporated by reference herein with respect to any other series of
the Trust.
-129-
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Certain of the Funds make use of average portfolio credit quality
standards to assist institutional investors whose own investment guidelines
limit their investments accordingly. In determining a Fund's overall dollar-
weighted average quality, unrated securities are treated as if rated, based on
the Adviser's or Sub-Adviser's view of their comparability to rated securities.
A Fund's use of average quality criteria is intended to be a guide for those
investors whose investment guidelines require that assets be invested according
to comparable criteria. Reference to an overall average quality rating for a
Fund does not mean that all securities held by the Fund will be rated in that
category or higher. A Fund's investments may range in quality from securities
rated in the lowest category in which the Fund is permitted to invest to
securities rated in the highest category (as rated by Moody's or S&P or, if
unrated, determined by the Adviser or a Sub-Adviser to be of comparable
quality). The percentage of a Fund's assets invested in securities in a
particular rating category will vary. Following is a description of Moody's and
S&P's ratings applicable to fixed income securities.
Moody's Investors Service, Inc.
Corporate and Municipal Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than with Aaa securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present that suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
A-1
<PAGE>
C: Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classified from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Corporate Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as letters
of credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and well-
established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Standard & Poor's Ratings Services
Corporate and Municipal Bond Ratings
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
A-2
<PAGE>
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating will also be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood 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.
A-3
<PAGE>
r: The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication that
an obligation will exhibit no volatility or variability in total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
Commercial Paper Rating Definitions
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into several categories, ranging from A for
the highest quality obligations to D for the lowest. These categories are as
follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated B are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to Standard & Poor's by the issuer or obtained from other
sources it considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information.
A-4
<PAGE>
PIMCO Funds Shareholders' Guide
for Class A, B and C Shares
June 1, 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>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
How to Buy Shares.................................................... SG-3
Alternative Purchase Arrangements.................................... SG-9
Exchange Privilege................................................... SG-23
How to Redeem........................................................ SG-25
</TABLE>
SG-2
<PAGE>
How to Buy Shares
Class A, Class B and Class C shares of each Fund are continuously offered
through the Trusts' principal underwriter, PIMCO Funds Distributors LLC (the
"Distributor") and through other firms which have dealer agreements with the
Distributor ("participating brokers") or which have agreed to act as introducing
brokers for the Distributor ("introducing brokers"). The Distributor is a
wholly owned subsidiary of PIMCO Advisors L.P. ("PIMCO Advisors"), the
investment adviser to the Funds that are series of the MMS Trust, and an
affiliate of Pacific Investment Management Company 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 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, and tax-qualified and wrap programs referred to below under "Tax-Qualified
Retirement Plans" and Alternative Purchase Arrangements--Sales at Net Asset
Value," the minimum initial investment in Class A, Class B or Class C shares of
any Fund is $2,500, and the minimum additional investment is $100 per Fund. For
information about dealer commissions, see "Alternative Purchase Arrangements"
below. Persons selling Fund shares may receive different compensation for
selling Class A, Class B or Class C shares. Normally, Fund shares purchased
through participating brokers are held in the investor's account with that
broker. No share certificates will be issued unless specifically requested in
writing by an investor or broker-dealer.
Direct Investment
Investors who wish to invest in Class A, Class B or Class C shares of a
Fund directly, rather than through a participating broker, may do so by opening
an account with the Distributor. To open an account, an investor should complete
the account application. All shareholders who open direct accounts with the
Distributor will receive from the Distributor individual confirmations of each
purchase, redemption, dividend reinvestment, exchange or transfer of Fund
shares, including the total number of Fund shares owned as of the confirmation
date, except that purchases which result from the reinvestment of daily-accrued
dividends and/or distributions will be confirmed once each calendar quarter. See
"Distributions" in the applicable Retail Prospectus. Information regarding
direct investment or any other features or plans offered by the Trusts may be
obtained by calling the Distributor at 1-800-426-0107 or by calling your broker.
Purchase by Mail
Investors who wish to invest directly may send a check payable to PIMCO
Funds Distributors LLC, along with a completed application form to:
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 Distributor also makes available prototype documents for establishing
Money Purchase and/or Profit Sharing Plans and 401(k) Retirement Savings Plans.
These prototype plans require certain minimum per participant account sizes and
certain minimum aggregate investments in the Trust, and are subject to the small
account fees described below that will apply to other plans. Investors should
call the Distributor at 1-800-426-0107 for further information about these plans
and should consult with their own tax advisers before establishing any
retirement plan. Investors who maintain their accounts with participating
SG-5
<PAGE>
brokers should consult their broker about similar types of accounts that may be
offered through the broker. The minimum initial investment for all tax-qualified
plans (except for employer-sponsored plans, SIMPLE IRAs, SEPs and SAR/SEPs) is
$1,000 per Fund and the minimum subsequent investment is $100. The minimum
initial investment for employer-sponsored plans, SIMPLE IRAs, SEPs and SAR/SEPs
and the minimum subsequent investment per Fund for all such plans is $50.
PIMCO Funds Auto-Invest
The PIMCO Funds Auto-Invest plan provides for periodic investments into the
shareholder's account with the Trust by means of automatic transfers of a
designated amount from the shareholder's bank account. The minimum investment
for eligibility in the PIMCO Funds Auto-Invest plan is $1,000 per Fund.
Investments may be made monthly or quarterly, and may be in any amount subject
to a minimum of $50 per month for each Fund in which shares are purchased
through the plan. Further information regarding the PIMCO Funds Auto-Invest
plan is available from the Distributor or participating brokers. You may enroll
by completing the appropriate section on the account application, or you may
obtain an Auto-Invest application by calling the Distributor or your broker.
PIMCO Funds Auto-Exchange
The PIMCO Funds Auto-Exchange plan establishes regular, periodic exchanges
from one Fund account to another Fund account. The plan provides for regular
investments into a shareholder's account in a specific Fund by means of
automatic exchanges of a designated amount from another Fund account of the same
class of shares and with identical account registration.
Exchanges may be made monthly or quarterly, and may be in any amount
subject to a minimum of $1,000 to open a new Fund account and of $50 for any
existing Fund account for which shares are purchased through the plan.
Further information regarding the PIMCO Funds Auto-Exchange plan is
available from the Distributor at 1-800-426-0107 or participating brokers. You
may enroll by completing an application which may be obtained from the
Distributor or by telephone request at 1-800-426-0107. For more information on
exchanges, see "Exchange Privilege."
PIMCO Funds Fund Link
PIMCO Funds Fund Link ("Fund Link") connects your Fund account(s) with a
bank account. Fund Link may be used for subsequent purchases and for redemptions
and other transactions described under "How to Redeem." Purchase transactions
are effected by electronic funds transfers from the shareholder's account at a
U.S. bank or other financial institution that is an Automated Clearing House
("ACH") member. Investors may use Fund
SG-6
<PAGE>
Link to make subsequent purchases of shares in amounts from $50 to $10,000. To
initiate such purchases, call 1-800-426-0107. All such calls will be recorded.
Fund Link is normally established within 45 days of receipt of a Fund Link
application by 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 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; (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; or (xvi) redemptions of shares of the Money
Market Fund within one year after their purchase, but only if the shareholder
did not exchange such shares for shares of another Fund and subsequently
exchange back into shares of the Money Market Fund during such year.
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,
Equity Income, Renaissance, Value, Small-Cap Value, Tax-Efficient Equity,
International, Innovation and Global Innovation Funds, and PIMCO Funds Asset
Allocation Series -- 90/10 and 40/60 Portfolios
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of Public Offering
Price
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 5.82% 5.50% 4.75%
-----------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.71% 4.50% 4.00%
-----------------------------------------------------------------------------------------------------------------
$100,000 - 249,999 3.63% 3.50% 3.00%
-----------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
-----------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
-----------------------------------------------------------------------------------------------------------------
$1,000,000 + 0.00%/(1)/ 0.00%/(1)/ 0.75%/(2)/
-----------------------------------------------------------------------------------------------------------------
</TABLE>
PIMCO Funds Asset Allocation Series -- 30/70 Portfolio
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of Public Offering
Price
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 4.71% 4.50% 4.00%
----------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.17% 4.00% 3.50%
----------------------------------------------------------------------------------------------------------------
$100,000 - 249,999 3.63% 3.50% 3.00%
----------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
----------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
----------------------------------------------------------------------------------------------------------------
$1,000,000 + 0.00%/(1)/ 0.00%/(1)/ 0.50%/(2)/
----------------------------------------------------------------------------------------------------------------
</TABLE>
SG-13
<PAGE>
Total Return, High Yield, Long-Term U.S. Government, Global Bond II, Foreign
Bond, Emerging Markets Bond, Strategic Balanced and Convertible Funds
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of Public Offering
Price
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 4.71% 4.50% 4.00%
-----------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.17% 4.00% 3.50%
-----------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.63% 3.50% 3.00%
-----------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
-----------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
-----------------------------------------------------------------------------------------------------------------
$1,000,000+ 0.00%/(1)/ 0.00%/(1)/ 0.50%/(3)/
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Low Duration, Real Return Bond, Municipal Bond and StocksPLUS Funds
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of Public Offering
Price
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 3.09% 3.00% 2.50%
-------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 2.56% 2.50% 2.00%
-------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 2.04% 2.00% 1.75%
-------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 1.52% 1.50% 1.25%
-------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 1.27% 1.25% 1.00%
-------------------------------------------------------------------------------------------------------------------
$1,000,000+ 0.00%/(1)/ 0.00%/(1)/ 0.50%/(3)/
-------------------------------------------------------------------------------------------------------------------
</TABLE>
SG-14
<PAGE>
Short-Term Fund
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of Public Offering
Price
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 2.04% 2.00% 1.75%
------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 1.78% 1.75% 1.50%
------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 1.52% 1.50% 1.25%
------------------------------------------------------------------------------------------------------------------
$250,000+ 0.00%/(1)/ 0.00%/(1)/ 0.25%/(3)/
------------------------------------------------------------------------------------------------------------------
</TABLE>
California Intermediate Municipal Bond and New York Municipal Bond Funds
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Public Discount or Commission to
Amount Invested Offering Price dealers as % of Public Offering
Price
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 3.09% 3.00% 2.75%
-------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 2.04% 2.00% 1.75%
-------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 2.01% 1.00% 0.90%
-------------------------------------------------------------------------------------------------------------------
$250,000+ 0.00%/(1)/ 0.00%/(1)/ 0.25%/(4)/
-------------------------------------------------------------------------------------------------------------------
</TABLE>
1. As shown, investors that purchase more than $1,000,000 of any Fund's Class
A shares ($250,000 in the case of the 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 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 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 by the Distributor, the Distributor will pay an additional amount of
up to 0.50% of the
SG-15
<PAGE>
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 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.
As described above, the Distributor will not pay any initial commission to
dealers upon the sale of Class A shares to the purchasers described in this
paragraph except for sales to purchasers described under (c) or (g) 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
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 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 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.
SG-19
<PAGE>
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.
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:
SG-20
<PAGE>
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 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
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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).
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
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from that Fund account, a CDSC would be imposed on $2,000 of the redemption (the
amount by which the investor's account for the Fund was reduced below the amount
of the purchase payment). At the rate of 1%, the Class C CDSC would be $20.
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class C shares in the
shareholder's account for the particular Fund are aggregated, and the current
value of all such shares is aggregated. Any CDSC imposed on a redemption of
Class C shares is paid to the Distributor. Unlike Class B shares, Class C shares
do not automatically convert to any other class of shares of the Funds.
Except as described below, for sales of Class C shares made and services
rendered to Class C shareholders, the Distributor expects to make payments to
participating brokers, at the time the shareholder purchases Class C shares, of
1.00% (representing .75% distribution fees and .25% servicing fees) of the
purchase amount for all Funds, except the Money Market, Short-Term Duration,
Real Return Bond, Municipal Bond and StocksPLUS Funds. For the 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.
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.)
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<PAGE>
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 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
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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
on a business day will be processed at the net asset value on that day and the
proceeds (less any CDSC) will normally be sent to the designated bank account on
the following business day and received by the bank on the second or third
business day. If the redemption request is received after the close of regular
trading on the New York Stock Exchange, the redemption is effected on the
following business day. Shares purchased by check may not be redeemed through
Fund Link until such shares have been owned (i.e., paid for) for at least 15
days. Fund Link may not be used to redeem shares held in certificated form.
Changes in bank account information must be made by completing a new Fund
Link application, signed by all owners of record of the account, with all
signatures guaranteed. See "How to Buy Shares--Signature Guarantee." See "How to
Buy Shares--PIMCO Funds Fund Link" for information on establishing the Fund Link
privilege. Either Trust may terminate the Fund Link program at any time without
notice to its shareholders. This redemption option does not apply to shares held
in broker "street name" accounts. Shareholders whose shares are held in broker
"street name" accounts must redeem through their broker.
PIMCO Funds Automated Telephone System
PIMCO Funds Automated Telephone System ("ATS") is an automated telephone
system that enables shareholders to perform a number of account transactions
automatically using a touch-tone telephone. ATS may be used on already-
established Fund accounts after you obtain a Personal Identification Number
(PIN) by calling the special ATS number: 1-800-223-2413.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by
telephone by calling 1-800-223-2413. You must have established ATS privileges to
link your bank account with the Fund to pay for these purchases.
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
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<PAGE>
CDSC). Normally the proceeds will be sent to the designated bank account the
following business day. The bank must be a member of the Federal Reserve wire
system. Delivery of the proceeds of a wire redemption request may be delayed by
the applicable Trust for up to 7 days if the Distributor deems it appropriate
under then current market conditions. Once authorization is on file with a
Trust, such Trust will honor requests by any person identifying himself as the
owner of an account or the owner's broker by telephone at 1-800-426-0107 or by
written instructions. A Trust cannot be responsible for the efficiency of the
Federal Reserve wire system or the shareholder's bank. Neither Trust currently
charges for wire transfers. The shareholder is responsible for any charges
imposed by the shareholder's bank. The minimum amount that may be wired is
$2,500. Each Trust reserves the right to change this minimum or to terminate the
wire redemption privilege. Shares purchased by check may not be redeemed by wire
transfer until such shares have been owned (i.e., paid for) for at least 15
days. Expedited wire transfer redemptions may be authorized by completing a form
available from the Distributor. Wire redemptions may not be used to redeem
shares in certificated form. To change the name of the single bank account
designated to receive wire redemption proceeds, it is necessary to send a
written request with signatures guaranteed to PIMCO Funds Distributors LLC, P.O.
Box 9688, Providence, RI 02940-0926. See "How to Buy Shares--Signature
Guarantee." This redemption option does not apply to shares held in broker
"street name" accounts. Shareholders whose shares are held in broker "street
name" accounts must redeem through their broker.
Certificated Shares
To redeem shares for which certificates have been issued, the certificates
must be mailed to or deposited with the applicable Trust, duly endorsed or
accompanied by a duly endorsed stock power or by a written request for
redemption. Signatures must be guaranteed as described under "How to Buy Shares-
-Signature Guarantee." Further documentation may be requested from institutions
or fiduciary accounts, such as corporations, custodians (e.g., under the Uniform
Gifts to Minors Act), executors, administrators, trustees or guardians
("institutional account owners"). The redemption request and stock power must be
signed exactly as the account is registered, including indication of any special
capacity of the registered owner.
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,
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Class B and Class C shares of any Fund are deposited in a plan account and all
distributions are reinvested in additional shares of the particular class of the
Fund at net asset value. Shares in a plan account are then redeemed at net asset
value (less any applicable CDSC) to make each withdrawal payment. Any applicable
CDSC may be waived for certain redemptions under an Automatic Withdrawal Plan.
See "Alternative Purchase Arrangements--Waiver of Contingent Deferred Sales
Charges."
Redemptions for the purpose of withdrawals are ordinarily made on the
business day preceding the day of payment at that day's closing net asset value
and checks are mailed on the day of payment selected by the shareholder. The
Transfer Agent may accelerate the redemption and check mailing date by one day
to avoid weekend delays. Payment will be made to any person the investor
designates; however, if the shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary, except in the case
of a profit-sharing or pension plan where payment will be made to the designee.
As withdrawal payments may include a return of principal, they cannot be
considered a guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with an Automatic Withdrawal Plan may result
in a gain or loss for tax purposes. Continued withdrawals in excess of income
will reduce and possibly exhaust invested principal, especially in the event of
a market decline. The maintenance of an Automatic Withdrawal Plan concurrently
with purchases of additional shares of the Fund would be disadvantageous to the
investor because of the CDSC that may become payable on such withdrawals in the
case of Class A, Class B or Class C shares and because of the initial sales
charge in the case of Class A shares. For this reason, the minimum investment
accepted for a Fund while an Automatic Withdrawal Plan is in effect for that
Fund is $1,000, and an investor may not maintain a plan for the accumulation of
shares of the Fund (other than through reinvestment of distributions) and an
Automatic Withdrawal Plan at the same time. The Trust or the Distributor may
terminate or change the terms of the Automatic Withdrawal Plan at any time.
Because the Automatic Withdrawal Plan may involve invasion of capital,
investors should consider carefully with their own financial advisers whether
the plan and the specified amounts to be withdrawn are appropriate in their
circumstances. The Trust and the Distributor make no recommendations or
representations in this regard.
Redemptions In Kind
Each Trust agrees to redeem shares of its Funds solely in cash up to the
lesser of $250,000 or 1% of the Fund's net assets during any 90-day period for
any one shareholder. In consideration of the best interests of the remaining
shareholders, each Trust reserves the right to pay any redemption proceeds
exceeding this amount in whole or in part by a distribution in kind of
securities held by a Fund in lieu of cash. Except for Funds with a tax-
efficient management strategy, it is highly unlikely that shares would ever be
redeemed in kind. When shares are redeemed in kind, the redeeming shareholder
should expect to incur transaction costs upon the disposition of the securities
received in the distribution.
SG-31
<PAGE>
PIMCO Funds
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902-6896
1-800-426-0107
SG-32
