<PAGE> front cover
INTERNATIONAL FUND
PIMCO
PIMCO International Fund
Semi-Annual Report September 30, 1996
<PAGE> 1
CHAIRMAN'S MESSAGE
Dear Client:
Following close on the heels of 1995's strong performance, we are
pleased to report that foreign bond investors have once again
enjoyed robust returns thus far in 1996. Unlike 1995, however,
this healthy foreign bond market performance has come during a
period of relative weakness in the U.S. market. While fears of
Fed tightening hung over the domestic market for most of the past
six months, many foreign markets saw their central banking
authorities reduce interest rates to combat sluggish growth and
chronically high unemployment. Historically low inflation rates
and increasing fiscal conservatism have supported their efforts
to use monetary policy as a tool to stimulate their flagging
economies.
Our country selection favored Europe, especially the Netherlands,
Germany and Sweden, and the dollar bloc countries of Canada, New
Zealand and Australia. The success of these country allocations,
together with small exposures to Argentine bonds and avoidance of
the Japanese market, enabled the portfolio to significantly
outperform both its domestic and foreign benchmarks. The Fund's
six-month performance advantage of 7.27% over the domestic Lehman
index highlights the potential benefit of utilizing foreign bonds
in a total return investment portfolio. For clients that have
granted PIMCO the discretionary authority to invest
opportunistically in foreign markets via the International Fund,
this diversification advantage translated into 0.42% of
additional performance on an average account allocation of
approximately 6.5%. (The performance impact on each client
account for the six-month period varied based on allocation
decisions made subject to client guidelines.)
Shown below is a summary of the International Fund's total return
performance compared to relevant market indices over various time
periods. Performance of the Fund is net of fees and reflects the
reinvestment of dividends.
<TABLE>
<CAPTION>
Annualized Returns Ended 9/30/96
Since
6 Mos. 1 Yr. 3 Yrs. 5 Yrs. Inception
<S> <C> <C> <C> <C> <C>
International Fund (%) 9.51 17.94 7.77 8.78 8.95
Salomon World Gov't
Bond Index (%) 6.03 10.87 8.35 8.89 8.27
Lehman Gov't/Corp. Index (%) 2.24 4.50 4.63 7.65 8.42
</TABLE>
Cumulative Returns from Inception through September 30, 1996
[Graph Appears Here]
<TABLE>
<CAPTION>
Salomon World Gov't Lehman Gov't/
Month International Fund Bond Index Corp. Index
<C> <C> <C> <C>
12/31/89 1,000,000 1,000,000 1,000,000
12/31/90 1,070,758 1,033,413 1,082,841
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
09/30/96 1,787,696 1,709,445 1,725,628
</TABLE>
The line graph depicts the value of $1,000,000 invested at the
Fund's inception in December 1989 and held through September
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 hope that you are pleased with the role that the International
Fund plays in your overall investment relationship with PIMCO.
Our experience over the past six months supports our strong
belief that foreign bonds are a formidable portfolio management
tool, with proven diversification and performance benefits.
Please contact your account manager or call us directly at (800)
927-4648 should you have questions or if we can be of any other
assistance.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
November 7, 1996
<PAGE> 2
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996 (unaudited)
<CAPTION>
Amounts in thousands, except per share amounts
<S> <C>
Assets:
Investments, at value $ 2,380,267
Cash and foreign currency 5,799
Receivable for investments and foreign currency sold 244,263
Variation margin receivable 34
Interest and dividends receivable 39,077
2,669,440
Liabilities:
Payable for investments and foreign currency purchased 1,719,938
Accrued investment advisor's fee 190
Accrued administrator's fee 190
Variation margin payable 251
Other accrued expenses and liabilities 38
1,720,607
Net Assets $ 948,833
Net Assets Consist of:
Paid in capital $ 836,786
Undistributed net investment income 42,949
Accumulated undistributed net realized gain 32,493
Net unrealized appreciation 36,605
$ 948,833
Shares Issued and Outstanding 109,033
Net Asset Value, Offering and Redemption Price Per
Share (Net Assets Per Share Outstanding) $ 8.70
Cost of Investments Owned 2,373,086
Cost of Foreign Currency Held 5,821
</TABLE>
See Notes to Financial Statements
<PAGE> 3
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the six months ended September 30, 1996 (unaudited)
$ in thousands
Investment Income:
<S> <C>
Interest $ 31,556
Expenses:
Investment advisory fees 1,609
Administration fees 1,609
Trustees' fees 2
Total expenses 3,220
Net Investment Income 28,336
Net Realized and Unrealized Gain (Loss):
Net realized gain on investments 62,773
Net realized gain on futures contracts and written
options 988
Net realized gain on foreign currency transactions 4,073
Net change in unrealized appreciation on investments 26,387
Net change in unrealized appreciation on futures
contracts and written options 4,283
Net change in unrealized depreciation on translation of
assets and liabilities denominated in foreign currencies
liabilities denominated in foreign currencies (18,873)
Net Gain 79,631
Net Increase in Assets Resulting from Operations $107,967
</TABLE>
See Notes to Financial Statements
<PAGE> 4
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
$ in thousands
Six months ended
September 30, 1996 Year ended
(unaudited) March 31, 1996
<C> <C>
<S>
Increase (Decrease) in Net Assets from:
Operations
Net investment income $ 28,336 $ 112,642
Net realized gain 67,834 114,220
Net change in unrealized appreciation 11,797 24,171
Net increase resulting from operations 107,967 251,033
Distributions to Shareholders
From net investment income (13,336) (112,598)
In excess of net investment income 0 (36,556)
Total distributions (13,336) (149,154)
Fund Share Transactions
Receipts for shares sold 34,330 2,594,823
Issued as reinvestment of
distributions 12,961 144,179
Cost of shares redeemed (1,465,029) (614,891)
Net increase (decrease) resulting from
Fund share transactions (1,417,738) 2,124,111
Total Increase (Decrease) in Net Assets $ (1,323,107) $ 2,225,990
Net Assets
Beginning of period $ 2,271,940 $ 45,950
End of period * 948,833 2,271,940
* Including undistributed net
investment income of: $ 42,949 27,949
</TABLE>
See Notes to Financial Statements
<PAGE> 5
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Selected Per Share Data 9/30/96
for the Year or Period (unaudited) 3/31/96 3/31/95 3/31/94 3/31/93 3/31/92
Ended:
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning
of period $ 8.04 $ 7.44 $ 9.93 $ 10.53 $ 10.02 $ 9.94
Net investment income 0.39 0.63 2.18 0.47 0.62 0.79
Net realized and unrealized
gain (loss) 0.37 0.49 (2.41) 0.24 0.42 0.27
Total income (loss) from
investment operations 0.76 1.12 (0.23) 0.71 1.04 1.06
Dividends from net
investment income (0.10) (0.39) (2.26) (0.96) (0.48) (0.78)
Dividends in excess of net
investment income 0.00 (0.13) 0.00 0.00 0.00 0.00
Distributions from net
realized capital gains 0.00 0.00 0.00 (0.35) (0.05) (0.20)(a)
Total distributions (0.10) (0.52) (2.26) (1.31) (0.53) (0.98)
Net asset value end of
period $ 8.70 $ 8.04 $ 7.44 $ 9.93 $ 10.53 $ 10.02
Total return (%) 9.51 15.08 (1.27) 6.54 10.61 10.97
Net assets end of $ 948,833 $2,271,940 $45,950 $2,296,978 $2,589,677 $1,314,661
period (000's)
Ratio of expenses to 0.50(b) 0.50 0.43 0.43 0.46 0.51
average net assets (%)
Ratio of net investment
income to average
net assets (%) 4.20(b) 6.09 5.90 5.51 6.67 8.24
Portfolio turnover rate (%) 463 1,046 674 370 301 201
</TABLE>
(a) Gain distribution includes $0.14 per share characterized for tax purposes
as distributions from ordinary income.
(b) Annualized.
See Notes to Financial Statements
<PAGE> 6
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
September 30, 1996 (unaudited)
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Argentina - 3.5%
Republic of Argentina
7.850% due 11/15/96 $ 20,000 $ 19,784
3.474% due 04/01/01 (d) 10,861 8,641
3.474% due 09/01/02 (d) 7,096 4,804
Total Argentina 33,229
(Cost $32,004)
Canada (c) (e) - 53.7%
Commonwealth of Canada
6.250% due 09/15/98 C$ 100,000 75,069
9.000% due 12/01/04 213,120 176,225
7.000% due 12/01/06 60,000 43,597
8.000% due 12/01/06 277,000 214,508
Total Canada 509,399
(Cost $502,959)
Czechoslovakia (c) (e) - 4.7%
Bayerische Landesbank
11.500% due 10/09/97 CK 597,000 22,139
International Bank of
Reconstruction & Development
11.500% due 10/09/97 598,000 22,185
Total Czechoslovakia 44,324
(Cost $44,442)
Denmark (c) (e) - 2.6%
Kingdom of Denmark
8.000% due 03/15/06 DK 132,200 24,192
Total Denmark 24,192
(Cost $23,397)
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Finland (c) (e) - 7.8%
Merita
6.375% due 04/28/03 (d) $ 6,000 $ 6,000
5.925% due 09/11/03 (d) 31,500 31,323
Republic of Finland
3.760% due 08/15/97 FM 147,000 31,244
3.600% due 09/15/97 27,000 5,722
Total Finland 74,289
(Cost $74,476)
Germany (c) (e) - 5.7%
Republic of Germany
9.000% due 10/20/00 DM 40,600 30,689
6.875% due 06/11/03 32,800 22,918
Total Germany 53,607
(Cost $53,553)
Netherlands (c) (e) - 70.7%
Kingdom of Netherlands
6.250% due 07/15/98 DG 1,097,700 671,277
Total Netherlands 671,277
(Cost $684,165)
New Zealand (c) (e) - 17.4%
Commonwealth of New Zealand
10.000% due 07/15/97 N$ 34,890 24,609
6.500% due 02/15/00 91,900 61,191
10.000% due 03/15/02 67,900 51,334
8.000% due 04/15/04 7,800 5,417
8.000% due 11/15/06 32,060 22,299
Total New Zealand 164,850
(Cost $160,399)
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Sweden (c) (e) - 8.0%
Kingdom of Sweden
11.000% due 01/21/99 SK 454,700 $ 76,005
Total Sweden 76,005
(Cost $74,193)
United States (c) (e) - 32.8%
Corporate Bonds and Notes - 4.3%
Champion Home Equity Loan Trust
6.630% due 02/25/28 (d) $ 11,036 11,274
Ford Motor Credit Corp.
6.090% due 03/23/99 (d) 12,500 12,510
Hewlett-Packard Co.
5.625% due 11/20/00 DM 15,000 10,074
TCI Communications,Inc.
6.257% due 04/01/02 (d) $ 7,200 7,060
40,918
Mortgage-Backed Securities - 28.2%
Federal Home Loan Mortgage Corp.
6.059% due 04/01/20 (d) 5,876 6,066
6.059% due 04/01/30-06/01/30 (d)(f) 3,125 3,227
6.062% due 02/01/20 (d) 18,287 18,088
7.296% due 06/01/22 (d) 6,126 6,058
7.727% due 02/01/24 (d) 3,191 3,156
7.757% due 08/01/24 (d) 4,742 4,902
7.930% due 08/01/22 (d) 5,164 5,327
Federal National Mortgage Assn.
6.072% due 03/01/29 (d) 43,055 42,708
6.073% due 02/01/31 (d) 11,943 11,847
7.228% due 05/01/22 (d) 10,237 10,549
7.469% due 09/01/24 (d) 5,559 5,737
7.587% due 01/01/23 (d) 4,151 4,291
7.626% due 01/01/23 (d) 4,910 5,082
7.667% due 08/01/23 (d) 4,104 4,251
7.825% due 07/01/21 (d) 2,651 2,751
7.830% due 11/01/22 (d) 3,391 3,521
7.934% due 02/01/23 (d) 6,861 7,129
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Government National Mortgage Assn.
6.875% due 09/20/22 (d) $ 9,145 $ 9,318
7.000% due 11/20/21-11/20/23 (d)(f) 38,557 39,125
7.125% due 09/20/23 (d) 7,934 8,047
7.250% due 07/20/22-09/20/23 (d)(f) 17,968 18,232
Prudential Home Mortgage
6.750% due 08/25/08 5,360 5,348
Resolution Trust Corp.
6.619% due 06/25/21 (d) 3,902 3,816
Ryland Acceptance Corp.
7.819% due 09/25/23 (d) 37,931 38,523
267,099
Asset-Backed Securities - 0.3%
Student Loan Marketing Assn.
6.011% due 10/25/07 (d) 3,500 3,500
Total United States 311,517
(Cost $312,025)
Purchased OTC Call Options (c) (e) - 13.2%
Commonwealth of Canada
6.250% due 09/15/98 (g)
Strike @ 91.36 Exp. 12/05/96 C$ 100,000 7,647
8.000% due 11/01/98 (g)
Strike @ 94.52 Exp. 11/21/96 165,000 12,688
8.000% due 11/01/98 (g)
Strike @ 94.55 Exp. 11/21/96 50,000 3,834
8.000% due 11/01/98 (g)
Strike @ 94.32 Exp. 01/14/97 65,500 4,856
8.000% due 11/01/98 (g)
Strike @ 94.27 Exp. 01/15/97 36,900 2,744
9.000% due 12/01/04 (g)
Strike @ 101.50 Exp. 10/01/96 120,000 9,814
9.000% due 12/01/04 (g)
Strike @ 97.50 Exp. 11/04/96 41,820 4,508
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Cont.)
September 30, 1996 (unaudited)
Principal
Amount Value
(000')s (000's)
<S> <C> <C>
Kingdom of Netherlands
6.250% due 07/15/98 (g)
Strike @ 93.50 Exp. 11/19/96 DG 214,000 $ 13,275
6.250% due 07/15/98 (g)
Strike @ 93.50 Exp. 12/03/96 86,700 5,310
6.250% due 07/15/98 (g)
Strike @ 93.50 Exp. 12/09/96 470,000 29,181
6.250% due 07/15/98 (g)
Strike @ 93.50 Exp. 12/11/96 327,000 20,252
Kingdom of Spain
10.900% due 08/30/03 (g)
Strike @ 97.10 Exp. 10/01/96 SP 2,163,000 3,350
Kingdom of Sweden
11.000% due 01/21/99 (g)
Strike @ 100.00 Exp. 11/21/96 SK 454,700 7,423
Total Purchased OTC Call Options 124,882
(Cost $118,775)
Short-Term Instruments - 30.8%
Discount Notes - 28.7%
AT&T Corp.
5.240% due 10/01/96 $ 2,000 2,000
5.280% due 10/01/96 3,400 3,400
BellSouth Telecommunications
5.315% due 11/08/96 10,000 9,944
Caisse d'Amortissement
5.330% due 10/21/96 7,100 7,079
5.420% due 10/28/96 17,000 16,931
5.300% due 11/25/96 1,100 1,091
Canadian Wheat Board
5.320% due 11/13/96 3,000 2,981
Coca-Cola Co.
5.390% due 10/21/96 13,500 13,460
Commonwealth Bank of Australia
5.260% due 10/22/96 5,000 4,985
E.I. Du Pont de Nemours
5.490% due 11/27/96 8,300 8,228
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Electricite de France
5.270% due 11/12/96 $ 6,600 $ 6,559
5.280% due 11/26/96 2,200 2,182
Eli Lilly & Co.
5.440% due 12/16/96 4,500 4,488
Federal Farm Credit Bank
5.280% due 10/03/96 9,500 9,497
Federal Home Loan Bank
5.290% due 10/07/96 1,000 999
5.230% due 11/13/96 37,700 37,464
Ford Motor Credit Co.
5.380% due 10/28/96 15,200 15,139
5.330% due 12/09/96 7,500 7,422
General Electric Capital Corp.
5.340% due 12/05/96 2,800 2,773
General Motors Acceptance Corp.
5.320% due 11/25/96 4,300 4,265
KFW International Financial
5.300% due 11/12/96 8,600 8,547
Manitoba Hydroelectric Board
5.420% due 11/07/96 8,500 8,453
Mobil Australia Finance
5.350% due 10/25/96 8,000 7,971
National Rural Utilities Cooperative
5.320% due 11/05/96 20,000 19,897
5.280% due 11/13/96 11,000 10,931
5.400% due 11/13/96 5,700 5,663
New Center Asset Trust
5.310% due 11/05/96 16,000 15,917
Pfizer, Inc.
5.320% due 10/10/96 30,000 29,960
Wool International
5.290% due 12/03/96 4,300 4,259
272,445
Repurchase Agreement - 1.0%
State Street Bank
4.750% due 10/01/96 9,825 9,825
(Dated 9/30/96. Collateralized by
U.S. Treasury Bill 02/27/97
valued at $10,023,250. Repurchase
proceeds are $9,826,296.)
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
U.S. Treasury Bills - 1.1%
5.094% due 10/17/96-11/21/96 (b)(f) $ 10,480 $ 10,426
Total Short-Term Instruments 292,696
(Cost $292,698)
Total Investments (a) - 250.9% $2,380,267
(Cost $2,373,086)
Other Assets and Liabilities (Net) - (150.9%) (1,431,434)
Net Assets - 100.0% $ 948,833
</TABLE>
Notes to Schedule of Investments ($ in thousands):
(a) At September 30, 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. $ 21,868
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value. (14,687)
Unrealized appreciation - net $ 7,181
(b) Securities with an aggregate market value of
$10,426 have been segregated with the custodian
to cover margin requirements for the following
open future contracts at September 30, 1996:
<TABLE>
<CAPTION>
Unrealized
Type Contracts Appreciation
<S> <C> <C>
Commonwealth of Australia 3 Year Note (12/96) 240 $ 217
Commonwealth of Australia 10 Year Bond (12/96) 878 2,225
U.S. Treasury 5 Year Note (12/96) 506 310
U.S. Treasury 10 Year Note (12/96) 1,000 1,969
$ 4,721
(c) Foreign forward currency contracts outstanding
at September 30, 1996:
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
<S> <S> <C> <C> <C>
Sell A$ 11,317 10/96 $ (14)
Sell 3,160 04/97 1
Buy BF 15,000 12/96 (4)
Sell 29,200 12/96 29
Buy BP 1,155 12/96 8
Sell 2,765 11/96 (18)
Buy C$ 12,024 10/96 (2)
Buy 34,000 11/96 51
Buy 12,320 12/96 45
Buy 84,343 03/97 59
Sell 82,247 10/96 (293)
Sell 35,481 11/96 (68)
Sell 81,000 03/97 (330)
Buy CK 1,271,493 11/96 200
Sell 172,000 11/96 (52)
Buy DG 33,885 12/96 (288)
Sell 38,061 12/96 836
Sell DK 19,856 10/96 4
Sell 142,600 12/96 185
Buy DM 110,130 11/96 (1,488)
Buy 271,750 12/96 (2,134)
Buy 83,500 01/97 (2,143)
Sell 420,271 12/96 19,584
Sell 1,442 01/97 55
Sell 44,425 03/97 1,210
Sell 38,845 04/97 670
Buy FF 279,035 12/96 (95)
Sell 274,504 12/96 784
Sell FM 6,401 11/96 (3)
Buy IL 132,058,786 10/96 196
Buy 37,003,951 11/96 32
Buy 32,681,600 12/96 0
Sell 28,679,000 10/96 30
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (Cont.)
September 30, 1996 (unaudited)
<S> <S> <C> <C> <C>
Sell IL 172,436,000 12/96 $ 490
Buy IP 6,504 10/96 0
Sell 6,504 10/96 135
Buy IR 24,942,000 03/97 286
Sell 2,466,300 03/97 (18)
Buy JY 1,453,000 10/96 (480)
Buy 2,034,500 12/96 (336)
Sell 3,484,427 10/96 1,161
Sell 4,247,022 12/96 302
Buy N$ 3,400 11/96 45
Sell 92,810 10/96 (657)
Sell 115,724 11/96 (1,575)
Buy SF 5,900 01/97 (195)
Sell 74,700 11/96 2,537
Buy SK 491,489 10/96 152
Buy 353,731 12/96 (35)
Sell 512,706 10/96 367
Sell 47,300 11/96 (2)
Sell 296,153 12/96 (25)
Buy SP 3,721,499 10/96 (447)
Buy 9,598,466 01/97 (791)
Sell 900,899 10/96 187
Sell 5,896,750 01/97 (299)
$ 17,849
</TABLE>
(d) Variable rate security. The rate
listed is as of September 30, 1996.
(e) Principal amount denoted in indicated currency:
A$ - Australian Dollar FM - Finnish Markka
BF - Belgian Franc IL - Italian Lira
BP - British Pound IP - Irish Punt
C$ - Canadian Dollar IR - Indonesian Rupiah
CK - Czech Koruna JY - Japanese Yen
DG - Dutch Guilder N$ - New Zealand Dollar
DK - Danish Krone SF - Swiss Franc
DM - German Mark SK - Swedish Krona
FF - French Franc SP - Spanish Peseta
(f) Securities are grouped by coupon and represent
a range of maturities.
(g) Security is subject to outstanding
forward sale commitment.
See Notes to Financial Statements
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 (unaudited)
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
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 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. 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 gains or losses 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.
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.
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (Cont.)
September 30, 1996 (unaudited)
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 September 30, 1996
(amounts in thousands):
<TABLE>
<CAPTION>
Principal
Amount Value Proceeds
<S> <C> <C> <C> <C>
Commonwealth of
Canada C$ 579,220 $ 454,668 $ 447,400
Kingdom of
Netherlands DG 1,097,700 671,277 685,232
Kingdom of Spain SP 2,163,000 19,665 19,274
Kingdom of Sweden SK 454,700 76,005 74,960
$ 1,221,615 $ 1,226,866
</TABLE>
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
Administration Fee. PIMCO also serves as administrator (the
Administrator), and provides administrative services to the Trust
for which it receives a monthly administrative fee based on the
Fund's average daily net assets at the annual rate of 0.25%.
<PAGE> 13
Expenses. The Trust is responsible for the following expenses:
(i) salaries and other compensation of any of the Trust's
executive officers and employees who are not officers, directors,
stockholders or employees of PIMCO 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 $2,500 for each Board of Trustees
meeting attended, plus reimbursement of related expenses. These
expenses are allocated to the Funds of the Trust according to
their respective net assets.
Related Party Transactions. PIMCO Advisors Distribution Company
("PADCO"), an indirect wholly-owned subsidiary of PIMCO Advisors
L.P., serves as the distributor of the Fund's shares. Under the
contract, all expenses relating to the distribution of Fund
shares will be paid by the Adviser, the Administrator or PADCO
out of past profits and resources which may include fees received
by the Adviser.
3. Purchases and Sales of Securities
Purchases and sales of investment securities (excluding
short-term instruments) for the Fund for the six months ended
September 30, 1996 were as follows ($ in thousands):
Purchases Sales
U.S. Government Other U.S. Government Other
$26,571 $11,302,458 $594,143 $12,613,421
4. Transactions in Written Call and Put Options were as follows
($ in thousands):
<TABLE>
<CAPTION>
Premiums
<S> <C>
Balance at March 31, 1996 $ 313
Sales 0
Closing buys 0
Expirations (313)
Exercised 0
Balance at September 30, 1996 0
</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>
Six months ended Year ended
September 30, 1996 March 31, 1996
<S> <C> <C>
Shares sold 4,080 335,250
Shares redeemed (179,008) (76,839)
Shares issued as
reinvestment of dividends 1,557 17,814
Net increase (decrease) (173,371) 276,225
</TABLE>
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (Cont.)
September 30, 1996 (unaudited)
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>
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<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
$83 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 $104 billion. Widely recognized
for providing consistent perfomance 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
Units of PIMCO Advisors L.P. trade on the New York Stock Exchange
under the ticker symbol "PA."
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
This report is submitted for the general information of the
shareholdlers 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.
PIMCO
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
800-927-4648
