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LOGO
PIMCO
Variable
Insurance
Trust
Short-Term Bond Portfolio
Low Duration Bond Portfolio
International Bond Portfolio
Foreign Bond Portfolio
Prospectus
________________________________________________________________________________
December 15, 1998
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PIMCO Variable Insurance Trust
Prospectus
December 15, 1998
The PIMCO Low Duration Bond and Foreign Bond Portfolios, which are two series of
PIMCO Variable Insurance Trust (the "Trust"), are designed to provide access to
the professional investment management services offered by Pacific Investment
Management Company ("PIMCO" or the "Adviser"). Each Portfolio has its own
investment objective and strategies and its own risk/reward profile, which are
described in this Prospectus. The investments made by the Portfolios at any
given time are not expected to be the same as those made by other mutual funds
for which PIMCO acts as investment adviser, including mutual funds with
investment objectives and strategies similar to those of the Portfolios.
This Prospectus gives vital information you should know before investing in the
Portfolios. For your own benefit and protection, please read it before you
invest and keep it for future reference.
Shares of the Portfolios currently are sold to segregated asset accounts
("Separate Accounts") of insurance companies which fund variable annuity
contracts and variable life insurance policies ("Variable Contracts"). Assets in
the Separate Account are invested in shares of the Portfolios in accordance with
allocation instructions received from owners of the Variable Contracts
("Variable Contract Owners"). Variable Contract Owners do not deal directly with
the Portfolios to purchase or redeem shares. The allocation rights of Variable
Contract Owners are described in the accompanying Separate Account prospectus.
Shares of the Portfolios also may be sold to qualified pension and retirement
plans outside of the separate account context.
This Prospectus should be read in conjunction with the prospectus of the
Separate Account. Both prospectuses should be read carefully and retained for
future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
OVERVIEW..............................................................3
Portfolios at a Glance..............................................3
Investment Strategies and Risk Factors..............................3
Fixed Income Instruments............................................3
Ratings of Debt Securities..........................................4
DESCRIPTION OF PORTFOLIOS.............................................5
PIMCO Low Duration Bond Portfolio....................................5
PIMCO Foreign Bond Portfolio.........................................5
MANAGEMENT OF THE TRUST...............................................9
Adviser and Administrator...........................................9
Advisory and Administrative Fees...................................10
Portfolio Transactions.............................................10
PURCHASE OF SHARES...................................................11
REDEMPTION OF SHARES.................................................11
NET ASSET VALUE......................................................11
TAXES................................................................12
RISK FACTORS AND SPECIAL CONSIDERATIONS..............................12
OTHER INFORMATION....................................................16
Portfolio Names....................................................16
Total Return.......................................................16
Performance Information of Similar Funds...........................17
APPENDIX A...........................................................19
APPENDIX B...........................................................20
Prospectus 2
<PAGE>
OVERVIEW
Portfolios at a Glance
<TABLE>
<CAPTION>
Short-Term Bond Portfolios Primary Investments Duration Credit Quality(1) Foreign(2)
-------------------------- ------------------- -------- ----------------- ----------
<C> <S> <C> <C> <C>
Low Duration Bond Short and intermediate maturity fixed 1-3 years B to Aaa; max 10% 0-20%
income securities below Baa
International Bond Portfolios
-----------------------------
Foreign Bond Intermediate maturity hedged foreign 3-7 years B to Aaa; max 10% greater than
fixed income securities below Baa or equal to 85%
----------------
</TABLE>
(1) As rated by Moody's Investors Service, Inc., or if unrated, determined to
be of comparable quality. For specific information concerning the credit
quality of the securities held by each Portfolio, see that Portfolio's
description of "Main Investment Strategies."
(2) Percentage limitations relate to foreign currency-denominated securities
for the PIMCO Low Duration Bond Portfolio. The Low Duration Bond Portfolio
may invest beyond this limit in U.S. dollar-denominated securities of
foreign issuers. Percentage limitations for the PIMCO Foreign Bond
Portfolio relate to securities of foreign issuers, denominated in any
currency.
Investment Strategies and Risk Factors
Investment Strategies. Each Portfolio has specific strategies that it may use
to pursue its investment objective, and specific types of securities in which
the Portfolio may invest, which are described under the heading "Main Investment
Strategies" in the Description of Portfolios. Percentage limitations described
in this Prospectus apply at the time of investment, and may vary with
fluctuations in the value of a Portfolio's investment portfolio.
Risk Factors. The major risks associated with investing in each Portfolio are
described under the heading "Risk Factors" in the Description of Portfolios.
Please be sure to read all risk disclosures carefully before investing. This
Prospectus does not describe all of the risks of every security or technique
that the Portfolios may use. For such information, please refer to the Statement
of Additional Information.
Fixed Income Instruments
"Fixed Income Instruments" as used in this Prospectus means:
* securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government securities");
* corporate debt securities, including convertible securities and corporate
commercial paper;
* mortgage-backed and other asset-backed securities;
* inflation-indexed bonds issued both by governments and corporations;
* structured notes, including hybrid or "indexed" securities, catastrophe
bonds and loan participations;
* delayed funding loans and revolving credit facilities;
* bank certificates of deposit, fixed time deposits and bankers' acceptances;
* repurchase agreements and reverse repurchase agreements;
* obligations of foreign governments or their subdivisions, agencies and
instrumentalities; and
* obligations of international agencies or supranational entities.
Fixed Income Instruments may have fixed, variable, or floating rates of
interest, including rates of interest that vary inversely at a multiple of a
designated or floating rate, or that vary according to changes in relative
values of currencies. Each Portfolio may hold different percentages of its
assets in these various types of securities.
3 PIMCO Variable Insurance Trust
<PAGE>
OVERVIEW (continued)
Ratings of Debt Securities
In this Prospectus, references are made to the ratings of Fixed Income
Instruments. To aid in your understanding of the use of these terms, the
following is a brief description of the ratings categories applicable to such
securities. For a further description of ratings, see "Appendix B--Description
of Securities Ratings."
High Quality Debt Securities are those receiving ratings from at least one
nationally recognized statistical rating organization ("NRSRO"), such as
Standard & Poor's Ratings Services ("S&P") or Moody's Investors Service, Inc.
("Moody's"), in one of the two highest rating categories (the highest category
for commercial paper) or, if unrated by any NRSRO, deemed comparable by PIMCO.
Investment Grade Debt Securities are those receiving ratings from at least one
NRSRO in one of the four highest rating categories or, if unrated by any NRSRO,
deemed comparable by PIMCO.
Lower-Rated, High Yield Securities ("Junk Bonds") are those rated lower than
Baa by Moody's or BBB by S&P and comparable securities. They are considered to
be predominately speculative with respect to the issuer's ability to pay
interest and repay principal. For more information on the risks of investing in
lower-rated securities, see "High Yield Securities ("Junk Bonds")" in "Risk
Factors and Special Considerations."
Prospectus 4
<PAGE>
DESCRIPTION OF PORTFOLIOS
PIMCO LOW DURATION BOND PORTFOLIO
Investment Objective
The PIMCO Low Duration Bond Portfolio seeks to maximize total return,
consistent with preservation of capital and prudent investment management.
Main Investment Strategies
The PIMCO Low Duration Bond Portfolio invests under normal circumstances at
least 65% of its assets in a diversified portfolio of Fixed Income Instruments
of varying maturities. The average portfolio duration of this Portfolio will
normally vary within a one- to three-year time frame based on the Adviser's
forecast for interest rates. See "Appendix A--Description of Duration."
Portfolio securities may be issued by domestic or foreign entities. The
Portfolio may invest all of its assets in derivative instruments, such as
options, futures contracts or swap agreements, or in mortgage- or asset-backed
securities. The Portfolio may lend its portfolio securities to brokers, dealers
and other financial institutions to earn income. The Portfolio may enter into a
series of purchase and sale contracts or use other investment techniques to
obtain market exposure to the securities in which it primarily invests.
The Portfolio may invest up to 10% of its assets in junk bonds rated B or
higher by Moody's or S&P, or, if unrated, determined by the Adviser to be of
comparable quality. The Portfolio may invest up to 20% of its assets in
securities denominated in foreign currencies, and may invest beyond this limit
in U.S. dollar-denominated securities of foreign issuers.
Risk Factors
An investment in the PIMCO Low Duration Bond Portfolio is subject to
investment risk, including possible loss of the principal amount invested. The
Portfolio is subject to interest rate risk. Generally, the value of fixed income
securities will change inversely with changes in interest rates. As interest
rates rise, market value tends to decrease. This risk will be greater for long-
term securities than for short-term securities. Derivative instruments may be
particularly sensitive to changes in prevailing interest rates. The Portfolio
also is subject to credit risk, which is the possibility that an issuer of a
security, or a counterparty to a derivative contract, will default or become
unable to meet a financial obligation. Junk bonds carry a high degree of credit
risk. Securities of foreign issuers may be subject to additional risk factors,
including foreign currency and political risks. For a further explanation, see
"Risk Factors and Special Considerations," which you should read carefully
before investing.
An investment in the Portfolio is not a deposit of a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Fees and Expenses
This table describes the fees and expenses (as a percentage of net assets)
that you may pay in connection with an investment in the PIMCO Low Duration Bond
Portfolio.
5 PIMCO Variable Insurance Trust
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Annual Portfolio Operating Expenses (expenses deducted from Portfolio assets)
<TABLE>
<S> <C>
Advisory Fee .......................................................0.40%
Administrative Fee .................................................0.25%
----
Total Portfolio Operating Expenses .................................0.65%*
====
</TABLE>
________________________
* PIMCO has agreed to waive some or all of its administrative fee, subject to
potential future reimbursement, to the extent that total Portfolio
operating expenses would exceed 0.65% of average daily net assets due to
payment by the Portfolio of its pro rata portion of Trustees' fees. Absent
this contractual undertaking, the Portfolio's total operating expenses,
based on estimates for the current fiscal year, would be 0.69%.
Example
This Example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other portfolios. The Example assumes that
you invest $10,000 in the Portfolio for the time periods indicated and then
redeem all your shares at the end of those periods. The Example also assumes a
5% return each year and that the Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 year 3 years
------ -------
<S> <C>
$66 $208
</TABLE>
Prospectus 6
<PAGE>
PIMCO FOREIGN BOND PORTFOLIO
Investment Objective
The PIMCO Foreign Bond Portfolio seeks to maximize total return, consistent
with preservation of capital and prudent investment management.
Main Investment Strategies
The PIMCO Foreign Bond Portfolio invests in a portfolio of Fixed Income
Instruments primarily denominated in major foreign currencies and baskets of
foreign currencies (such as the European Currency Unit, or "ECU"). The Adviser
will invest the assets of the Portfolio in a number of international bond
markets so that, under normal circumstances, the Portfolio will invest at least
85% of its assets in Fixed Income Instruments of issuers located outside the
United States, representing at least three foreign countries, which may be
represented by futures contracts (including related options) with respect to
such securities, and options on such securities, when the Adviser deems it
appropriate to do so.
The Adviser will select the Portfolio's foreign country and currency
compositions based on an evaluation of relative interest rates, exchange rates,
monetary and fiscal policies, trade and current account balances, and any other
specific factors the Adviser believes to be relevant. The average portfolio
duration of this Portfolio will normally vary within a three- to seven-year time
frame. See "Appendix A--Description of Duration."
The Portfolio may invest all of its assets in derivative instruments, such as
options, futures contracts or swap agreements, or in mortgage- or asset-backed
securities. The Portfolio may lend its portfolio securities to brokers, dealers
and other financial institutions to earn income. The Portfolio may enter into a
series of purchase and sale contracts or use other investment techniques to
obtain market exposure to the securities in which it primarily invests.
The Portfolio may invest up to 10% of its assets in junk bonds rated B or
higher by Moody's or S&P, or, if unrated, determined by the Adviser to be of
comparable quality.
Risk Factors
An investment in the PIMCO Foreign Bond Portfolio is subject to investment
risk, including possible loss of the principal amount invested. The Portfolio is
"non-diversified," meaning that it may invest a greater percentage of its assets
in the securities of one issuer than many of the other Portfolios. Because it is
"non-diversified," the Portfolio may be more susceptible to risks associated
with a single economic, political or regulatory occurrence than a diversified
portfolio might be.
The Portfolio is subject to interest rate risk. Generally, the value of fixed
income securities will change inversely with changes in interest rates. As
interest rates rise, market value tends to decrease. This risk will be greater
for long-term securities than for short-term securities. Derivative instruments
may be particularly sensitive to changes in prevailing interest rates.
Unexpected changes in interest rates may adversely affect the value of a
Portfolio's investments in particular derivative instruments. The Portfolio also
is subject to credit risk, which is the possibility that an issuer of a
security, or a counterparty to a derivative contract, will default or become
unable to meet a financial obligation. Junk bonds carry a high degree of credit
risk. Securities of foreign issuers may be subject to additional risk factors,
including foreign currency and political risks. The Fund may also be subject to
risks associated with the introduction of the euro (a common currency for
European Union) in January, 1999. For a further explanation, see "Risk Factors
and Special Considerations," which you should read carefully before investing.
An investment in the Portfolio is not a deposit of a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
7 PIMCO Variable Insurance Trust
<PAGE>
Fees and Expenses
This table describes the fees and expenses (as a percentage of net assets)
that you may pay in connection with an investment in the PIMCO Foreign Bond
Portfolio.
Annual Portfolio Operating Expenses (expenses deducted from Portfolio assets)
<TABLE>
<S> <C>
Advisory Fee ....................................................0.60%
Administrative Fee ..............................................0.30%
----
Total Portfolio Operating Expenses ..............................0.90%*
====
</TABLE>
________________________
* PIMCO has agreed to waive some or all of its administrative fee, subject to
potential future reimbursement, to the extent that total Portfolio operating
expenses would exceed 0.90% of average daily net assets due to payment by the
Portfolio of its pro rata portion of Trustees' fees. Absent this contractual
undertaking, the Portfolio's total operating expenses, based on estimates for
the current fiscal year, would be 0.94%.
Example
This Example is intended to help you compare the cost of investing in the
Portfolio to the cost of investing in other portfolios. The Example assumes that
you invest $10,000 in the Portfolio for the time periods indicated and then
redeem all your shares at the end of those periods. The Example also assumes a
5% return each year and that the Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 year 3 years
------ -------
$92 $287
Prospectus 8
<PAGE>
MANAGEMENT OF THE TRUST
Adviser and Administrator
PIMCO serves as investment adviser to the Portfolios. PIMCO manages the
investment of the assets of these Portfolios, and places orders for the purchase
and sale of each Portfolio's investments directly with brokers or dealers
selected by it in its discretion. See "Portfolio Transactions." PIMCO is one of
the premier fixed income investment management firms in the United States. PIMCO
was founded in 1971, and had over $142 billion in assets under management as of
August 31, 1998. PIMCO invests in all sectors of the fixed income market using
its total return philosophy -- seeking capital appreciation as well as yield.
PIMCO is a subsidiary partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). The
general partners of PIMCO Advisors are PIMCO Partners, G.P. and PIMCO Advisors
Holdings L.P. ("PAH"). PIMCO Partners, G.P. is a general partnership between
PIMCO Holding LLC, a Delaware limited liability company and an indirect wholly-
owned subsidiary of Pacific Life Insurance Company, and PIMCO Partners LLC, a
California limited liability company controlled by the current Managing
Directors and two former Managing Directors of PIMCO. PIMCO Partners, G.P. is
the sole general partner of PAH. PIMCO's address is 840 Newport Center Drive,
Suite 300, Newport Beach, California 92660. PIMCO is registered as an investment
adviser with the Securities and Exchange Commission ("SEC") and as a commodity
trading advisor with the CFTC.
In selecting fixed income securities, PIMCO uses economic forecasting,
interest rate anticipation, credit and call risk analysis, foreign currency
exchange rate forecasting, and other securities selection techniques. The
proportion of each Portfolio's assets committed to investment in securities with
particular characteristics (such as maturity, type and coupon rate) will vary
based on PIMCO's outlook for the U.S. and foreign economies, the financial
markets, and other factors. The management of duration, a measure of a fixed
income security's expected life that incorporates its yield, coupon interest
payments, final maturity and call features into one measure, is one of the
fundamental tools used by PIMCO. For a discussion of the concept of duration,
see "Appendix A--Description of Duration."
The table below provides information about the individual portfolio managers
responsible for management of the Portfolios, including their occupations for
the past five years.
<TABLE>
<CAPTION>
Portfolio Portfolio Manager And Business Experience (Past Five Years)
- --------- -----------------------------------------------------------
<C> <S>
Low Duration Bond Portfolio William H. Gross, Managing Director, PIMCO. A Fixed Income Portfolio
Manager, Mr. Gross is one of the founders of PIMCO and has managed the
PIMCO Low Duration Fund for the PIMCO Funds: Pacific Investment Management
Series since its inception on May 11, 1987.
Foreign Bond Portfolio Lee R. Thomas, III, Managing Director and Senior International Portfolio
Manager, PIMCO. A Fixed Income Portfolio Manager, Mr. Thomas has managed
the PIMCO Foreign Bond Fund for the PIMCO Funds: Pacific Investment
Management Series since July 13, 1995. Prior to joining PIMCO in 1995, Mr.
Thomas was associated with Investcorp as a member of the management
committee responsible for global securities and foreign exchange trading.
Prior to Investcorp, he was associated with Goldman Sachs as an Executive
Director in foreign fixed income.
</TABLE>
PIMCO also serves as administrator to the Portfolios. PIMCO provides
administrative services to the Portfolios which include clerical help,
accounting, bookkeeping, internal audit services, preparation of reports to the
Portfolios' shareholders or other appropriate parties, regulatory filings and
certain other services required by the Portfolios.
9 PIMCO Variable Insurance Trust
<PAGE>
Advisory and Administrative Fees
The Portfolios feature fixed advisory and administrative fee rates. For
investment advisory and administrative services as described below, each
Portfolio pays monthly fees at an annual rate based on the average daily net
assets of the Portfolio as follows:
<TABLE>
<CAPTION>
Advisory Fee
Portfolio Rate
--------- ------------
<S> <C>
Low Duration Bond Portfolio ......................... 0.40%
Foreign Bond Portfolio .............................. 0.60%
Administrative
Portfolio Free Rate
--------- --------------
Low Duration Bond Portfolio ......................... 0.25%
Foreign Bond Portfolio .............................. 0.30%
</TABLE>
The administrative fee covers most of the expenses of the Portfolios,
including legal, audit, custody, transfer agency and certain other services, and
is responsible for the costs of registration of the Trust's shares and the
printing of prospectuses and shareholder reports for current shareholders or
other appropriate parties.
The Portfolios are responsible for bearing certain expenses associated with
their operations that are not provided or procured by PIMCO. While it is
expected that these expenses generally will not have a material effect on the
Portfolio expense ratios, they may have a material effect in certain
circumstances, such as when the average net assets of a Portfolio are lower than
anticipated. PIMCO has contractually undertaken to waive some or all of its
administrative fee, subject to potential future reimbursement as described above
in "Description of Portfolios."
Portfolio Transactions
The Adviser has discretion to select the brokers and dealers with which it
places orders for the purchase and sale of portfolio investments. In doing so,
the Adviser will seek the best price and execution of the Portfolios' orders. A
Portfolio may pay higher commission rates than the lowest available when the
Adviser believes it is reasonable in light of the value of the brokerage and
research services provided by the broker effecting the transaction.
The Adviser manages the Portfolios without regard generally to restrictions on
portfolio turnover. The use of derivative instruments with relatively short
maturities may tend to exaggerate the portfolio turnover rate for some of the
Portfolios. 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. A Portfolio with a higher rate of portfolio turnover will
generally incur higher transaction costs.
Some securities considered for investment by the Portfolios also may be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of a Portfolio and one or
more of these clients served by the Adviser is considered at or about the same
time, transactions in such securities will be allocated among the Portfolio and
clients in a manner deemed fair and reasonable by the Adviser. The Adviser may
aggregate orders for the Portfolios with simultaneous transactions entered into
on behalf of other clients of the Adviser.
Prospectus 10
<PAGE>
PURCHASE OF SHARES
As of the date of this Prospectus, shares of the Portfolios are offered for
purchase by Separate Accounts to serve as an investment medium for Variable
Contracts issued by life insurance companies, and to qualified pension and
retirement plans outside of the separate account context.
While the Portfolios currently do not foresee any disadvantages to Variable
Contract Owners if the Portfolios serve as an investment medium for both
variable annuity contracts and variable life insurance policies, due to
differences in tax treatment or other considerations, it is theoretically
possible that the interest of owners of annuity contracts and insurance policies
for which the Portfolios served as an investment medium might at some time be in
conflict. However, the Trust's Board of Trustees and each insurance company with
a separate account allocating assets to the Portfolios are required to monitor
events to identify any material conflicts between variable annuity contract
owners and variable life insurance policy owners, and would have to determine
what action, if any, should be taken in the event of such a conflict. If such a
conflict occurred, an insurance company participating in the Portfolios might be
required to redeem the investment of one or more of its separate accounts from
the Portfolios, which might force the Portfolios to sell securities at
disadvantageous prices.
The Trust is "open for business" on each day the New York Stock Exchange (the
"Exchange") is open for trading. A purchase order, together with payment in
proper form, received before the close of regular trading on the Exchange
(normally 4:00 p.m., Eastern time) on a day the Trust is open for business will
be effected at that day's net asset value. An order received after the close of
regular trading on the Exchange generally will be effected at the net asset
value determined on the next business day.
The Trust and its distributor each reserves the right, in its sole discretion,
to suspend the offering of shares of the Portfolios or to reject any purchase
order, in whole or in part, or to redeem shares, in whole or in part, when, in
the judgment of management, such suspension or rejection is in the best
interests of the Trust. The sale of shares will be suspended during any period
in which the Exchange is closed for other than weekends or holidays, or if
permitted by the rules of the SEC, when trading on the Exchange is restricted or
during an emergency which makes it impracticable for the Portfolios to dispose
of their securities or to determine fairly the value of their net assets, or
during any other period as permitted by the SEC for the protection of investors.
In the event that a Portfolio ceases offering its shares, any investments
allocated to the Portfolio will, subject to any necessary regulatory approvals,
be invested in another Portfolio.
REDEMPTION OF SHARES
Shares may be redeemed without charge on any day that the net asset value is
calculated. All redemption orders are effected at the net asset value per share
next determined after a redemption request is received. Payment for shares
redeemed normally will be made within seven days.
The Trust may suspend the right of redemption or postpone the payment date at
times when the Exchange is closed, or during certain other periods as permitted
under the federal securities laws. In consideration of the best interests of the
remaining shareholders, the Trust reserves the right to pay redemption proceeds
in whole or in part by a distribution in kind of securities held by a Portfolio
in lieu of cash. It is highly unlikely that shares would ever be redeemed in
kind. If shares are redeemed in kind, however, the redeeming shareholder should
expect to incur transaction costs upon the disposition of the securities
received in the distribution.
NET ASSET VALUE
The net asset value per share of each Portfolio will be determined once on
each day that the Exchange is open as of the close of regular trading on the
Exchange (normally 4:00 p.m. Eastern time). Net asset value will not be
determined on days on which the Exchange is closed for trading. The Portfolios
may trade foreign securities on days when the Exchange is not open, and the net
asset value per share of the Portfolios may be affected significantly on days
when investors do not have access to the Portfolios.
11 PIMCO Variable Insurance Trust
<PAGE>
Portfolio securities and other assets for which market quotations are readily
available are stated at market value. Fixed income securities are normally
valued on the basis of quotations obtained from brokers and dealers or pricing
services. Short-term investments having a maturity of 60 days or less are valued
at amortized cost, when the Board of Trustees determines that amortized cost is
their fair value. Certain fixed income securities for which daily market
quotations are not readily available may be valued, pursuant to guidelines
established by the Board of Trustees, with reference to fixed income securities
whose prices are more readily obtainable and whose durations are comparable to
the securities being valued. Subject to the foregoing, other securities for
which market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Trustees.
TAXES
Each Portfolio intends to qualify as a regulated investment company annually
and to elect to be treated as a regulated investment company for federal income
tax purposes. As such, a Portfolio generally will not pay federal income tax on
the income and gains it pays as dividends to its shareholders. In order to avoid
a 4% federal excise tax, each Portfolio intends to distribute each year
substantially all of its net income and gains.
The Portfolios also intend to comply with diversification requirements imposed
by regulations under Section 817(h) of the Internal Revenue Code, as amended.
Compliance with these diversification rules generally will limit the ability of
a Portfolio to invest greater than 55% of its total assets in direct obligations
of the U.S. Treasury (or any other issuer), or to invest primarily in securities
issued by a single agency or instrumentality of the U.S. Government.
If a Portfolio fails to meet the diversification requirement under Section
817(h), income with respect to Variable Contracts invested in the Portfolio at
any time during the calendar quarter in which the failure occurred could become
currently taxable to the owners of the Variable Contracts and income for prior
periods with respect to such contracts also could be taxable, most likely in the
year of the failure to achieve the required diversification. Other adverse tax
consequences could also ensue.
Please refer to the prospectus for the Separate Account and Variable Contract
for information regarding the federal income tax treatment of distributions to
the Separate Account. See "Additional Information--Additional Tax Information"
in the Portfolios' Statement of Additional Information for more information on
taxes.
RISK FACTORS AND SPECIAL CONSIDERATIONS
A Portfolio's risk profile is largely defined by the Portfolio's principal
securities and the investment practices that it uses. You can find a concise
description of each Portfolio's risk profile in the section captioned
"Description of Portfolios" in this Prospectus. As with any mutual fund, there
is no guarantee that a Portfolio will earn income or show a positive total
return over any period of time, and you could lose money by investing in the
Portfolio.
The Portfolios are permitted to use, within limits established by the Trustees
and imposed by applicable laws, a wide variety of securities and investment
practices, each of which has certain risks and opportunities associated with it.
To the extent that a Portfolio uses these securities or practices, its overall
performance may be affected, either positively or negatively. The following
pages describe certain of the securities in which the Portfolios may invest and
certain of investment practices in which the Portfolios may engage, along with
the risks associated with them. Additional information about these and other
investments and investment practices may be found in the Statement of Additional
Information, which you may obtain free of charge by calling (888) 746-2688.
U.S. Government Securities
U.S. Government securities are obligations of and, in certain cases,
guaranteed by, the U.S. Government, its agencies or instrumentalities. The U.S.
Government does not guarantee the net asset value of the Portfolios' shares.
U.S. Government securities may include zero coupon securities, which do not
distribute interest on a current basis and tend to be subject to greater market
risk than interest-paying securities of similar maturities.
Prospectus 12
<PAGE>
Corporate Debt Securities
The rate of interest paid on a corporate debt security may be fixed, floating
or variable, and may vary inversely with respect to a reference rate. See
"Variable and Floating Rate Securities" below. 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.
Investments in corporate debt securities that are rated below investment grade
are described below in "High Yield Securities ("Junk Bonds")." See also,
"Appendix B--Description of Securities Ratings."
Convertible Securities and Equity Securities
A convertible security is a fixed income security that may be converted into a
prescribed amount of common stock at a specified formula. The price of the
convertible security will normally vary in some proportion to changes in the
price of the underlying common stock because of the conversion feature. A
Portfolio may be required to permit the issuer of a convertible security to
redeem the security, convert it into the underlying common stock, or sell it to
a third party, which could have an adverse effect on a Portfolio's ability to
achieve its investment objective.
Although the Portfolios intend to invest primarily in fixed income securities,
each may invest in convertible securities or equity securities. While some
countries or companies may be regarded as favorable investments, pure fixed
income opportunities may be unattractive or limited due to insufficient supply,
or legal or technical restrictions. In such cases, a Portfolio may consider
equity securities or convertible securities to gain exposure to such
investments.
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic adjustment in the
interest rate paid on the obligations. Each Portfolio may invest in floating
rate debt instruments ("floaters") and engage in credit spread trades. The
interest rate on a floater is a variable rate which is tied to another interest
rate, such as a money-market index or Treasury bill rate, and resets
periodically. While variable and floating rate securities provide a Portfolio
with a certain degree of protection against rises in interest rates, a Portfolio
will participate in any declines in interest rates as well.
Inflation-Indexed Bonds
Inflation-indexed bonds are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation. Such bonds generally
are issued at an interest rate lower than typical bonds, but are expected to
retain their principal value over time. The interest rate on these bonds is
fixed at issuance, but over the life of the bond this interest may be paid on an
increasing principal value, which has been adjusted for inflation. 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. 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.
Mortgage-Related and Other Asset-Backed Securities
Each Portfolio may invest all of its assets in mortgage- or other asset-backed
securities. The value of some mortgage- or asset-backed securities in which the
Portfolios invest may be particularly sensitive to changes in prevailing
interest rates, and, like other fixed income investments, the ability of a
Portfolio to successfully use these instruments may depend in part upon the
ability of the Adviser to forecast interest rates and other economic factors
correctly.
Mortgage Pass-Through Securities represent interests in "pools" of mortgage
loans secured by residential or commercial real property. Early repayment of
principal on some mortgage-related securities may expose a Portfolio to a lower
rate of return upon reinvestment of principal. 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
13 PIMCO Variable Insurance Trust
<PAGE>
of mortgage-related securities with prepayment features may not increase as much
as other fixed income securities. The rate of prepayments on underlying
mortgages will affect the price and volatility of a mortgage-related security,
and may have the effect of shortening or extending the effective maturity of the
security.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage-related or asset-backed securities.
Mortgage-Related Securities include securities other than those described
above that directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property.
Other Asset-Backed Securities. The Portfolios may invest in other asset-backed
securities that have been or may be offered to investors. For a discussion of
the characteristics of some of these instruments, see the Statement of
Additional Information.
Foreign Securities
Each Portfolio may invest directly in fixed income securities of non-U.S.
issuers. Investing in the securities of issuers in any foreign country involves
special risks and considerations not typically associated with investing in U.S.
companies. These risks include: differences in accounting, auditing and
financial reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country); and political instability which could affect U.S. investments
in foreign countries. Additionally, foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
taxes withheld from payments on those securities. Foreign securities often trade
with less frequency and volume than domestic securities and therefore may
exhibit greater price volatility. Additional costs associated with an investment
in foreign securities may include higher custodial fees than apply to domestic
custodial arrangements and transaction costs of foreign currency conversions.
Changes in foreign exchange rates also will affect the value of securities
denominated or quoted in currencies other than the U.S. dollar.
The Portfolios may invest in the securities of issuers based in countries with
developing economies. Investing in developing (or "emerging market") countries
involves certain risks not typically associated with investing in U.S.
securities, and imposes risks greater than, or in addition to, risks of
investing in foreign, developed countries. These risks are detailed in the
Statement of Additional Information.
Foreign Currency Transactions
Foreign currency exchange rates may fluctuate significantly over short periods
of time. All Portfolios that may invest in securities denominated in foreign
currencies may buy and sell foreign currencies on a spot and forward basis to
reduce the risks of adverse changes in foreign exchange rates. A forward foreign
currency exchange contract reduces a Portfolio's 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
currency would limit any potential gain which might be realized by a Portfolio
if the value of the hedged currency increases. A Portfolio may enter into these
contracts for the purpose of hedging against foreign exchange risk arising from
the Portfolio's investment or anticipated investment in securities denominated
in foreign currencies. A Portfolio also may enter into these contracts for
purposes of increasing exposure to a foreign currency or to shift exposure to
foreign currency fluctuations from one country to another.
The Portfolios may invest in options on foreign currencies and foreign
currency futures and options thereon. The Portfolios also may invest in foreign
currency exchange-related securities, such as foreign currency warrants
Prospectus 14
<PAGE>
and other instruments whose return is linked to foreign currency exchange rates.
Each Portfolio will use these techniques to hedge at least 75% of its exposure
to foreign currency. For a description of these instruments, see "Derivative
Instruments" below and the Statement of Additional Information.
Significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Portfolios' assets are denominated may be devalued
against the U.S. dollar, resulting in a loss to the Portfolios.
High Yield Securities ("Junk Bonds")
Investing in high yield securities involves special risks in addition to the
risks associated with investments in higher rated fixed income securities. High
yield securities may be regarded as predominately speculative with respect to
the issuer's continuing ability to meet principal and interest payments. For
more information, see "Appendix B--Description of Securities Ratings." Analysis
of the creditworthiness of issuers of high yield securities may be more complex
than for issuers of higher quality debt securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to interest
rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. If the issuer of high
yield securities defaults, a Portfolio may incur additional expenses to seek
recovery.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities, which may adversely affect
and cause large fluctuations in the daily net asset value of a Portfolio's
shares. 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.
PIMCO seeks to minimize the risks of investing in high yield securities
through diversification, in-depth credit analysis and attention to current
developments in interest rates and market conditions.
Derivative Instruments
To the extent permitted by the investment objectives and policies of the
Portfolios, the Portfolios may purchase and write call and put options on
securities, securities indexes and foreign currencies, and enter into futures
contracts and use options on futures contracts. The Portfolios also may enter
into swap agreements with respect to foreign currencies, interest rates, and
securities indexes. The Portfolios may use these techniques to hedge against
changes in interest rates, foreign currency exchange rates or securities prices
or as part of their overall investment strategies.
The Portfolios may invest all of their assets in derivative instruments,
subject only to the Portfolio's investment objective and policies and any
restrictions imposed by applicable law. The use of these strategies involves
certain special risks, including a possible imperfect correlation, or even no
correlation, between price movements of derivative instruments and price
movements of related investments. While some strategies involving derivative
instruments can reduce the risk of loss, they can also reduce the opportunity
for gain or even result in losses by offsetting favorable price movements in
related investments or otherwise, due to the possible inability of a Portfolio
to purchase or sell a portfolio security at a time that otherwise would be
favorable, or the possible need to sell a portfolio security at a
disadvantageous time because the Portfolio is required to maintain asset
coverage or offsetting positions in connection with transactions in derivative
instruments, and the possible inability of a Portfolio to close out or to
liquidate its derivatives positions. The value of some derivative instruments in
which the Portfolios invest may be particularly sensitive to changes in
prevailing interest rates, and, like the other investments of the Portfolios,
the ability of a Portfolio to successfully use these instruments may depend in
part upon the ability of the Adviser to forecast interest rates and other
economic factors correctly. If the Adviser incorrectly forecasts such factors
and has
15 PIMCO Variable Insurance Trust
<PAGE>
taken positions in derivative instruments contrary to prevailing market trends,
the Portfolios could be exposed to the risk of loss.
Catastrophe Bonds
Each Portfolio 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" event, such as a
hurricane or an earthquake. If a trigger event causes losses exceeding a
specific amount in the geographic region and time period specified in a bond, a
Portfolio investing in the bond may lose a portion or all of its principal
invested in the bond. If no trigger event occurs, the Portfolio will recover its
principal plus interest. Catastrophe bonds may also expose the Portfolio to
certain unanticipated risks including but not limited to issuer (credit)
default, adverse regulatory or jurisdictional interpretation, and adverse tax
consequences.
Temporary Defensive Positions
For temporary, defensive or emergency purposes, the Portfolios may invest
without limit in U.S. debt securities, including short-term money market
securities, when in the opinion of PIMCO it is appropriate to do so. It is
impossible to predict for how long such alternative strategies will be utilized.
Illiquid Securities
The Portfolios may invest up to 15% of their net assets in illiquid
securities. "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 Portfolio has valued the securities. The
Adviser may be subject to significant delays in disposing of illiquid securities
and may not be able to dispose of these securities at the desired time and
price. Transactions in illiquid securities may entail additional registration
expenses and other transaction costs.
Service Systems--Year 2000 Problem
Many of the services provided to the Portfolios depend on the smooth
functioning of computer systems. Many systems in use today cannot distinguish
between the year 1900 and the year 2000. Should any of the service systems fail
to process information properly, that could have an adverse impact on the
Portfolios' operations and services provided to shareholders. PIMCO, Investors
Fiduciary Trust Company (the custodian), and certain other service providers to
the Portfolios have reported that each is working toward mitigating the risks
associated with the so-called "year 2000 problem." However, there can be no
assurance that the problem will be corrected in all respects and that the
Portfolios' operations and services provided to shareholders will not be
adversely effected, nor can there be any assurance that the year 2000 problem
will not have an adverse effect on the entities whose securities are held by the
Portfolios or on domestic or global markets or economies, generally.
OTHER INFORMATION
Portfolio Names
Each Portfolio considers the various types of debt or fixed income securities
in which it invests, as specifically described in this Prospectus, to be "bonds"
as referenced in that Portfolio's name. The use of this name is not meant to
restrict a Portfolio's investment to the narrow category of debt securities that
are formally called "bonds."
Total Return
The "total return" sought by the Portfolios will consist of interest and
dividends from underlying securities, capital appreciation reflected in
unrealized increases in value of portfolio securities, or realized from the
purchase and sale of securities and use of futures and options, or gains from
favorable changes in foreign currency exchange rates. Generally, over the long
term, the total return obtained by a portfolio investing primarily in fixed
income securities is not expected to be as great as that obtained by a portfolio
that invests primarily in equity securities. At
Prospectus 16
<PAGE>
the same time, the market risk and price volatility of a fixed income portfolio
is expected to be less than that of an equity portfolio, so that a fixed income
portfolio is generally considered to be a more conservative investment. The
change in market value of fixed income securities (and therefore their capital
appreciation or depreciation) is largely a function of changes in the current
level of interest rates. Generally, when interest rates are falling, a portfolio
with a shorter duration will not generate as high a level of total return as a
portfolio with a longer duration. See "Appendix A--Description of Duration."
Conversely, when interest rates are rising, a portfolio with a shorter duration
will generally outperform longer duration portfolios. When interest rates are
flat, shorter duration portfolios generally will not generate as high a level of
total return as longer duration portfolios (assuming that long-term interest
rates are higher than short-term rates, which is commonly the case). With
respect to the composition of any fixed income portfolio, the longer the
duration of the portfolio, the greater the anticipated potential for total
return, with, however, greater attendant market risk and price volatility than
for a portfolio with a shorter duration. The market value of fixed income
securities denominated in currencies other than the U.S. dollar also may be
affected by movements in foreign currency exchange rates.
The change in market value of equity securities (and therefore their capital
appreciation or depreciation) may depend upon a number of factors, including:
conditions in the securities markets, the business success of the security's
issuer, changing interest rates, real or perceived economic and competitive
industry conditions, and foreign currency exchange rates. Historically, the
total return performance of equity-oriented portfolios has generally been
greater over the long term than fixed income portfolios. However, the market
risk and price volatility of an equity portfolio is generally greater than that
of a fixed income portfolio, and is generally considered to be a more aggressive
investment.
Performance Information of Similar Funds
The following table provides information concerning the historical total
return performance of the Institutional Class shares of certain series of PIMCO
Funds: Pacific Investment Management Series ("PIMS"). Each PIMS series has
investment objectives, policies and risks substantially similar to those of its
respective Portfolio and is currently managed by the same portfolio manager.
While the investment objectives and policies of each PIMS series and its
respective Portfolio are similar, they are not identical and the performance of
the PIMS series and the Portfolio will vary. The data is provided to illustrate
the past performance of the respective Adviser or Portfolio Manager in managing
a substantially similar investment portfolio and does not represent the past
performance of any of the Portfolios or the future performance of any Portfolio
or its portfolio manager. Consequently, potential investors should not consider
this performance data as an indication of the future performance of any
Portfolio or of its portfolio manager.
The performance data shown below reflects the operating expenses of each PIMS
series, which for each series are lower than the expenses of the corresponding
Portfolio. Performance would have been lower for those series if the Portfolios'
expenses were used. In addition, the PIMS series, unlike the Portfolios, are not
sold to Separate Accounts to fund Variable Contracts. As a result, the
performance results presented below do not take into account charges or
deductions against a Separate Account or Variable Contract for cost of insurance
charges, premium loads, administrative fees, maintenance fees, premium taxes,
mortality and expense risk charges, or other charges that may be incurred under
a Variable Contract for which the Portfolio serves as an underlying investment
vehicle. By contrast, Variable Contract Owners with contract value allocated to
the Portfolios will be subject to charges and expenses relating to the Variable
Contracts and Separate Accounts.
Each PIMS series' performance data shown below is calculated in accordance
with standards prescribed by the SEC for the calculation of average annual total
return information. The investment results of the PIMS series presented below
are unaudited and are not intended to predict or suggest results that might be
experienced by the PIMS series or the Portfolios. Share prices and investment
returns will fluctuate reflecting market conditions, as well as changes in
company-specific fundamentals of portfolio securities. The performance data for
the benchmark indices identified below does not reflect the fees or expenses of
the PIMS series or the Portfolios.
17 PIMCO Variable Insurance Trust
<PAGE>
Average Annual Total Return for Similar Series of PIMS
and for Benchmark Indices for Periods Ended August 31, 1998
<TABLE>
<CAPTION>
1 3 5 Since Inception
PIMS Series/Benchmark Year Years Years Inception Date
- ----------------------------------------------------------- ---------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PIMCO Low Duration Bond Fund............................... 6.75 7.50 6.50 8.19 5/11/87
Merrill Lynch 1-3 yr. Treasury/1/......................... 7.37 6.53 5.74
PIMCO Foreign Bond Fund/2/................................. 10.38 14.63 10.26 11.19 12/3/92
J. P. Morgan Non-U.S. (Hedged)/3/......................... 13.51 12.84 9.75
/1/ The Merrill Lynch 1-3 Year Treasury Index consists of all public U.S. Treasury obligations having maturities from one to 2.99
years. The Index includes income and distributions but does not reflect fees, brokerage commissions or other expenses of
investing.
/2/ Prior to July 13, 1995, the Foreign Bond Fund was managed by a different portfolio manager.
/3/ The J.P. Morgan Non-U.S. Index (Hedged) is an unmanaged market index representative of the total return performance in U.S.
dollars of major non-U.S. bond markets. The Index includes income and distributions but does not reflect fees, brokerage
commissions or other expenses of investing.
</TABLE>
Prospectus 18
<PAGE>
APPENDIX A
DESCRIPTION OF DURATION
Duration is a measure of the expected life of a fixed income security that was
developed as a more precise alternative to the concept of "term to maturity."
Traditionally, a fixed income security's "term to maturity" has been used as a
proxy for the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term to maturity" measures only the time until a fixed income security provides
its final payment, taking no account of the pattern of the security's payments
before maturity. In contrast, duration incorporates a bond's yield, coupon
interest payments, final maturity and call features into one measure. Duration
management is one of the fundamental tools used by the Adviser.
Duration is a measure of the expected life of a fixed income security on a
present value basis. Duration takes the length of the time intervals between the
present time and the time that the interest and principal payments are scheduled
or, in the case of a callable bond, expected to be received, and weights them by
the present values of the cash to be received at each future point in time. For
any fixed income security with interest payments occurring before the payment of
principal, duration is always less than maturity. In general, all other things
being equal, the lower the stated or coupon rate of interest of a fixed income
security, the longer the duration of the security; conversely, the higher the
stated or coupon rate of interest of a fixed income security, the shorter the
duration of the security.
Futures, options and options on futures have durations which, in general, are
closely related to the duration of the securities which underlie them. Holding
long futures or call option positions (backed by a segregated account of cash
and cash equivalents) will lengthen a Portfolio's duration by approximately the
same amount that holding an equivalent amount of the underlying securities
would.
Short futures or put option positions have durations roughly equal to the
negative duration of the securities that underlie these positions, and have the
effect of reducing portfolio duration by approximately the same amount that
selling an equivalent amount of the underlying securities would.
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. For inflation-indexed bonds, duration is calculated on the basis
of modified real duration, which measures price changes of inflation-indexed
bonds on the basis of changes in real, rather than nominal, interest rates.
Another example where the interest rate exposure is not properly captured by
duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure.
Finally, the duration of a fixed income security may vary over time in response
to changes in interest rates and other market factors. In these and other
similar situations, the Adviser will use more sophisticated analytical
techniques that incorporate the anticipated economic life of a security into the
determination of its interest rate exposure.
19 PIMCO Variable Insurance Trust
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
Certain of the Portfolios make use of average portfolio credit quality
standards to assist institutional investors whose own investment guidelines
limit their investments accordingly. In determining a Portfolio's overall
dollar-weighted average quality, unrated securities are treated as if rated,
based on the Adviser's view of their comparability to rated securities. A
Portfolio's use of average quality criteria is intended to be a guide for those
institutional investors whose investment guidelines require that assets be
invested according to comparable criteria. Reference to an overall average
quality rating for a Portfolio does not mean that all securities held by the
Portfolio will be rated in that category or higher. A Portfolio's investments
may range in quality from securities rated in the lowest category in which the
Portfolio 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 to be of
comparable quality). The percentage of a Portfolio'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.
Prospectus 20
<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.
21 PIMCO Variable Insurance Trust
<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 also is 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 also is 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 also is
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
after completion of the project, makes no comment on the likelihood of, or the
risk of default upon failure of, such completion. The investor should exercise
his own judgment with respect to such likelihood and risk.
r: The "r" is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. Examples of such
Prospectus 22
<PAGE>
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.
23 PIMCO Variable Insurance Trust
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LOGO
PIMCO
Variable
Insurance
Trust
For More Information
The following documents are or will be made available that offer further
information on the Portfolios of PIMCO Variable Insurance Trust:
Annual/Semi-Annual Reports to Shareholders. The Trust's annual reports will
include a discussion of the market conditions and investment strategies that
significantly affected the Portfolios' performance during its last fiscal year.
The Trust has not yet issued an annual report.
Statement of Additional Information (SAI). The SAI contains additional
information about the Portfolios. A current SAI has been filed with the
Securities and Exchange Commission, and is incorporated into this Prospectus by
reference.
To request a free copy of these documents or to make inquiries about the
Portfolios, please write or call:
PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
Telephone: (888) 746-2688
Information about the Trust (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. Information on the operation of the public reference room may be obtained
by calling the Commission at 1-800-SEC-0330. Reports and other information about
the Trust are available on the Commission's Internet site at www.sec.gov, and
copies of that information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009.
SEC File No. 811-8399
Prospectus
________________________________________________________________________________
December 15, 1998
