<PAGE> front cover
PIMCO
PIMCO International Fund
Annual Report March 31, 1996
<PAGE> inside front cover
International Hedged Portfolio Combinations
(December 1985 - August 1993)
[Graph appears here]
Portfolio Risk Total Return
(%) (%)
3.95 8.16
3.83 8.26
3.72 8.37
3.63 8.47
3.56 8.58
3.51 8.69
3.47 8.79
3.46 8.90
3.48 9.00
3.51 9.11
3.56 9.21
3.63 9.32
3.72 9.42
3.83 9.53
3.96 9.63
4.10 9.74
4.25 9.85
4.41 9.95
4.58 10.06
4.77 10.16
5.01 10.27
Source: Morgan International Research
On the Cover:
Depicted on the front cover and in greater detail above, is an
efficient frontier graph showing different combinations of foreign
and domestic bonds. The historical relationships shown support
PIMCO's belief that the use of foreign bonds tends to reduce
portfolio volatility without sacrificing return. This risk
reduction is achieved because the U.S. and foreign bond markets do
not always move together. A portfolio manager's ability to
recognize and take advantage of these differences is an important
tool for adding value and reducing risk in both domestic and
international bond funds.
<PAGE> 1
CHAIRMAN'S MESSAGE
Dear Client:
The global bond rally of 1995 rewarded investors with some of the
highest returns in recent memory, but a sharp correction in the U.S.
bond market in early 1996 offset a portion of those gains. This
setback in U.S. bonds highlights the diversification and performance
benefits available through the opportunistic use of foreign bonds in
a domestic bond portfolio. While domestic bond prices were falling,
European (particularly German) bonds offered much stronger returns,
resulting in the International Fund significantly outperforming the
U.S. market. During the first quarter of 1996, the U.S. market
declined 2.34% as measured by the Lehman Government Corporate Bond
Index, compared to a modest 0.13% decline for the Fund.
The recent performance advantage of foreign bonds is also evident in
the International Fund's one-year return. For the fiscal year ended
March 31, 1996, the Fund returned 15.08%, while the domestic Lehman
Index posted a 10.93% increase. The Salomon World Government Bond
Index, a currency-hedged composite of major world bond markets, was
up 13.32%. We are pleased to report that International Fund clients
benefited from much of this strong performance as average client
allocations to the Fund increased in the second quarter of 1995 from
less than 1% to approximately 13% (individual allocations varied
subject to client guidelines).
Shown below is a summary of the International Fund's total return
performance compared to relevant market indexes over various time
periods. Performance of the Fund is net of fees and reflects the
reinvestment of dividends.
<TABLE>
<CAPTION>
Annualized Returns Ended 3/31/96
Since
1yr. 3yrs. 5yrs. Inception
<S> <C> <C> <C> <C>
International Fund (%) 15.08 6.57 8.24 8.16
Salomon World Gov't
Bond Index (%) 13.32 8.19 8.56 7.94
Lehman Gov't/Corp.Index (%) 10.93 6.03 8.70 8.74
</TABLE>
Cumulative Returns from Inception through March 31, 1996
[Graph Appears Here]
<TABLE>
<CAPTION>
International Fund Salomon World Gov't Lehman Gov't/
Month Unit Value Bond Index Corp. Index
<C> <C> <C> <C>
12/31/89 1,000,000 1,000,000 1,000,000
12/31/91 1,223,513 1,148,200 1,257,457
12/31/92 1,309,150 1,238,152 1,352,790
12/31/93 1,496,037 1,400,508 1,502,023
12/31/94 1,353,748 1,348,529 1,449,322
12/31/95 1,634,563 1,599,803 1,728,206
03/31/96 1,632,491 1,612,208 1,687,775
</TABLE>
The line graph depicts the value of $1,000,000 invested at the
Fund's inception in December 1989 and held through March 1996,
compared to the Salomon Brothers World Government Bond Index
(Currency Hedged) and the Lehman Brothers Government/Corporate Bond
Index, each an unmanaged market index.
We selected the theme for this year's cover, the efficient frontier,
to illustrate PIMCO's strong belief that a mix of domestic and
foreign bonds provides superior risk/return opportunities for fixed
income investors. Thank you for allowing us the opportunity to use
this valuable investment management tool on your behalf.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
May 22, 1996
<PAGE> 2
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<CAPTION>
Amounts in thousands, except per share amounts
<S> <C>
Assets:
Investments, at value $ 4,185,489
Cash and foreign currency 2,441
Receivable for investments and foreign currency sold 444,664
Variation margin receivable 89
Interest and dividends receivable 88,154
4,720,837
Liabilities:
Payable for investments and foreign currency purchased 2,447,641
Written options outstanding 120
Accrued investment advisor's fee 534
Accrued administrator's fee 534
Other accrued expenses and liabilities 68
2,448,897
Net Assets $ 2,271,940
Net Assets Consist of:
Paid in capital $ 2,254,524
Undistributed net investment income 27,949
Accumulated undistributed net realized loss (35,341)
Net unrealized appreciation 24,808
$ 2,271,940
Shares Issued and Outstanding 282,404
Net Asset Value, Offering and Redemption Price
Per Share (Net Assets Per Share Outstanding) $ 8.04
Cost of Investments Owned 4,205,697
Cost of Foreign Currency Held 2,436
</TABLE>
See Notes to Financial Statements
<PAGE> 3
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the year ended March 31, 1996
$ in thousands
<S> <C>
Investment Income:
Interest $ 121,909
Expenses:
Investment advisory fees 4,938
Administration fees 3,801
Custodian and transfer agent fees 434
Audit fees 43
Legal fees 26
Trustees' fees 12
Miscellaneous 18
Total expenses 9,272
Fees paid indirectly (5)
Net expenses 9,267
Net Investment Income 112,642
Net Realized and Unrealized Gain (Loss)
Net realized gain on investments 89,590
Net realized gain on futures contracts and written options 6,577
Net realized gain on foreign currency transactions 18,053
Net change in unrealized depreciation on investments (12,127)
Net change in unrealized depreciation on futures contracts (297)
and written options
Net change in unrealized appreciation on translation of
assets and liabilities denominated in foreign currencies 36,595
Net Gain 138,391
Net Increase in Assets Resulting from Operations $ 251,033
</TABLE>
See Notes to Financial Statements
<PAGE> 4
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
$ in thousands
Year ended Year Ended
March 31,1996 March 31, 1995
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Net investment income $ 112,642 $ 25,941
Net realized gain (loss) 114,220 (108,960)
Net change in unrealized appreciation 24,171 9,680
Net increase (decrease) resulting from 251,033 (73,339)
operations
Distributions to Shareholders
From net investment income (112,598) (35,032)
In excess of net investment income (36,556) 0
Total distributions (149,154) (35,032)
Fund Share Transactions
Receipts for shares sold 2,594,823 50,047
Issued as reinvestment of distributions 144,179 33,847
Cost of shares redeemed (614,891) (2,226,551)
Net increase (decrease) resulting from 2,124,111 (2,142,657)
Fund share transactions
Total Increase (Decrease) in Net Assets $ 2,225,990 $(2,251,028)
Net Assets
Beginning of period $ 45,950 $ 2,296,978
End of period * 2,271,940 45,950
* Including undistributed
(overdistributed) net investment
income of: $ 27,949 $ (44)
</TABLE>
See Notes to Financial Statements
<PAGE> 5
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Selected Per Share Data
for the Year Ended: 3/31/96 3/31/95 3/31/94 3/31/93 3/31/92
<S> <C> <C> <C> <C> <C>
Net asset value beginning
of period $7.44 $ 9.93 $ 10.53 $ 10.02 $ 9.94
Net investment income 0.63 2.18 0.47 0.62 0.79
Net realized and unrealized 0.49 (2.41) 0.24 0.42 0.27
gain (loss)
Total income (loss) from 1.12 (0.23) 0.71 1.04 1.06
investment operations
Dividends from net (0.39) (2.26) (0.96) (0.48) (0.78)
investment income
Dividends in excess of (0.13) 0.00 0.00 0.00 0.00
net investment income
Distributions from net 0.00 0.00 (0.35) (0.05) (0.20)(a)
realized capital gains
Total distributions (0.52) (2.26) (1.31) (0.53) (0.98)
Net asset value end of
period $8.04 $7.44 $9.93 $10.53 $10.02
Total return (%) 15.08 (1.27) 6.54 10.61 10.97
Net assets end of $2,271,940 $45,950 $2,296,978 $2,589,677 $1,314,661
period (000's)
Ratio of expenses to 0.50 0.43 0.43 0.46 0.51
average net assets (%)
Ratio of net investment
income to 6.09 5.90 5.51 6.67 8.24
average net assets (%)
Portfolio turnover
rate (%) 1,046 674 370 301 201
</TABLE>
(a) Gain distribution includes $0.14 per share characterized for tax purposes
as distributions from ordinary income.
See Notes to Financial Statements
<PAGE> 6
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
March 31, 1996
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Argentina(b)(f) - 2.4%
Republic of Argentina
3.445% due 04/01/01 (d) AP 61,371 $42,250
0.000% due 09/01/02 (d) 18,598 10,442
0.000% due 04/01/07 (d) 4,001 2,023
Total Argentina 54,715
(Cost $56,989)
Belgium (b)(f) - 3.8%
Kingdom of Belgium
5.100% due 11/21/04 (d) BF 2,600,000 87,108
Total Belgium 87,108
(Cost $87,599)
Canada (b)(f) - 19.0%
Commonwealth of Canada
5.250% due 06/26/96 $ 7,400 7,302
7.500% due 03/01/01 C$ 32,900 24,649
9.000% due 12/01/04 499,020 399,157
Total Canada 431,108
(Cost $429,549)
Denmark (b)(f) - 4.6%
Kingdom of Denmark
8.000% due 03/15/06 DK 580,000 105,040
Total Denmark 105,040
(Cost $104,797)
Germany (b)(f) - 28.9%
Depfa Bank
5.625% due 02/07/03 DM 105,000 69,034
German Unity Fund
8.750% due 07/20/00 220,400 168,882
Republic of Germany
8.000% due 07/22/02 50,000 37,527
6.875% due 06/11/03 59,400 41,839
6.000% due 06/20/16 160,000 95,720
6.250% due 01/04/24 404,330 242,768
Total Germany 655,770
(Cost $659,377)
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Finland (b)(f) - 20.1%
Merita Corp.
6.375% due 04/28/03 $6,000 $6,000
6.175% due 09/11/03 (d) 31,500 31,323
Republic of Finland
10.000% due 09/15/01 FM 394,000 97,444
9.500% due 03/15/04 1,351,000 322,297
Total Finland 457,064
(Cost $459,216)
Ireland (b)(f) - 2.7%
Irish Gilt
6.250% due 04/01/99 IP 38,900 60,280
Total Ireland 60,280
(Cost $61,246)
Mexico (f) - 1.2%
United Mexican States
0.000% due 05/16/96 MP 217,000 27,318
Total Mexico 27,318
(Cost $27,419)
Netherlands (b)(f) - 11.1%
Baden-Wuerttemberg L-Finance N.V.
6.625% due 08/20/03 DM 24,000 16,536
Kingdom of Netherlands
9.000% due 05/15/00 DG 54,400 37,566
7.000% due 06/15/05 25,000 15,766
8.250% due 02/15/07 265,540 181,360
Total Netherlands 251,228
(Cost $257,253)
New Zealand (b)(f) - 6.2%
Commonwealth of New Zealand
10.000% due 07/15/97 N$ 19,100 13,237
8.000% due 07/15/98 64,950 43,862
6.500% due 02/15/00 75,000 47,991
10.000% due 03/15/02 49,900 36,759
Total New Zealand 141,849
(Cost $142,376)
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Panama - 0.1%
Bladex
6.641% due 05/23/96 (d) $2,000 $1,999
Total Panama 1,999
(Cost $2,000)
Spain (b)(f) - 4.5%
Kingdom of Spain
10.300% due 06/15/02 SP 6,232,000 52,078
10.900% due 08/30/03 5,908,000 50,798
Total Spain 102,876
(Cost $101,120)
Supranational (f) - 1.5%
International Bank of Reconstruction & Development
7.125% due 04/12/05 DM 50,000 35,160
Total Supranational 35,160
(Cost $35,600)
Sweden (b)(f) - 12.6%
Kingdom of Sweden
11.000% due 01/21/99 SK 1,121,700 183,307
10.250% due 05/05/00 628,000 102,316
Total Sweden 285,623
(Cost $282,883)
United Kingdom (b)(f) - 0.5%
United Kingdom Gilt
6.000% due 08/10/99 BP 8,100 11,891
Total United Kingdom 11,891
(Cost $12,130)
United States - 37.9%
Corporate Bonds and Notes - 6.0%
Champion Home Equity Loan Trust
6.630% due 02/25/28 (d) $ 12,459 12,736
Dean Witter Discover
5.586% due 02/05/99 (d) 34,000 34,032
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Ford Motor Credit Corp.
5.580% due 03/23/99 (d) $ 12,500 $12,403
General Motors Acceptance Corp.
8.800% due 04/04/96 5,100 5,105
8.125% due 01/27/97 48,700 49,648
Hewlett Packard Co.
5.625% due 11/20/00 DM 15,000 10,153
Long Island Lighting Co.
8.750% due 05/01/96 $ 2,000 2,004
Marine Midland Bank
5.813% due 09/27/96 4,600 4,594
TCI Communications, Inc.
6.144% due 04/01/02 (d) 7,200 7,200
137,875
Mortgage-Backed Securities - 31.1%
Federal Home Loan Mortgage Corp.
6.309% due 01/01/20-06/01/30(d)(g) 40,272 40,495
8.277% due 06/01/22 (d) 6,083 6,218
7.944% due 08/01/22 (d) 3,934 4,061
7.893% due 01/01/24 (d) 5,403 5,576
7.828% due 02/01/24 (d) 6,166 6,352
7.870% due 08/01/24 (d) 7,057 7,284
Federal National Mortgage Assn.
8.305% due 07/01/21 (d) 3,094 3,203
7.850% due 05/01/22 (d) 11,948 12,346
7.847% due 11/01/22 (d) 3,477 3,592
7.585% due 01/01/23 (d) 5,033 5,195
7.628% due 01/01/23 (d) 5,188 5,355
7.934% due 02/01/23 (d) 8,755 9,065
7.948% due 08/01/23 (d) 4,888 5,063
6.719% due 04/01/24 (d) 4,456 4,565
7.564% due 09/01/24 (d) 6,226 6,429
7.402% due 04/01/25 (d) 8,566 8,838
6.369% due 12/01/27 (d) 10,162 10,244
6.362% due 03/01/29 (d) 92,612 93,507
6.355% due 02/01/31 (d) 48,758 49,203
Government National Mortgage Assn.
7.000% due 11/20/21-05/20/25(d)(g) 233,952 236,669
6.875% due 09/20/22 (d) 10,058 10,196
7.250% due 07/20/22-09/20/23(d)(g) 70,204 71,112
7.375% due 04/20/23-06/20/24(d)(g) 33,010 33,508
Kearny St. Real Estate Co.
6.600% due 10/15/02 1,876 1,874
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Cont.)
March 31, 1996
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Prudential Home Mortgage
6.750% due 08/25/08 $ 10,000 $9,987
6.100% due 10/25/24 5,178 5,160
Resolution Trust Corp.
6.919% due 06/25/21 3,945 3,876
Ryland Acceptance Corp.
7.909% due 09/25/23 (d) 45,894 46,669
705,642
Asset-Backed Securities - 0.8%
Student Loan Marketing Assn.
5.595% due 04/25/04 (d) 15,134 15,134
6.130% due 10/25/07 (d) 3,500 3,500
18,634
Total United States 862,151
(Cost $861,670)
Purchased OTC Options - 2.5%
Call - Commonwealth of Canada
9.00% due 12/01/04 (h)
Strike @100.00
Exp. 04/11/06 C$ 100,000 6,229
Call - Kingdom of Denmark
8.000 % due 03/15/06 (h)
Strike @ 90.00
Exp. 06/10/96 DK 580,000 13,434
Call - Kingdom of Spain
10.300% due 06/15/02 (h)
Strike @ 85.00
Exp. 06/10/96 SP 6,232,000 9,688
10.900% due 08/30/03 (h)
Strike @ 87.00
Exp. 06/10/96 5,908,000 9,056
Call - Republic of Germany
6.25 % due 01/24/24 (h)
Strike @ 79.50
Exp. 04/09/96 DM 251,000 15,897
Call - United Kingdom Gilt
6.000 % due 08/10/99 (h)
Strike @ 86.50
Exp. 06/24/96 BP 8,000 1,175
Put - Italian Lira v. German Mark
Strike @ 1,200.00
Exp. 04/11/96 DM 35,600 0
Put - Italian Lira v. Swiss Franc
Strike @ 1,500.00
Exp. 04/17/96 IL 43,350,000 0
Total Purchased OTC Options 55,479
(Cost $65,559)
Short-Term Instruments - 24.6%
Discount Notes - 24.4%
Abbott Laboratories
5.250% due 04/11/96 $ 10,500 10,485
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
AT&T Corp.
5.180% due 04/09/96 $8,500 $8,490
5.290% due 05/02/96 2,300 2,289
Coca-Cola Co.
5.200% due 06/14/96 64,500 63,755
Commonwealth Bank
5.150% due 04/22/96 20,000 19,940
5.190% due 05/20/96 28,000 27,802
E.I. Du Pont de Nemours
5.300% due 04/18/96 10,000 9,975
5.190% due 05/10/96 8,300 8,253
Emerson Electric Co.
5.250% due 04/12/96 13,400 13,378
Federal Home Loan Mortgage Corp.
5.250% due 04/08/96 25,000 24,975
5.270% due 04/18/96 105,000 104,739
5.280% due 04/22/96 1,200 1,196
5.300% due 04/22/96 1,500 1,495
5.025% due 04/25/96 2,000 1,993
Federal National Mortgage Assn.
5.140% due 05/03/96 107,000 106,511
Ford Motor Credit Corp.
5.300% due 04/23/96 26,200 26,115
5.250% due 06/26/96 3,000 2,960
General Electric Capital Corp.
5.230% due 04/03/96 54,500 54,484
5.320% due 04/23/96 1,700 1,694
Hewlett Packard Co.
5.220% due 06/14/96 6,100 6,030
5.220% due 06/18/96 8,400 8,298
Minnesota Mining & Mfg. Co.
5.270% due 05/24/96 1,700 1,687
Motorola, Inc.
5.280% due 05/06/96 1,000 995
National Rural Utilities Cooperative
5.160% due 04/26/96 10,500 10,462
5.250% due 05/24/96 9,100 9,030
5.250% due 06/06/96 16,900 16,725
Pitney Bowes Credit, Inc.
5.210% due 05/14/96 9,500 9,441
Province of Alberta
5.250% due 04/25/96 1,500 1,495
554,692
Repurchase Agreement - 0.1%
State Street Bank
(Dated 03/29/96
Collateralized by U.S. 1,762 1,762
Treasury Bond 8.75% 05/15/17
valued at $1,802,084. Repurchase
proceeds are $1,762,697)
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
U.S. Treasury Bills - 0.1%
4.861% due 04/04/96-08/29/96 (c)(g) 2,400 $2,376
Total Short-Term Instruments 558,830
(Cost $558,914)
Total Investments (a) - 184.2% $4,185,489
(Cost $4,205,697)
Written Options (e) - 0.0% (120)
(Premiums $313)
Other Assets and Liabilities (Net) - (84.2%) (1,913,429)
Net Assets - 100.0% $2,271,940
</TABLE>
Notes to Schedule of Investments ($ in thousands):
(a) At March 31, 1996, the net unrealized appreciation
(depreciation) of investments based on cost for
federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost. $9,175
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value. (39,087)
Unrealized depreciation-net $(29,912)
(b) Foreign forward currency contracts outstanding at
March 31, 1996:
<TABLE>
<CAPTION>
Principal
Amount Unrealized
Covered Expiration Appreciation/
Type by Contract Month (Depreciation)
<S> <S> <C> <C> <C>
Sell A$ 69,458 04/96 $ (665)
Buy AP 2,500 06/96 85
Sell BF 7,755 06/96 0
Sell BP 9,897 04/96 (17)
Sell 1,217 05/96 1
Buy C$ 68,316 05/96 373
Sell 66,500 05/96 (309)
Sell 81,000 03/97 (91)
Buy CK 2,646,948 08/96 1,119
Buy DG 1,653 04/96 (19)
Sell 170,861 04/96 543
Sell 63,250 09/96 (286)
Buy DK 21,191 04/96 (61)
Buy 126,960 09/96 (176)
Sell 23,776 04/96 58
Sell 115,413 05/96 4
Buy DM 75,100 04/96 (12)
Buy 437,300 05/96 (1,354)
Sell 171,750 04/96 210
Sell 455,367 05/96 5,150
Sell 406,171 12/96 7,278
Sell 1,442 01/97 13
Sell 44,425 03/97 (84)
Buy FF 228,635 09/96 723
Sell 228,616 04/96 (303)
Buy FM 898,778 04/96 (1,551)
Buy 158,400 09/96 (1,829)
Sell 809,926 04/96 2,807
Buy IL 76,275,262 05/96 170
Buy 181,630,337 09/96 6,068
Sell 239,609,860 05/96 (1,392)
Buy IP 30,187 04/96 6
Buy 31,646 09/96 (110)
Sell 47,555 04/96 (176)
Sell 42,817 05/96 138
Sell JY 3,998,773 04/96 311
Sell 7,963,917 05/96 874
Sell N$ 8,908 04/96 30
Buy SK 743,956 04/96 (166)
Buy 488,907 09/96 5,599
Sell 1,485,261 04/96 1,370
Sell 491,150 05/96 (1,729)
Buy SP 9,598,466 04/96 929
$ 23,529
</TABLE>
(c) Securities with an aggregate market value of
$2,376 have been segregated with the custodian
to cover margin requirements for the following open
future contracts at March 31, 1996:
<TABLE>
<CAPTION>
Unrealized
Type Contracts Appreciation
<S> <C> <C>
U.S. Treasury 10 Year Note (06/96) 504 $242
</TABLE>
<PAGE> 10
SCHEDULE OF INVESTMENTS (Cont.)
March 31, 1996
(d) Variable rate security. The rate listed is as of
March 31, 1996.
(e) Premiums received on OTC Written Options:
<TABLE>
<CAPTION>
Premiums Market
Type Par Received Value
<S> <S> <C> <C> <C>
Put - Italian Lira v. Swiss Franc $146 $ 74
Strike @ 1,340 Exp. 04/11/96 IL 38,896,800
Put - Italian Lira v. German Mark 167 46
Strike @ 1,080 Exp. 04/11/96 DM 35,600
$313 $120
</TABLE>
(f) Principal amount denoted in indicated currency:
A$ - Australian Dollar FF - French Franc
AP - Argentine Peso FM - Finnish Markka
BF - Belgian Franc IL - Italian Lira
BP - British Pound IP - Irish Punt
C$ - Canadian Dollar JY - Japanese Yen
CK - Czech Koruna MP - Mexican Peso
DG - Dutch Guilder N$ - New Zealand Dollar
DK - Danish Krone SK - Swedish Krona
DM - German Mark SP - Spanish Peseta
(g) Securities are grouped by coupon rate and represent a
range of maturities.
(h) Security is subject to outstanding forward sale commitment.
See Note 1 to Financial Statements, Significant Accounting
Policies.
See Notes to Financial Statements
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
1. Significant Accounting Policies
The International Fund (the "Fund"), which commenced operations on
December 13, 1989, is a series of the PIMCO Funds (the "Trust").
The Trust was organized under the laws of the Commonwealth of
Massachusetts on February 19, 1987, and is registered under the
Investment Company Act of 1940, as amended, as a no-load, open-end
management investment company. The investment objective of the Fund
is to seek to realize maximum total return, consistent with
preservation of capital and prudent investment management. The
following is a summary of significant accounting policies followed
in the preparation of the Fund's financial statements. The
policies are in conformity with generally accepted accounting
principles.
Security Valuation. Portfolio securities and other assets for which
market quotations are readily available are stated at market value.
Market value is determined on the basis of last reported sales
prices, or if no sales are reported, as is the case for most
securities traded over-the-counter, the mean between representative
bid and asked quotations obtained from a quotation reporting system
or from established market makers. Fixed income securities,
including those to be purchased under firm commitment agreements
(other than obligations having a maturity of sixty days or less),
are normally valued on the basis of quotes obtained from brokers and
dealers or pricing services. Foreign currency amounts are converted
to U.S. dollars using foreign exchange quotations received from
independent dealers. Short-term investments having a maturity of
sixty days or less are valued at amortized cost, which approximates
market value. Certain fixed income securities for which daily market
quotations are not 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.
Delayed Delivery Transactions. The 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 beyond the customary settlement period. When
delayed delivery purchases are outstanding, the Fund will set aside
and maintain until the settlement date in a segregated account,
liquid assets or high grade debt obligations in an amount sufficient
to meet the purchase price. 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. The 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. When the Fund has sold a security on a
delayed delivery basis, the Fund does not participate in future
gains and losses with respect to the security. Forward sales
commitments are accounted for by the Fund in the same manner as
forward currency contracts discussed below.
Securities Transactions and Investment Income. Security
transactions are recorded as of the trade date. Securities
purchased or sold on a when-issued or delayed delivery basis may be
settled a month or more after the trade date. Interest income is
recorded on the accrual basis and includes the accretion of
discounts and amortization of premiums. Dividend income is recorded
on the ex-dividend date. Realized gain or loss from securities
sold are recorded on the identified cost basis.
Dividends and Distributions to Shareholders. The Fund declares and
distributes dividends representing substantially all net investment
income on a quarterly basis. Any net realized capital gains from
the sale of portfolio securities will be distributed no less
frequently than once each year. The Fund records distributions to
shareholders on the ex-dividend date.
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (Cont.)
March 31, 1996
Distributions of foreign exchange gains or losses on investments and
the income generated from such investments, arising from fluctuations
of exchange rates of the non-dollar denominated investment relative
to the U.S. dollar, are reported to shareholders as ordinary income
distributions in accordance with the provisions of the Internal Revenue Code.
Income distributions and capital gain distributions are determined
in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are
primarily due to differing treatments for such items as wash sales,
foreign currency transactions and capital loss carryforwards.
Federal Income Taxes. It is the Fund's policy to distribute all of
its taxable income to shareholders and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. Therefore, no provision has been made for
federal income tax on net investment income and realized or
unrealized capital gains.
Futures and Options. The Fund is authorized to enter into futures
contracts and options. The primary risks associated with the use of
futures contracts and options are imperfect correlation between the
change in market value of the securities held by the Fund and the
prices of futures contracts and options, the possibility of an
illiquid market and the inability of the counter-party to meet the
terms of the contract. Futures contracts and purchased options are
valued based upon their quoted daily settlement prices. The premium
received for a written option is recorded as an asset with an equal
liability which is marked-to- market based on the option's quoted
daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation)
until terminated at which time realized gains and losses are
recognized.
Forward Foreign Currency Contracts. The Fund is authorized to enter
into forward foreign exchange contracts for the purpose of hedging
against foreign exchange risk arising from the Fund's investment or
anticipated investment in securities denominated in foreign
currencies. The aggregate principal amounts of the contracts for
which delivery is anticipated are recorded in the Fund's accounts,
while such amounts are not recorded if the Fund intends to settle
the contracts prior to delivery. All commitments are marked-to-
market daily at the applicable translation rates and any resulting
unrealized gains or losses are recorded in the Fund's financial
statements. The Fund records realized gains or losses at the time
the forward contract is extinguished by entry into a closing
transaction or by delivery of the currency. Risks may arise upon
entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative
to the U.S. dollar.
Forward Sales. The following securities were subject to outstanding
forward sale commitments at March 31, 1996 (amounts in thousands):
<TABLE>
<CAPTION>
Principal
Amount Value Proceeds
<S> <C> <C> <C> <C>
Commonwealth of
Canada C$ 100,000 $ 79,988 $ 79,628
Kingdom of Denmark DK 580,000 105,041 105,121
Kingdom of Spain SP 12,140,000 102,877 103,208
Republic of Germany DM 251,000 150,705 159,159
United Kingdom Gilt BP 8,000 11,744 11,738
$450,355 $458,854
</TABLE>
<PAGE> 13
Estimates. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could
differ from those estimates.
2. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. Pacific Investment Management Company
("PIMCO") serves as investment adviser (the "Adviser") to the
Trust, pursuant to an investment advisory contract. The Adviser
receives a monthly fee from the Fund at an annual rate of 0.25% of
the Fund's average daily net assets. Prior to October 1, 1995, the
Adviser received a monthly fee based on average daily net assets as
follows: 0.30% of the first $150 million, and 0.25% thereafter.
Administration Fee. Effective October 1, 1995, the Trust adopted a
"unified fee structure" whereby PIMCO (the Administrator) provides
services necessary for the operation of the Fund for a single
administrative fee based on the Fund's average daily net assets.
The unified fee on an annual basis is 0.25%. Prior to adoption of
the unified fee structure, the Administrator received a monthly fee
from the Fund at an annual rate of 0.10% of the Fund's average daily
net assets.
Expenses. Effective October 1, 1995, under the unified fee
structure, the Fund 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 or its subsidiaries or affiliates; (ii) taxes
and governmental fees; (iii) brokerage fees and commissions and
other portfolio transaction expenses; (iv) the costs of borrowing
money, including interest expenses; (v) fees and expenses of the
Trustees who are not "interested persons" of PIMCO or the Trust, and
any counsel retained exclusively for their benefit; (vi)
extraordinary expenses, including costs of litigation and
indemnification expenses; and (vii) expenses, such as organizational
expenses, which are capitalized in accordance with generally
accepted accounting principles. Each unaffiliated Trustee receives
an annual retainer of $20,000, plus $2,500 for each Board of
Trustees meeting attended, plus reimbursement of related expenses.
These expenses are allocated to the Funds of the Trust according to
their respective net assets. Prior to October 1, 1995, each
unaffiliated Trustee received an annual retainer of $7,000, plus
$2,000 for each Board of Trustees meeting attended, plus
reimbursement of related expenses.
Expense Offset Arrangement. Fees paid indirectly, in the
accompanying Statement of Operations, represent reductions in
custody and transfer agent expenses in lieu of interest income
earned on incidental uninvested cash balances. Such fees have been
added to custody and transfer agent fees to reflect total Fund
expenses.
Expense Limitation. Prior to adoption of the unified fee structure,
the Adviser and the Administrator, in the interest of limiting
expenses of the Fund, agreed to limit the expenses of the Fund,
including the advisory and administrative fees, to not more than
0.65% of its average net assets on an annual basis.
Related Party Transactions. PIMCO Advisors Distribution Company
("PADCO"), an indirect wholly-owned subsidiary of PIMCO Advisors
L.P., serves as the distributor of the Fund's shares. Under the
contract, all expenses relating to the distribution of Fund shares
will be paid by the Adviser, the Administrator or PADCO out of past
profits and resources which may include fees received by the
Adviser.
3. Purchases and Sales of Securities
Purchases and sales of investment securities (excluding short-term
instruments) for the Fund for the year ended March 31, 1996 were as
follows ($ in thousands):
Purchases Sales
U.S. Government Other U.S. Government Other
$1,405,632 $25,762,298 $689,817 $22,920,419
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (Cont.)
March 31, 1996
4. Transactions in Written Call and Put Options were as follows
($ in thousands):
<TABLE>
<CAPTION>
Premiums
<S> <C>
Balance at March 31, 1995 $ 46
Sales 4,965
Closing buys (470)
Expirations (4,228)
Exercised -
Balance at March 31, 1996 $ 313
</TABLE>
5. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of beneficial
interest with a $.0001 par value. Changes in shares of beneficial
interest were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended Year ended
March 31, 1996 March 31, 1995
<S> <C> <C>
Shares sold 335,250 5,258
Shares redeemed (76,839) (234,125)
Shares issued as
reinvestment of dividends 17,814 3,820
Net increase/(decrease) 276,225 (225,047)
</TABLE>
6. Federal Income Tax Matters
For the year ended March 31, 1996, the Fund realized capital losses
of $19,435,112 for Federal income tax purposes, which included
losses of $85,055,599 deferred from the year ended March 31, 1995.
Internal Revenue Code regulations permit the Fund to defer into its
next fiscal year net capital losses incurred between each November 1
and the end of its fiscal year ("post-October losses").
The capital losses realized by the Fund are available to offset
future capital gains through March 31, 2004. The Fund will resume
capital gains distributions in the future to the extent gains are
realized in excess of the available carryforwards.
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of the
International Fund (a series of the PIMCO Funds)
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of the
International Fund (the "Fund") at March 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibilty of
the Fund's management; our responsibility is to express an opinion on
these financial statements in accordancee with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of portfolio positions at March 31,
1996 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
May 10, 1996
<PAGE> 16
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<PAGE> inside back cover
Pacific Investment Management Company is responsible for the
management and administration of the PIMCO Funds. Founded in 1971,
Pacific Investment Management Company currently manages assets in
excess of $76 billion on behalf of mutual fund and institutional
clients located around the world.
Pacific Investment Management Company is one of six investment
advisory firms which form PIMCO Advisors L.P., the nation's fourth
largest publicly traded investment management concern with combined
assets under management in excess of $97 billion. Widely recognized
for providing consistent performance and high quality client
service, the six affiliated firms are:
Pacific Investment Management Company/Newport Beach, California
Columbus Circle Investors/Stamford, Connecticut
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
Blairlogie Capital Management/Edinburgh, Scotland
Trustees and Officers
Brent R. Harris, Chairman and Trustee
Guilford C. Babcock, Trustee
Vern O. Curtis, Trustee
Thomas P. Kemp, Trustee
William J. Popejoy, Trustee
R. Wesley Burns, President
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Advisor and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 360
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1500 K Street N.W.
Washington, D.C. 20005
Independent Accountants
Price Waterhouse LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE> back cover
PIMCO
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
(800) 927-4648
This report is submitted for the general information of the
shareholders of the PIMCO Funds. It is not authorized for
distribution to prospective investors unless accompanied or preceded
by an effective Prospectus for the PIMCO Funds, which contains
information covering its investment policies as well as other
pertinent information.
