<PAGE>
As filed with the Securities and Exchange Commission on December 20, 1996
File No. 33-12113, 811-5028
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 32 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 36 [X]
PIMCO Funds
(Exact Name of Registrant as Specified in Charter)
840 Newport Center Drive
Newport Beach, California 92660
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(714) 760-4867
Robert W. Helm, Esq. R. Wesley Burns
Dechert Price & Rhoads Pacific Investment Management Company
1500 K Street, N.W. 840 Newport Center Drive
Washington, D.C. 20005 Newport Beach, California 92660
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b)
[X] on January 14, 1997 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Proposed Maximum
Offering
Title of Number Price per Proposed Amount of
Securities of Shares Share (within Maximum Registration
Being Being 15 days of Offering Fee
Registered Registered filing) Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Indefinite* N/A N/A N/A
Beneficial
Interest,
Par Value
$.0001
</TABLE>
* Registrant has elected to register an indefinite number of shares of
beneficial interest pursuant to Rule 24f-2 under the Investment Company Act of
1940. Registrant filed the Notice required by Rule 24f-2 on May 30, 1996.
<PAGE>
CROSS-REFERENCE SHEET
REQUIRED BY RULE 495
UNDER THE SECURITIES ACT OF 1933
The enclosed Prospectuses, Statement of Additional Information, and
Part C relate to PIMCO Funds (the "Trust"), an investment company currently
consisting of 19 separate series (the "Funds").
PART A
Institutional Class and Administrative Class Prospectus
Information Required in Prospectus
----------------------------------
Item Number Heading
- ----------- -------
1 Cover Page
2 Prospectus Summary, Expense Information
3 Financial Highlights
4 Investment Objectives and Policies;
Characteristics and Risks of Securities and
Investment Techniques; Other Information
5 Management of the Trust
5A Information Contained in Registrant's
Annual Report
6 Dividends, Distributions and Taxes;
Other Information
7 Purchase of Shares; Net Asset Value
8 Redemption of Shares
9 Not Applicable
<PAGE>
PART A
Class A, Class B, and Class C Prospectus
Information Required in Prospectus
----------------------------------
Item Number Heading
----------- -------
1 Cover Page
2 Schedule of Fees
3 Financial Highlights
4 Investment Objectives and Policies;
Characteristics and Risks of Securities and
Investment Techniques
5 Management of the Trust
5A Information Contained in Registrant's
Annual Report
6 Distributions; Taxes; Description of
the Trust
7 How to Buy Shares; General; Alternative Purchase
Arrangements; Exchange Privilege; Distributor
and Distribution and Servicing Plans; How Net
Asset Value is Determined
8 How to Redeem
9 Not Applicable
<PAGE>
PART B
Information Required in Statement of Additional Information
-----------------------------------------------------------
Item Number Heading
----------- -------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Objectives and Policies; Investment
Restrictions
14 Trustees and Officers
15 Voting Rights
16 Management of the Trust; Distribution of Trust
Shares; Custodian, Transfer Agent and Dividend
Disbursing Agent
17 Portfolio Transactions and Brokerage
18 Other Information
19 Distribution of Trust Shares; Net Asset Value
20 Taxation
21 Distribution of Trust Shares
22 Performance Information
23 Financial Statements
<PAGE>
SUPPLEMENT DATED DECEMBER 20, 1996
TO THE PROSPECTUS DATED JUNE 15, 1996
FINANCIAL HIGHLIGHTS
For a Share Outstanding throughout the Period Indicated (Unaudited)
June 28, 1996
(commencement of operations)
through
September 30, 1996
------------------
<TABLE>
<CAPTION>
PIMCO Strategic
Selected Per Share Data Balanced Fund
- ----------------------- ---------------
<S> <C>
Net Asset Value, Beginning of Period $ 10.00
Income from Investment Operations
Net Investment Income 0.20
Net Realized/Unrealized Gain on Investments 0.15
----
Total Income from Investment Operations 0.35
Net Asset Value, End of Period $ 10.35
Total Return 3.50%
Net Assets, End of Period (000's) $ 10,378
Ratio of Expenses to Average Net Assets 0.64%+
Ratio of Invest Investment Income to Average Net Assets 7.73%+
Portfolio Turnover Rate 36.75%
</TABLE>
+ Annualized
<PAGE>
LOGO
PIMCO FUNDS
Pacific Investment Management Series
FIXED INCOME FUNDS
Money Market Fund
Short-Term Fund
Low Duration Fund
Low Duration Fund II
Low Duration Fund III
Moderate Duration Fund
High Yield Fund
Total Return Fund
Total Return Fund II
Total Return Fund III
Commercial Mortgage Securities Fund
Long-Term U.S. Government Fund
Foreign Bond Fund
Global Bond Fund
Global Bond Fund II
International Bond Fund
EQUITY FUNDS
StocksPLUS Fund
StocksPLUS Short Strategy Fund
BALANCED FUNDS
Strategic Balanced Fund
PROSPECTUS
- --------------------------------------------------------------------------------
January 14, 1997
<PAGE>
PIMCO FUNDS
PROSPECTUS
January 14, 1997
PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund") consisting of nineteen separate investment portfolios (the
"Funds"). Each Fund has its own investment objective and policies. The Trust
is designed to provide access to the professional investment management
services offered by Pacific Investment Management Company ("PIMCO"), which
serves as investment adviser to the Funds.
The PIMCO Funds described in this Prospectus are as follows:
FIXED INCOME FUNDS EQUITY FUNDS BALANCED FUNDS
Money Market Fund* StocksPLUS Fund Strategic
Short-Term Fund Balanced Fund
StocksPLUS Short Strategy Fund
Low Duration Fund
Low Duration Fund II
Low Duration Fund III
Moderate Duration Fund
High Yield Fund
Total Return Fund
Total Return Fund II
Total Return Fund III
Commercial Mortgage Securities Fund
Long-Term U.S. Government Fund
Foreign Bond Fund
Global Bond Fund
Global Bond Fund II
International Bond Fund
Information about the investment objective of each Fund, along with a
detailed description of the types of securities in which each Fund may invest,
and of investment policies and restrictions applicable to each Fund, are set
forth in this Prospectus. There can be no assurance that the investment
objective of any Fund will be achieved. Because the market value of the Funds'
investments will change, the investment returns and net asset value per share
of each Fund also will vary.
Each Fund offers two classes of shares in this Prospectus: the
"Institutional Class" and the "Administrative Class." Through a separate
prospectus, the Funds offer three additional classes of shares, Class A
shares, Class B shares and Class C shares. See "Other Information--Multiple
Classes of Shares." Shares of the Institutional Class are offered primarily
for direct investment by investors such as pension and profit sharing plans,
employee benefit trusts, endowments, foundations, corporations, other
institutions. They also are offered through certain financial intermediaries
that charge their customers transaction or other fees with respect to the
customers' investment in the Funds. Shares of the Administrative Class are
offered primarily through employee benefit plan alliances and each Fund pays
service fees to such entities for services they provide to shareholders of
that Class. Administrative Class shares of certain Funds are not currently
available for investment. Shares of each class of the Funds are offered for
sale at the relevant next determined net asset value for that class with no
sales charge. Shares of the PIMCO International Bond Fund are offered only to
private account clients of PIMCO.
THE PIMCO HIGH YIELD FUND MAY INVEST ALL OF ITS ASSETS, AND THE PIMCO
COMMERCIAL MORTGAGE SECURITIES FUND MAY INVEST UP TO 35% OF ITS ASSETS, IN
JUNK BONDS, WHICH ARE SUBJECT TO HIGH RISK, AND SPECULATIVE WITH REGARD TO
PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS SHOULD CAREFULLY
CONSIDER THESE RISKS BEFORE INVESTING IN THESE FUNDS. SEE "CHARACTERISTICS AND
RISKS OF SECURITIES AND INVESTMENT TECHNIQUES--HIGH YIELD SECURITIES ("JUNK
BONDS")."
Each of the Funds, except the PIMCO Money Market Fund, may invest all of its
assets in derivative instruments, some of which may be particularly sensitive
to changes in prevailing interest rates. Unexpected changes in interest rates
may adversely affect the value of a Fund's investments in particular
derivative instruments.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. It should be read and retained for
ready reference to information about the Funds. A Statement of Additional
Information, dated January 14, 1997, as supplemented from time to time,
containing additional and more detailed information about the Funds, has been
filed with the Securities and Exchange Commission and is hereby incorporated
by reference into this Prospectus. It is available without charge and may be
obtained by writing or calling:
PIMCO Funds
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
Telephone: (800) 927-4648 (Current Shareholders)
(800) 800-0952 (New Accounts)
* INVESTMENT IN THE PIMCO MONEY MARKET FUND (OR IN ANY OTHER FUND) IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
THAT THE MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Expense Information..................................................... 6
Financial Highlights.................................................... 8
Investment Objectives and Policies...................................... 12
Investment Restrictions................................................. 19
Characteristics and Risks of Securities and Investment Techniques....... 21
Management of the Trust................................................. 31
Purchase of Shares...................................................... 33
Redemption of Shares.................................................... 35
Portfolio Transactions.................................................. 37
Net Asset Value......................................................... 37
Dividends, Distributions and Taxes...................................... 38
Other Information....................................................... 39
Appendix A--Description of Duration..................................... A-1
Appendix B--Description of Securities Ratings........................... B-1
</TABLE>
<PAGE>
PIMCO FUNDS
PROSPECTUS SUMMARY
PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund"), organized as a Massachusetts business trust on February 19,
1987. The Trust consists of nineteen separate investment portfolios (the
"Funds").
COMPARISON OF PIMCO FUNDS
The following chart provides general information about each of the PIMCO
Funds. It is qualified in its entirety by the more complete descriptions of
the Funds appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FIXED INCOME FUNDS PRIMARY INVESTMENTS DURATION CREDIT QUALITY/1/ FOREIGN/2/
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Money Market Money market instruments Less than or Min 95% Aaa or 0%
equal to Prime 1; less
90 days than or equal to
dollar- 5% Aa or
weighted Prime 2
average
maturity
- ------------------------------------------------------------------------------------------
Short-Term Money market instruments 0-1 yr B to Aaa; max 0-5%
and short maturity 10% below Baa
fixed income securities
- ------------------------------------------------------------------------------------------
Low Duration Short and intermediate 1-3 yrs B to Aaa; max 0-20%
maturity fixed income 10% below Baa
securities
- ------------------------------------------------------------------------------------------
Low Duration II Same as Low Duration 1-3 yrs A to Aaa 0%
Fund, with quality and
foreign issuer
restrictions
- ------------------------------------------------------------------------------------------
Low Duration III Same as Low Duration 1-3 yrs B to Aaa; max 0-20%
Fund, with prohibitions 10% below Baa
on firms engaged in
socially sensitive
practices
- ------------------------------------------------------------------------------------------
Moderate Duration Short and intermediate 2-4 yrs B to Aaa; max 0-20%
maturity fixed income 10% below Baa
securities
- ------------------------------------------------------------------------------------------
High Yield Higher yielding fixed 2-6 yrs B to Aaa; min 0%
income securities 65% below Baa
- ------------------------------------------------------------------------------------------
Total Return Intermediate maturity 3-6 yrs B to Aaa; max 0-20%
fixed income securities 10% below Baa
- ------------------------------------------------------------------------------------------
Total Return II Same as Total Return 3-6 yrs Baa to Aaa 0%
Fund, with quality and
foreign issuer
restrictions
- ------------------------------------------------------------------------------------------
Total Return III Same as Total Return 3-6 yrs B to Aaa; max 0-20%
Fund, with prohibitions 10% below Baa
on engaged in
socially sensitive
practices
- ------------------------------------------------------------------------------------------
Commercial Mortgage Commercial mortgage- 3-8 yrs B to Aaa; max 0%
Securities backed securities 35% below Baa
- ------------------------------------------------------------------------------------------
Long-Term U.S. Long-term maturity fixed Greater than A to Aaa 0%
Government income securities or equal to
8 yrs
- ------------------------------------------------------------------------------------------
Foreign Bond Intermediate maturity 3-6 yrs B to Aaa; max Greater
foreign fixed income 10% below Baa than or
securities equal to
85%
- ------------------------------------------------------------------------------------------
Global Bond Intermediate maturity 3-8 yrs B to Aaa; max 25-75%
U.S. and foreign fixed 10% below Baa
income securities
- ------------------------------------------------------------------------------------------
Global Bond II Intermediate maturity 3-6 yrs B to Aaa; max 25-75%
U.S. and foreign fixed 10% below Baa
income securities
- ------------------------------------------------------------------------------------------
International Bond Foreign fixed income 0-8 yrs Baa to Aaa Greater
securities (Fund offered than or
only to PIMCO private equal to
account clients) 65%
- ------------------------------------------------------------------------------------------
<CAPTION>
EQUITY FUNDS PRIMARY INVESTMENTS DURATION CREDIT QUALITY/1/ FOREIGN/2/
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
StocksPLUS S&P 500 stock index 0-1 yr B to Aaa; max 0-20%
derivatives backed by a 10% below Baa
portfolio of short-term
fixed income securities
- ------------------------------------------------------------------------------------------
StocksPLUS Short Inversely correlated S&P 0-1 yr B to Aaa; max 0-20%
Strategy 500 derivatives backed 10% below Baa
by a portfolio of short-
term fixed income
securities
- ------------------------------------------------------------------------------------------
<CAPTION>
BALANCED FUNDS PRIMARY INVESTMENTS DURATION CREDIT QUALITY/1/ FOREIGN/2/
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Strategic Balanced Same as Total Return and 0-6 yrs B to Aaa; max 0-20%
StocksPLUS Funds 10% below Baa
according to PIMCO's
allocation strategy
- ------------------------------------------------------------------------------------------
</TABLE>
/1/ As rated by Moody's Investors Services, Inc., or if unrated, determined to
be of comparable quality.
/2/ Percentage limitations relate to foreign currency-denominated securities for
all Funds except the PIMCO Foreign Bond, Global Bond, Global Bond II and
International Bond Funds. Percentage limitations for these three Funds
relate to securities of foreign issuers, denominated in any currency. Each
Fund (except the Low Duration II and Total Return II Funds) may invest
beyond these limits in U.S. dollar-denominated securities of foreign
issuers. Neither the Low Duration Fund II nor the Total Return Fund II may
invest in any securities of foreign issuers.
3
<PAGE>
INVESTMENT OBJECTIVES OF PIMCO FUNDS
The investment objective of each of the PIMCO Money Market Fund and PIMCO
Short-Term Fund is to seek to obtain maximum current income consistent with
preservation of capital and daily liquidity. The investment objective of the
PIMCO Global Bond Fund II is to seek maximum total return, consistent with the
preservation of capital. The investment objective of each of the remaining
Fixed Income Funds and the PIMCO Strategic Balanced Fund is to seek to realize
maximum total return, consistent with preservation of capital and prudent
investment management. The investment objective of the PIMCO StocksPLUS Fund is
to seek to achieve a total return which exceeds the total return performance of
the Standard & Poor's Composite Stock Price Index ("S&P 500"). The investment
objective of the PIMCO StocksPLUS Short Strategy Fund is to seek total return
through the implementation of short investment positions on the S&P 500 Index.
INVESTMENT RISKS AND CONSIDERATIONS
The following are some of the primary risks relevant to an investment in the
Funds and to the securities in which the Funds invest. Investors should read
the Prospectus carefully for a more complete discussion of the risks relating
to an investment in the Funds. The value of all securities and other
instruments held by the Funds will vary from time to time in response to a wide
variety of market factors. Consequently, the net asset value per share of each
Fund will vary, except that the PIMCO Money Market Fund shall attempt to
maintain a net asset value of $1.00 per share, although there can be no
assurance that the Fund will be successful in doing so. The net asset value per
share of any Fund may be less at the time of redemption than it was at the time
of investment. The value of fixed income securities can be expected to vary
inversely with changes in prevailing interest rates, i.e., as interest rates
rise, market value tends to decrease, and vice versa. In addition, certain of
the Funds may invest in securities rated lower than Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's ("S&P"). Such securities
carry a high degree of credit risk and are considered speculative by the major
rating agencies.
Certain Funds may invest in securities of foreign issuers, which may be
subject to additional risk factors, including foreign currency and political
risks, not applicable to securities of U.S. issuers. Certain of the Funds'
investment techniques may involve a form of borrowing, which may tend to
exaggerate the effect on net asset value of any increase or decrease in the
market value of a Fund's portfolio and may require liquidation of portfolio
positions when it is not advantageous to do so. Certain Funds may sell
securities short, which exposes the Fund to a risk of loss if the value of the
security sold short should increase.
All Funds (except the PIMCO Money Market Fund) may use derivative
instruments, consisting of futures, options, options on futures, and swap
agreements, for hedging purposes or as part of their investment strategies. Use
of these instruments may involve certain costs and risks, including the risk
that a Fund could not close out a position when it would be most advantageous
to do so, the risk of an imperfect correlation between the value of the
securities being hedged and the value of the particular derivative instrument,
and the risk that unexpected changes in interest rates may adversely affect the
value of a Fund's investments in particular derivative instruments.
The Funds offer their shares to both retail and institutional investors.
Institutional shareholders, some of whom also may be investment advisory
clients of PIMCO, may hold large positions in certain of the Funds. Such
shareholders may on occasion make large redemptions of their holdings in the
Funds to meet their liquidity needs, in connection with strategic adjustments
to their overall portfolio of investments, or for other purposes. Large
redemptions from some Funds could require the Adviser to liquidate portfolio
positions when it is not most desirable to do so. Liquidation of portfolio
holdings also may cause a Fund to realize capital gains.
The PIMCO Commercial Mortgage Securities, Foreign Bond, Global Bond, Global
Bond II, and International Bond Funds are "non-diversified" for purposes of the
Investment Company Act of 1940, meaning that they may invest a greater
percentage of their assets in the securities of one issuer than the other
Funds. As "non-diversified" portfolios, these Funds may be more susceptible to
risks associated with a single economic, political or regulatory occurrence
than a diversified portfolio might be. See "Investment Objectives and Policies"
and "Characteristics and Risks of Securities and Investment Techniques" for
additional information.
4
<PAGE>
PIMCO FUNDS
INVESTMENT ADVISER AND FUND ADMINISTRATOR
Pacific Investment Management Company ("PIMCO") serves as investment adviser
("Adviser") to the Trust, and also serves as the Trust's administrator. The
Adviser is an investment management firm established in 1971 that had
approximately $ billion of assets under management as of November 30, 1996.
The Adviser is a subsidiary of PIMCO Advisors L.P. ("PIMCO Advisors"), which
had approximately $ billion of assets under management as of November 30,
1996. See "Management of the Trust."
PURCHASE OF SHARES
This Prospectus describes two classes of shares of each Fund: the
"Institutional Class" and the "Administrative Class." Shares of the
Institutional Class are offered primarily for direct investment by
institutional investors. They also are offered through certain financial
intermediaries that charge their customers transaction or other fees with
respect to the customers' investment in the Funds. Shares of the Administrative
Class are offered primarily through employee benefit plan alliances and each
Fund pays service fees to such entities for services they provide to
shareholders of that class. Administrative Class shares of certain Funds are
not currently available for investment.
Shares of the Institutional Class and Administrative Class of the Funds are
offered at the relevant next determined net asset value with no sales charge.
The minimum initial investment for shares of either class is $5,000,000. Shares
of either class may also be offered to clients of the Adviser, and its
affiliates. Shares of the PIMCO International Bond Fund are offered only to
private account clients of PIMCO. See "Purchase of Shares."
REDEMPTIONS AND EXCHANGES
Institutional Class and Administrative Class shares of each Fund may be
redeemed without cost at the relevant net asset value per share of the class of
that Fund next determined after receipt of the redemption request. The PIMCO
StocksPLUS Short Strategy Fund imposes a redemption fee, payable to the Fund,
of 1% on all shares of the Fund held for less than three months. The redemption
price may be more or less than the purchase price.
Institutional Class and Administrative Class shares of any Fund may be
exchanged for shares of the same class of any other Fund of the Trust offered
generally to the public on the basis of relative net asset values, except that
only private account clients of PIMCO may purchase shares of the PIMCO
International Bond Fund. Shares of a Fund may also be exchanged for shares of
the same class of a series of the PIMCO Funds: Multi-Manager Series, an
affiliated mutual fund family, comprised primarily of equity portfolios managed
by the subsidiary partnerships of PIMCO Advisors. See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
Each Fund will distribute dividends from net investment income at least
monthly (quarterly in the case of the PIMCO International Bond Fund, PIMCO
Strategic Balanced Fund and Equity Funds), and any net realized capital gains
at least annually. All dividends and distributions will be reinvested
automatically at net asset value in additional shares of the same class of the
same Fund, unless cash payment is requested. Dividends from net investment
income with respect to Administrative Class shares will be lower than those
paid with respect to Institutional Class shares, reflecting the payment of
service fees by that class. See "Dividends, Distributions and Taxes."
5
<PAGE>
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES (EACH CLASS):
<TABLE>
<S> <C>
Sales Load Imposed on Purchases.......................................... None
Sales Load Imposed on Reinvested Dividends............................... None
Redemption Fee:
StocksPLUS Short Strategy Fund......................................... 1%*
All Other Funds........................................................ None
Exchange Fee............................................................. None
</TABLE>
*On shares held less than 3 months.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
ADVISORY ADMINISTRATIVE TOTAL
INSTITUTIONAL CLASS SHARES FEE FEE EXPENSES
-------------------------------------------- -------- -------------- --------
<S> <C> <C> <C>
Money Market Fund........................... 0.15% 0.20% 0.35%
Short-Term Fund............................. 0.25 0.20 0.45
Low Duration Fund........................... 0.25 0.18 0.43
Low Duration Fund II........................ 0.25 0.25 0.50
Low Duration Fund III....................... 0.25 0.25 0.50
Moderate Duration Fund...................... 0.25 0.25 0.50
High Yield Fund............................. 0.25 0.25 0.50
Total Return Fund........................... 0.25 0.18 0.43
Total Return Fund II........................ 0.25 0.25 0.50
Total Return Fund III....................... 0.25 0.25 0.50
Commercial Mortgage Securities Fund......... 0.40 0.25 0.65
Long-Term U.S. Government Fund.............. 0.25 0.25 0.50
Foreign Bond Fund........................... 0.25 0.25 0.50
Global Bond Fund............................ 0.25 0.30 0.55
Global Bond Fund II......................... 0.25 0.30 0.55
International Bond Fund..................... 0.25 0.25 0.50
StocksPLUS Fund............................. 0.40 0.25 0.65
StocksPLUS Short Strategy Fund.............. 0.40 0.25 0.65
Strategic Balanced Fund..................... 0.40 0.25 0.65
</TABLE>
<TABLE>
<CAPTION>
12B-
ADVISORY ADMINISTRATIVE 1 (SERVICE) TOTAL
ADMINISTRATIVE CLASS SHARES FEE FEE FEE EXPENSES
------------------------------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Money Market Fund.............. 0.15% 0.20% 0.25% 0.60%
Short-Term Fund................ 0.25 0.20 0.25 0.70
Low Duration Fund.............. 0.25 0.18 0.25 0.68
Low Duration Fund II........... 0.25 0.25 0.25 0.75
Low Duration Fund III.......... 0.25 0.25 0.25 0.75
Moderate Duration Fund......... 0.25 0.25 0.25 0.75
High Yield Fund................ 0.25 0.25 0.25 0.75
Total Return Fund.............. 0.25 0.18 0.25 0.68
Total Return Fund II........... 0.25 0.25 0.25 0.75
Total Return Fund III.......... 0.25 0.25 0.25 0.75
Commercial Mortgage Securities
Fund.......................... 0.40 0.25 0.25 0.90
Long-Term U.S. Government Fund. 0.25 0.25 0.25 0.75
Foreign Bond Fund.............. 0.25 0.25 0.25 0.75
Global Bond Fund............... 0.25 0.30 0.25 0.80
Global Bond Fund II............ 0.25 0.30 0.25 0.80
International Bond Fund........ 0.25 0.25 0.25 0.75
StocksPLUS Fund................ 0.40 0.25 0.25 0.90
StocksPLUS Short Strategy Fund. 0.40 0.25 0.25 0.90
Strategic Balanced Fund........ 0.40 0.25 0.25 0.90
</TABLE>
6
<PAGE>
PIMCO FUNDS
For a more detailed discussion of the Funds' fees and expenses, see "Fund
Administrator," "Advisory and Administrative Fees," and "Service Fees" under
the caption "Management of the Trust."
EXAMPLE OF FUND EXPENSES:
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a hypothetical 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund............................ $4 $11 $20 $ 44
Short-Term Fund.............................. $ 5 $14 $25 $ 57
Low Duration Fund............................ $ 4 $14 $24 $ 54
Low Duration Fund II......................... $ 5 $16 $28 $ 63
Low Duration Fund III........................ $ 5 $16 $28 $ 63
Moderate Duration Fund....................... $ 5 $16 $28 $ 63
High Yield Fund.............................. $ 5 $16 $28 $ 63
Total Return Fund............................ $ 4 $14 $24 $ 54
Total Return Fund II......................... $ 5 $16 $28 $ 63
Total Return Fund III........................ $ 5 $16 $28 $ 63
Commercial Mortgage Securities Fund.......... $ 7 $21 $36 $ 81
Long-Term U.S. Government Fund............... $ 5 $16 $28 $ 63
Foreign Bond Fund............................ $ 5 $16 $28 $ 63
Global Bond Fund............................. $ 6 $18 $31 $ 69
Global Bond Fund II.......................... $ 6 $18 $31 $ 69
International Bond Fund...................... $ 5 $16 $28 $ 63
StocksPLUS Fund.............................. $ 7 $21 $36 $ 81
StocksPLUS Short Strategy Fund............... $7 $21 $36 $ 81
Strategic Balanced Fund...................... $ 7 $21 $36 $ 81
<CAPTION>
ADMINISTRATIVE CLASS SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund............................ $6 $19 $33 $ 75
Short-Term Fund.............................. $7 $22 $39 $87
Low Duration Fund............................ $7 $22 $38 $85
Low Duration Fund II......................... $8 $24 $42 $93
Low Duration Fund III........................ $8 $24 $42 $ 93
Moderate Duration Fund....................... $8 $24 $42 $ 93
High Yield Fund.............................. $ 8 $24 $42 $ 93
Total Return Fund............................ $7 $22 $38 $85
Total Return Fund II......................... $8 $24 $42 $93
Total Return Fund III........................ $8 $24 $42 $93
Commercial Mortgage Securities Fund.......... $9 $29 $50 $111
Long-Term U.S. Government Fund............... $8 $24 $42 $93
Foreign Bond Fund ........................... $8 $24 $42 $93
Global Bond Fund............................. $8 $26 $44 $99
Global Bond Fund II.......................... $8 $26 $44 $99
International Bond Fund...................... $8 $24 $42 $93
StocksPLUS Fund.............................. $9 $29 $50 $111
StocksPLUS Short Strategy Fund............... $9 $29 $50 $111
Strategic Balanced Fund...................... $ 9 $29 $50 $111
</TABLE>
The above tables are provided to assist investors in understanding the
various expenses which may be borne directly or indirectly in connection with
an investment in the Funds. This example should not be considered a
representation of past or future expenses or performance. Actual expenses may
be higher or lower than those shown.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following information regarding selected per share data and ratios for
shares of the Funds is part of the Trust's financial statements which are
included in the Trust's Annual Report dated March 31, 1996, and Semi-Annual
Report dated September 30, 1996, and incorporated by reference in the
Statement of Additional Information. The Trust's audited financial statements
and selected per share data and ratios appearing below have been examined by
Price Waterhouse LLP, independent accountants, whose opinion thereon is also
included in the Annual Report, which may be obtained without charge.
Information contained in the Trust's Semi-Annual Report is unaudited.
Information is presented for each Fund, and Class thereof, of the Trust which
had investment operations during the reporting periods. Information regarding
the PIMCO Money Market Fund and PIMCO Total Return Fund II reflects the
operational history of the Money Market Fund and PIMCO Managed Bond and Income
Fund, two former series of PIMCO Funds: Equity Advisors Series, which were
reorganized as series of the Trust as of November 1, 1995. On that date, the
investment advisory responsibilities of Pacific Mutual Life Insurance Company
with respect to the Money Market Fund were assumed by PIMCO. Information for
these Funds for each of the five years in the period ended October 31, 1995,
has been audited by the Funds' former independent accountants.
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET REALIZED TOTAL INCOME DIVIDENDS DIVIDENDS IN DISTRIBUTIONS DISTRIBUTIONS
YEAR OR VALUE NET AND UNREALIZED (LOSS) FROM FROM NET EXCESS OF NET FROM NET IN EXCESS OF
PERIOD BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT REALIZED NET REALIZED
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS CAPITAL GAINS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00 0.00
10/31/95 1.00 0.06 0.00 0.06 (0.06) 0.00 0.00 0.00
10/31/94 1.00 0.03 0.00 0.03 (0.03) 0.00 0.00 0.00
10/31/93 1.00 0.03 0.00 0.03 (0.03) 0.00 0.00 0.00
10/31/92 1.00 0.04 0.00 0.04 (0.04) 0.00 0.00 0.00
10/31/91(a) 1.00 0.04 0.00 0.04 (0.04) 0.00 0.00 0.00
Administrative
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00 0.00
10/31/95(b) 1.00 0.05 0.00 0.05 (0.05) 0.00 0.00 0.00
SHORT-TERM FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 9.79 0.69 0.12 0.81 (0.65) (0.03) 0.00 0.00
3/31/95 9.92 0.56 (0.13) 0.43 (0.55) (0.01) 0.00 0.00
3/31/94 10.03 0.48 (0.12) 0.36 (0.47) 0.00 0.00 0.00
3/31/93 10.01 0.37 0.02 0.39 (0.37) 0.00 0.00 0.00
3/31/92 10.02 0.55 0.00 0.55 (0.55) 0.00 (0.01) 0.00
3/31/91 9.99 0.77 0.04 0.81 (0.78) 0.00 0.00 0.00
3/31/90 10.00 0.86 (0.01) 0.85 (0.86) 0.00 0.00 0.00
3/31/89 10.00 0.81 (0.01) 0.80 (0.80) 0.00 0.00 0.00
3/31/88(c) 10.00 0.33 0.00 0.33 (0.33) 0.00 0.00 0.00
Administrative
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96(d) 9.98 0.11 (0.07) 0.04 (0.10) 0.00 0.00 0.00
LOW DURATION FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 9.76 0.66 0.21 0.87 (0.68) 0.00 0.00 0.00
3/31/95 10.04 0.65 (0.30) 0.35 (0.54) 0.00 0.00 0.00
3/31/94 10.30 0.62 (0.16) 0.46 (0.64) (0.03) (0.05) 0.00
3/31/93 10.20 0.75 0.22 0.97 (0.74) 0.00 (0.13) 0.00
3/31/92 10.02 0.83 0.25 1.08 (0.82) 0.00 (0.08) 0.00
3/31/91 9.89 0.89 0.12 1.01 (0.88) 0.00 0.00 0.00
3/31/90 9.70 0.88 0.20 1.08 (0.88) 0.00 (0.01) 0.00
3/31/89 9.99 0.89 (0.25) 0.64 (0.90) 0.00 (0.03) 0.00
3/31/88(e) 10.00 0.74 (0.01) 0.73 (0.74) 0.00 0.00 0.00
Administrative
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 9.76 0.63 0.21 0.84 (0.65) 0.00 0.00 0.00
3/31/95(f) 9.67 0.18 0.07 0.25 (0.14) 0.00 0.00 0.00
LOW DURATION FUND
II
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 9.77 0.66 0.04 0.70 (0.60) (0.03) 0.00 0.00
3/31/95 9.94 0.62 (0.16) 0.46 (0.58) (0.03) 0.00 0.00
3/31/94 10.25 0.60 (0.28) 0.32 (0.58) 0.00 (0.05) 0.00
3/31/93 10.04 0.63 0.25 0.88 (0.64) 0.00 (0.03) 0.00
3/31/92(g) 10.00 0.28 0.03 0.31 (0.27) 0.00 0.00 0.00
HIGH YIELD FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 10.42 1.04 0.54 1.58 (1.01) 0.00 (0.05) 0.00
3/31/95 10.52 0.99 (0.12) 0.87 (0.93) (0.02) 0.00 (0.02)
3/31/94 10.41 0.90 0.18 1.08 (0.90) 0.00 (0.07) 0.00
3/31/93(h) 10.00 0.24 0.41 0.65 (0.24) 0.00 0.00 0.00
Administrative
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 10.41 1.02(+) 0.54(+) 1.56 (0.98) 0.00 (0.05) 0.00
3/31/95(i) 10.14 0.23 0.25 0.48 (0.21) 0.00 0.00 0.00
</TABLE>
- -------
(a) From commencement of (f) From commencement of
operations, March 1, 1991. operations, December 31,
(b) From commencement of 1994.
operations, January 24, (g) From commencement of
1995. operations, November 1,
(c) From commencement of 1991.
operations, October 7, 1987. (h) From commencement of
(d) From commencement of operations, December 16,
operations, February 1, 1992.
1996. (i) From commencement of
(e) From commencement of operations, January 16,
operations, May 11, 1987. 1995.
(j) From commencement of
operations, September 7,
1994.
+ Per share amounts based on average number of shares outstanding
during the period.
*Unaudited.
8
<PAGE>
PIMCO FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
RATIO OF NET
NET ASSET NET ASSETS RATIO OF INVESTMENT
TAX BASIS VALUE END EXPENSES TO INCOME TO PORTFOLIO
RETURN TOTAL END TOTAL OF PERIOD AVERAGE AVERAGE TURNOVER
OF CAPITAL DISTRIBUTIONS OF PERIOD RETURN (000'S) NET ASSETS NET ASSETS RATE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ $ $ % $ % %
0.00 (0.02) 1.00 2.58 25,935 0.33+ 5.44+ N/A
0.00 (0.06) 1.00 5.67 7,741 0.40 5.53 N/A
0.00 (0.03) 1.00 3.53 7,454 0.40 3.52 N/A
0.00 (0.03) 1.00 2.83 5,836 0.40 2.78 N/A
0.00 (0.04) 1.00 3.85 7,817 0.40 4.02 N/A
0.00 (0.04) 1.00 3.78 45,406 0.53+ 5.20 N/A
0.00 (0.02) 1.00 2.47 10 0.61+ 5.95+ N/A
0.00 (0.05) 1.00 4.21 10 0.68+ 5.94+ N/A
$ $ $ % $ % % %
0.00 (0.68) 9.92 8.49 101,797 0.58 6.86 214.78
0.00 (0.56) 9.79 4.46 90,114 0.50 5.67 79.30
0.00 (0.47) 9.92 3.66 73,176 0.50 4.87 45.81
0.00 (0.37) 10.03 3.94 46,905 0.50 3.67 54.50
0.00 (0.56) 10.01 5.66 44,172 0.50 5.52 94.62
0.00 (0.78) 10.02 8.44 44,820 0.50 7.83 115.26
0.00 (0.86) 9.99 8.86 13,649 0.50 8.61 140.28
0.00 (0.80) 10.00 8.29 14,401 0.50 8.57 178.21
0.00 (0.33) 10.00 7.17+ 5,546 0.50+ 6.99+ 11.57
0.00 (0.10) 9.92 0.41 3,999 0.52+ 4.44+ 214.78
$ $ $ % $ % % %
0.00 (0.68) 9.95 9.13 2,677,574 0.42 6.88 208.79
(0.09) (0.63) 9.76 3.60 2,332,032 0.41 6.46 77.14
0.00 (0.72) 10.04 4.56 2,298,255 0.43 6.05 42.69
0.00 (0.87) 10.30 9.91 1,403,594 0.45 7.21 67.51
0.00 (0.90) 10.20 11.30 906,650 0.50 8.08 37.21
0.00 (0.88) 10.02 10.60 516,325 0.57 8.97 44.31
0.00 (0.89) 9.89 11.36 317,425 0.60 8.83 161.91
0.00 (0.93) 9.70 6.49 172,046 0.60 8.83 56.23
0.00 (0.74) 9.99 8.64+ 115,865 0.60+ 8.85+ 77.88
0.00 (0.65) 9.95 8.83 2,536 0.69 6.73 208.79
(0.02) (0.16) 9.76 2.53 771 0.66+ 6.93+ 77.14
$ $ $ % $ % % %
(0.02) (0.65) 9.82 7.30 253,299 0.48 6.61 225.02
(0.02) (0.63) 9.77 4.80 170,866 0.47 6.35 102.43
0.00 (0.63) 9.94 3.15 141,411 0.50 5.73 53.78
0.00 (0.67) 10.25 8.95 101,025 0.50 6.16 95.33
0.00 (0.27) 10.04 7.72+ 31,027 0.51+ 6.80+ 12.57
$ $ $ % $ % % %
0.00 (1.06) 10.94 15.70 536,983 0.47 9.28 65.79
0.00 (0.97) 10.42 8.81 336,310 0.48 9.37 77.60
0.00 (0.97) 10.52 10.65 219,976 0.50 8.40 112.40
0.00 (0.24) 10.41 24.43+ 24,069 0.50+ 8.24+ 29.74
0.00 (1.03) 10.94 15.54 1,007 0.80 9.16 65.79
0.00 (0.21) 10.41 4.66 41 0.73+ 10.12+ 77.60
</TABLE>
- -------
+ Annualized.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET REALIZED TOTAL INCOME DIVIDENDS DIVIDENDS IN DISTRIBUTIONS DISTRIBUTIONS
YEAR OR VALUE NET AND UNREALIZED (LOSS) FROM FROM NET EXCESS OF NET FROM NET IN EXCESS OF
PERIOD BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT REALIZED NET REALIZED
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS CAPITAL GAINS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL RETURN FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 10.02 0.81 0.29 1.10 (0.61) (0.10) (0.12) 0.00
3/31/95 10.25 0.64 (0.24) 0.40 (0.56) (0.05) 0.00 0.00
3/31/94 10.91 0.68 (0.16) 0.52 (0.71) (0.15) (0.30) (0.02)
3/31/93 10.46 0.76 0.76 1.52 (0.76) 0.00 (0.31) 0.00
3/31/92 10.15 0.86 0.60 1.46 (0.86) 0.00 (0.29) 0.00
3/31/91 9.77 0.90 0.39 1.29 (0.90) 0.00 (0.01) 0.00
3/31/90 9.62 0.87 0.21 1.08 (0.87) 0.00 (0.06) 0.00
3/31/89 10.04 0.90 (0.23) 0.67 (0.91) 0.00 (0.18) 0.00
3/31/88(e) 10.00 0.67 0.04 0.71 (0.67) 0.00 0.00 0.00
Administrative
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 10.01 0.80 0.29 1.09 (0.60) (0.09) (0.12) 0.00
3/31/95(j) 10.00 0.31 0.06 0.37 (0.32) (0.03) 0.00 0.00
TOTAL RETURN FUND
II
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 10.21 0.25 (0.17) 0.08 (0.26) 0.00 (0.09) (0.05)
10/31/95 9.39 0.69 0.76 1.45 (0.62) 0.00 (0.01) 0.00
10/31/94 10.38 0.51 (0.88) (0.37) (0.51) 0.00 (0.05) 0.00
10/31/93 9.99 0.61 0.74 1.35 (0.61) 0.00 (0.35) 0.00
10/31/92(k) 10.00 0.49 0.23 0.72 (0.49) 0.00 (0.24) 0.00
Administrative Class
9/30/96*
3/31/96 10.22 0.24 (0.17) 0.07 (0.26) 0.00 (0.09) (0.05)
10/31/95(l) 9.34 0.56 0.88 1.44 (0.55) 0.00 (0.01) 0.00
TOTAL RETURN FUND III
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 8.99 0.72 0.17 0.89 (0.54) (0.09) (0.12) 0.00
3/31/95 9.18 0.59 (0.16) 0.43 (0.52) (0.02) 0.00 0.00
3/31/94 9.81 0.59 (0.03) 0.56 (0.66) (0.12) (0.20) (0.21)
3/31/93 10.31 0.64 0.75 1.39 (0.64) 0.00 (1.25) 0.00
3/31/92(m) 10.00 0.63 0.58 1.21 (0.63) 0.00 (0.27) 0.00
LONG-TERM U.S. GOV'T FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 9.85 0.83 0.66 1.49 (0.68) (0.04) (0.50) (0.16)
3/31/95 9.96 0.60 (0.09) 0.51 (0.60) (0.02) 0.00 0.00
3/31/94 11.36 0.62 (0.06) 0.56 (1.05) (0.04) (0.70) (0.17)
3/31/93 10.82 0.70 1.66 2.36 (0.70) 0.00 (1.12) 0.00
3/31/92(n) 10.00 0.64 0.85 1.49 (0.64) 0.00 (0.03) 0.00
FOREIGN BOND FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 9.38 0.96 1.03 1.99 (0.34) (0.25) (0.25) (0.03)
3/31/95 10.18 0.38 (0.57) (0.19) 0.00 0.00 0.00 0.00
3/31/94 10.34 0.55 0.27 0.82 (0.55) 0.00 (0.06) (0.37)
3/31/93(o) 10.00 0.16 0.34 0.50 (0.16) 0.00 0.00 0.00
GLOBAL BOND FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 9.87 0.45 0.72 1.17 (0.61) 0.00 (0.21) (0.17)
3/31/95 9.85 0.69 (0.14) 0.55 (0.29) (0.24) 0.00 0.00
3/31/94(p) 10.00 0.16 (0.15) 0.01 (0.16) 0.00 0.00 0.00
Administrative Class
9/30/96(q)*
INTERNATIONAL BOND FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 7.44 0.63 0.49 1.12 (0.39) (0.13) 0.00 0.00
3/31/95 9.93 2.18 (2.41) (0.23) (2.26) 0.00 0.00 0.00
3/31/94 10.53 0.47 0.24 0.71 (0.96) 0.00 (0.35) 0.00
3/31/93 10.02 0.62 0.42 1.04 (0.48) 0.00 (0.05) 0.00
3/31/92 9.94 0.79 0.27 1.06 (0.78) 0.00 (0.20)++ 0.00
3/31/91 9.78 0.79 0.30 1.09 (0.83) 0.00 (0.10) 0.00
3/31/90(r) 10.00 0.15 (0.27) (0.12) (0.10) 0.00 0.00 0.00
STOCKSPLUS FUND
Institutional
Class
9/30/96* $ $ $ $ $ $ $ $
3/31/96 10.48 0.91 2.48 3.39 (1.05) 0.00 (1.62) (0.04)
3/31/95 9.52 1.03 0.69 1.72 (0.76) 0.00 0.00 0.00
3/31/94(s) 10.00 0.34 0.10 0.44 (0.34) (0.01) (0.10) (0.47)
STRATEGIC BALANCED FUND
Institutional
Class
9/30/96(t)* $ $ $ $ $ $ $ $
</TABLE>
- -------
(k) From commencement of (p) From commencement of
operations, December 30, operations, November 23,
1991. 1993.
(l) From commencement of (q) From commencement of
operations, November 30, operations, August 30, 1996.
1994. (r) From commencement of
(m) From commencement of operations, December 13,
operations, May 1, 1991. 1989.
(n) From commencement of (s) From commencement of
operations, July 1, 1991. operations, May 14, 1993.
(o) From commencement of (t) From commencement of
operations, December 3, 1992. operations, June 28, 1996.
++ Gain distribution includes $0.14 per share characterized for tax
purposes as distributions from ordinary income.
* Unaudited.
10
<PAGE>
PIMCO FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
RATIO OF NET
NET ASSET NET ASSETS RATIO OF INVESTMENT
TAX BASIS VALUE END EXPENSES TO INCOME TO PORTFOLIO
RETURN TOTAL END TOTAL OF PERIOD AVERAGE AVERAGE TURNOVER
OF CAPITAL DISTRIBUTIONS OF PERIOD RETURN (000'S) NET ASSETS NET ASSETS RATE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ $ $ % $ % % %
0.00 (0.83) 10.29 11.14 10,247,605 0.42 6.85 221.13
(0.02) (0.63) 10.02 4.22 7,239,735 0.41 6.72 98.48
0.00 (1.18) 10.25 4.55 5,008,160 0.41 6.27 176.74
0.00 (1.07) 10.91 15.29 3,155,441 0.43 7.07 89.95
0.00 (1.15) 10.46 14.90 1,813,935 0.46 8.18 110.46
0.00 (0.91) 10.15 13.74 975,619 0.49 9.10 98.68
0.00 (0.93) 9.77 11.36 659,663 0.60 8.60 109.90
0.00 (1.09) 9.62 5.96 192,613 0.60 8.53 195.26
0.00 (0.67) 10.04 8.31+ 45,172 0.60+ 7.66+ 75.34
0.00 (0.81) 10.29 10.99 104,618 0.68 6.64 221.13
(0.01) (0.36) 10.01 3.76 9,037 0.66+ 6.54+ 98.48
$ $ $ % $ % % %
0.00 (0.40) 9.89 .78 455,583 0.51+ 6.36+ 73.18
0.00 (0.63) 10.21 15.96 442,091 0.50 6.47 41.05
(0.06) (0.62) 9.39 (3.58) 357,900 0.50 5.22 99.46
0.00 (0.96) 10.38 13.79 371,260 0.50 5.38 49.71
0.00 (0.73) 9.99 7.52 287,113 0.50+ 5.83+ 133.61
0.00 (0.40) 9.89 0.57 3,320 0.76+ 6.06+ 73.18
0.00 (0.56) 10.22 15.92 3,163 0.76+ 6.22+ 40.91
$ $ $ % $ % % %
0.00 (0.75) 9.13 10.06 142,223 0.50 6.82 176.97
(0.08) (0.62) 8.99 4.92 99,497 0.50 6.95 145.98
0.00 (1.19) 9.18 5.64 97,522 0.50 6.00 95.21
0.00 (1.89) 9.81 14.47 65,349 0.51 6.06 161.38
0.00 (0.90) 10.31 13.61+ 47,908 0.60+ 6.75+ 521.14
$ $ $ % $ % % %
0.00 (1.38) 9.96 14.83 32,511 0.56 6.80 238.32
0.00 (0.62) 9.85 5.50 32,349 0.50 6.62 88.92
0.00 (1.96) 9.96 4.13 25,978 0.50 5.37 97.67
0.00 (1.82) 11.36 23.42 22,946 0.50 6.16 320.08
0.00 (0.67) 10.82 20.57+ 15,900 0.50+ 7.91+ 427.81
$ $ $ % $ % % %
0.00 (0.87) 10.50 21.80 258,493 0.52 5.83 1,233.71
(0.61) (0.61) 9.38 (1.85) 232,700 0.47 6.44 299.45
0.00 (0.98) 10.18 7.79 498,521 0.54 5.12 260.34
0.00 (0.16) 10.34 16.23+ 178,895 0.65+ 4.97+ 122.55
$ $ $ % $ % % %
0.00 (0.99) 10.05 12.04 133,833 0.58 5.88 1,082.91
0.00 (0.53) 9.87 10.35 76,476 0.64 5.59 461.46
0.00 (0.16) 9.85 0.08 40,485 0.50+ 4.55+ 132.41
$ $ $ % $ % % %
0.00 (0.52) 8.04 15.08 2,271,940 0.50 6.09 1,046.00
0.00 (2.26) 7.44 (1.27) 45,950 0.43 5.90 674.00
0.00 (1.31) 9.93 6.54 2,296,978 0.43 5.51 370.00
0.00 (0.53) 10.53 10.61 2,589,677 0.46 6.67 301.00
0.00 (0.98) 10.02 10.97 1,314,661 0.51 8.24 201.00
0.00 (0.93) 9.94 11.55 609,660 0.55 8.23 202.00
0.00 (0.10) 9.78 (4.18)+ 407,210 0.75+ 7.94+ 49.00
$ $ $ % $ % % %
0.00 (2.71) 11.16 34.07 151,869 0.70 15.23 101.67
0.00 (0.76) 10.48 18.64 46,498 0.50 11.89 176.98
0.00 (0.92) 9.52 1.55 14,330 0.50+ 4.00+ 33.29
</TABLE>
- -------
+ Annualized.
11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and general investment policies of each Fund are
described below. There can be no assurance that the investment objective of
any Fund will be achieved. Because the market value of each Fund's investments
will change, the net asset value per share of each Fund (except the PIMCO
Money Market Fund) also will vary. Specific portfolio securities eligible for
purchase by the Funds, investment techniques that may be used by the Funds,
and the risks associated with these securities and techniques are described
more fully under "Characteristics and Risks of Securities and Investment
Techniques" in the Prospectus and "Investment Objectives and Policies" in the
Statement of Additional Information.
FIXED INCOME FUNDS
Each of the Fixed Income Funds differs from the others primarily in the
length of the Fund's duration or the proportion of its investments in certain
types of fixed income securities. For a discussion of the concept of duration,
see "Appendix A--Description of Duration."
The investment objective of the PIMCO Money Market Fund and PIMCO Short-Term
Fund is to seek to obtain maximum current income consistent with preservation
of capital and daily liquidity. The PIMCO Money Market Fund also attempts to
maintain a stable net asset value of $1.00 per share, although there can be no
assurance that it will be successful in doing so. The investment objective of
the PIMCO Global Bond Fund II is to seek maximum total return, consistent with
the preservation of capital. Each of the remaining Fixed Income Funds seeks to
maximize total return, consistent with preservation of capital and prudent
investment management.
In selecting securities for each Fixed Income Fund, the Adviser utilizes
economic forecasting, interest rate anticipation, credit and call risk
analysis, foreign currency exchange rate forecasting, and other security
selection techniques. The proportion of each Fund's assets committed to
investment in securities with particular characteristics (such as maturity,
type and coupon rate) will vary based on the Adviser's outlook for the U.S.
and foreign economies, the financial markets, and other factors.
Each of the Fixed Income Funds will invest at least 65% of its assets in the
following types of securities, which, unless specifically provided otherwise
in the description of the Funds that follows, may be issued by domestic or
foreign entities and denominated in U.S. dollars or foreign currencies:
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; structured notes and loan
participations; 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 securities 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 of the Fixed Income Funds may hold different
percentages of its assets in these various types of securities, and each Fund,
except the PIMCO Money Market Fund, may invest all of its assets in derivative
instruments or in mortgage- or asset-backed securities.
The compositions of the Fixed Income Funds differ as follows:
PIMCO Money Market Fund seeks maximum current income consistent with the
preservation of capital and daily liquidity. It attempts to achieve this
objective by investing at least 95% of its total assets, measured at the time
of investment, in a diversified portfolio of the highest quality money market
securities. The Fund may also invest up to 5% of its total assets, measured at
the time of investment, in money market securities that are in the second-
highest rating category for short-term obligations. The Fund's investments in
securities will be limited to U.S. dollar-denominated securities that mature
in 397 days or less from the date of purchase. The Fund may invest in the
following: obligations of the U.S. Government (including its agencies and
instrumentalities); short-term corporate debt securities from domestic and
foreign corporations; obligations of domestic and foreign commercial banks,
savings banks, and savings and loan associations; and commercial paper. The
Fund may invest more than 25% of its total assets in securities or obligations
issued by U.S. banks. The dollar-weighted average portfolio maturity of the
Fund will not exceed 90 days.
12
<PAGE>
PIMCO FUNDS
The PIMCO Money Market Fund may invest only in U.S. dollar-denominated money
market instruments that present minimal credit risk and, with respect to at
least 95% of its total assets, measured at the time of investment, that are of
the highest quality. The Adviser will make a determination as to whether a
security presents minimal credit risk under procedures adopted by the Board of
Trustees. A money market instrument will be considered to be of the highest
quality (1) if rated in the highest rating category (i) by any two nationally
recognized statistical rating organizations ("NRSROs") (e.g., Aaa or Prime-1 by
Moody's, AAA or A-1 by S&P, or, (ii) if rated by only one NRSRO, by that NRSRO,
and whose acquisition is approved or ratified by the Board of Trustees; (2) if
unrated but issued by an issuer that has short-term debt obligations of
comparable maturity, priority, and security, and that are rated in the highest
rating category by (i) any two NRSROs or, (ii) if rated by only one NRSRO, by
that NRSRO, and whose acquisition is approved or ratified by the Board of
Trustees; or (3) an unrated security that is of comparable quality to a
security rated in the highest rating category as determined by the Adviser and
whose acquisition is approved or ratified by the Board of Trustees. With
respect to no more than 5% of its total assets, measured at the time of
investment, the Fund may also invest in money market instruments that are in
the second-highest rating category for short-term debt obligations (e.g., rated
Aa or Prime-2 by Moody's or AA or A-2 by S&P). A money market instrument will
be considered to be in the second-highest rating category under the criteria
described above with respect to instruments considered to be of the highest
quality, as applied to instruments in the second-highest rating category. See
"Appendix B--Description of Securities Ratings" for a description of Moody's
and S&P's ratings applicable to fixed income securities.
The PIMCO Money Market Fund may not invest more than 5% of its total assets,
measured at the time of investment, in securities of any one issuer that are of
the highest quality, except that (1) the Fund may invest more than 5% of its
total assets in the securities of a single issuer if rated in the highest
rating category for a period of up to three business days after purchase,
provided that the Fund may not make more than one investment at a time in
accordance with this exception, and (2) this limitation shall not apply to U.S.
Government securities and repurchase agreements with respect thereto. The Fund
may not invest more than the greater of 1% of its total assets or $1,000,000,
measured at the time of investment, in securities of any one issuer that are in
the second-highest rating category, except that this limitation shall not apply
to U.S. Government securities. In the event that an instrument acquired by the
Fund is downgraded or otherwise ceases to be of the quality that is required
for securities purchased by the Fund, the Adviser, under procedures approved by
the Board of Trustees (or the Board of Trustees itself if the Adviser becomes
aware an unrated security is downgraded below high quality and the Adviser does
not dispose of the security or such security does not mature within five
business days) shall promptly reassess whether such security presents minimal
credit risk and determine whether to retain the instrument.
PIMCO Short-Term Fund invests in a diversified portfolio of fixed income
securities of varying maturities. The average portfolio duration of this Fund
will normally not exceed one year. The Fund may invest up to 10% of its assets
in fixed income securities that are rated below investment grade (rated below
Baa by Moody's or BBB by S&P) but rated B or higher by Moody's or S&P (or, if
unrated, determined by the Adviser to be of comparable quality). Securities
rated below investment grade may be referred to colloquially as "junk bonds."
For information on the risks associated with investments in securities rated
below investment grade, see "Appendix B--Description of Securities Ratings."
The Fund may invest up to 5% of its assets in securities denominated in foreign
currencies, and may invest beyond this limit in U.S. dollar-denominated
securities of foreign issuers.
PIMCO Low Duration Fund invests in a diversified portfolio of fixed income
securities of varying maturities. The average portfolio duration of this Fund
will normally vary within a one- to three-year time frame based on the
Adviser's forecast for interest rates. The Fund may invest up to 10% of its
assets in fixed income securities that are rated below investment grade but
rated B or higher by Moody's or S&P (or, if unrated, determined by the Adviser
to be of comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Appendix B--
Description of Securities Ratings." The Fund 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. The total rate
of return for this Fund is expected to exhibit less volatility than that of the
PIMCO Moderate Duration Fund or the PIMCO Total Return Fund because its
duration will be shorter.
13
<PAGE>
PIMCO Low Duration Fund II has the same policies as the PIMCO Low Duration
Fund, except that its investments in fixed income securities are limited to
those of domestic (U.S.) issuers that are rated at least A by Moody's or S&P
(or, if unrated, determined by the Adviser to be of comparable quality).
PIMCO Low Duration Fund III has the same policies as the PIMCO Low Duration
Fund, except that it limits its investments with respect to certain socially
sensitive issues. As a matter of non-fundamental policy, the Fund will not
invest in the securities of any issuer determined by the Adviser to be engaged
principally in the provision of healthcare services, the manufacture of
alcoholic beverages, tobacco products, pharmaceuticals or military equipment,
or the operation of gambling casinos. The Fund will also avoid, to the extent
possible on the basis of information available to the Adviser, the purchase of
securities of issuers engaged in the production or trade of pornographic
materials. An issuer will be deemed to be principally engaged in an activity
if it derives more than 10% of its gross revenues from such activities.
PIMCO Moderate Duration Fund invests in a diversified portfolio of fixed
income securities of varying maturities. The average portfolio duration of
this Fund will normally vary within a two- to four-year time frame based on
the Adviser's forecast for interest rates. The Fund may invest up to 10% of
its assets in fixed income securities that are rated below investment grade
but rated B or higher by Moody's or S&P (or, if unrated, determined by the
Adviser to be of comparable quality). For information on the risks associated
with investments in securities rated below investment grade, see "Appendix B--
Description of Securities Ratings." The Fund 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. The total
rate of return for this Fund is expected to exhibit less volatility than that
of the PIMCO Total Return Fund because its duration will normally be shorter.
However, the total rate of return for this Fund is expected to exhibit more
volatility than that of the PIMCO Low Duration Fund because its duration will
normally be longer.
PIMCO High Yield Fund invests under normal circumstances at least 65% of its
assets in a diversified portfolio of fixed income securities rated lower than
Baa by Moody's or lower than BBB by S&P but rated at least B by Moody's or S&P
(or, if unrated, determined by the Adviser to be of comparable quality). Such
securities are colloquially referred to as "junk bonds." The remainder of the
Fund's assets may be invested in investment grade fixed income securities
(i.e., securities rated at least Baa by Moody's or BBB by S&P, or, if unrated,
deemed by the Adviser to be of comparable quality). The average portfolio
duration of this Fund will normally vary within a two- to six-year time frame
depending on the Adviser's view of the potential for total return offered by a
particular duration strategy. The Fund may invest in securities of foreign
issuers, but only those that are U.S. dollar-denominated. The Fund may also
engage in hedging strategies involving equity options.
Investments in high yield securities, while generally providing greater
potential opportunity for capital appreciation and higher yields than
investments in higher rated securities, also entail greater risk, including
the possibility of default or bankruptcy of the issuer of such securities.
Risk of default or bankruptcy may be greater in periods of economic
uncertainty or recession, as the issuers of high yield securities may be less
able to withstand general economic downturns. The Adviser seeks to reduce risk
through diversification, credit analysis and attention to current developments
and trends in both the economy and financial markets. The value of all fixed
income securities, including those held by the Fund, can be expected to change
inversely with interest rates. For a further discussion of the special risks
of investing in lower rated securities, see "Characteristics and Risks of
Securities and Investment Techniques--High Yield Securities."
PIMCO Total Return Fund invests under normal circumstances at least 65% of
its assets in a diversified portfolio of fixed income securities of varying
maturities. The average portfolio duration of this Fund will normally vary
within a three- to six-year time frame based on the Adviser's forecast for
interest rates. The Fund may invest up to 10% of its assets in fixed income
securities that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by the Adviser to be of comparable
quality). For information on the risks associated with investments in
securities rated below investment grade, see "Appendix B--Description of
Securities Ratings." The Fund may also 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. Portfolio holdings
will be concentrated in areas of the bond market (based on quality, sector,
coupon or maturity) which the Adviser believes to be relatively undervalued.
The total rate of return for this Fund is expected to exhibit less volatility
than that of the PIMCO Long-Term U.S. Government Fund because its duration
will normally be shorter.
14
<PAGE>
PIMCO FUNDS
PIMCO Total Return Fund II has the same policies as the PIMCO Total Return
Fund, except that its investments in fixed income securities are limited to
those of domestic (U.S.) issuers that are rated at least Baa by Moody's or BBB
by S&P (or, if unrated, determined by the Adviser to be of comparable quality).
PIMCO Total Return Fund III has the same policies as the PIMCO Total Return
Fund, except that it limits its investments with respect to certain socially
sensitive issues in the same manner as the PIMCO Low Duration Fund III.
PIMCO Commercial Mortgage Securities Fund invests at least 65% of its assets
in commercial mortgage-backed securities rated at least Baa by Moody's or BBB
by S&P (or, if unrated, determined by the Adviser to be of comparable quality).
The Fund also may invest up to 35% of its assets in lower-rated securities (but
rated at least B, or, if unrated, determined by the Adviser to be of comparable
quality) if such securities are considered by the Adviser to have attractive
investment characteristics. For information on the risks associated with
investments in securities rated below investment grade, see "Appendix B--
Description of Securities Ratings." The average portfolio duration of this Fund
will normally vary within a three- to eight-year time frame depending on the
Adviser's view of the potential for total return offered by a particular
duration strategy. The Fund may invest in securities of foreign issuers, but
only those that are U.S. dollar-denominated.
PIMCO Long-Term U.S. Government Fund invests in a diversified portfolio of
primarily U.S. Government securities, 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
Fund will have a minimum average portfolio duration of eight years. For point
of reference, the dollar-weighted average portfolio maturity of the Fund is
normally expected to be more than ten years. The total rate of return is
expected to exhibit more volatility than that of the other Fixed Income Funds
due to the greater investment risk normally associated with longer duration
investments. The PIMCO Long-Term U.S. Government Fund's investments in fixed
income securities are limited to those of U.S. dollar-denominated securities of
domestic and foreign issuers that are rated at least A by Moody's or S&P (or,
if unrated, determined by the Adviser to be of comparable quality). In
addition, the Fund will not acquire a security if, as a result, more than 10%
of the Fund's total assets would be invested in securities rated below Aa by
Moody's or below AA by S&P, or if more than 25% of the Fund's total assets
would be invested in securities rated Aa by Moody's or AA by S&P.
PIMCO Foreign Bond Fund invests in a portfolio of fixed income securities
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 Fund in a number of international bond markets so
that, under normal circumstances, the Fund will invest at least 85% of its
assets in securities 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 Fund may
invest up to 10% of its assets in fixed income securities that are rated below
investment grade but rated B or higher by Moody's or S&P (or, if unrated,
determined by the Adviser to be of comparable quality). For information on the
risks associated with investments in securities rated below investment grade,
see "Appendix B--Description of Securities Ratings." The average portfolio
duration of this Fund will normally vary within a three- to six-year time
frame.
PIMCO Global Bond Fund invests in a portfolio of fixed income securities
denominated in major foreign currencies, baskets of foreign currencies (such as
the ECU), and the U.S. dollar. Under normal circumstances, at least 65% of its
assets will be invested in fixed income securities of issuers located in at
least three countries (one of which may be the United States), 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. Depending on the Adviser's current opinion as to the
proper allocation of assets among domestic and foreign issuers, investments in
the securities of issuers located outside the United States will normally vary
between 25% and 75% of the Fund's assets. The Fund may invest up to 10% of its
assets in fixed income securities that are rated below investment grade but
rated B or higher by Moody's or S&P (or, if unrated, determined by the Adviser
to be of comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Appendix B--
Description of Securities Ratings." The average portfolio duration of this Fund
will normally vary within a three- to eight-year time frame.
PIMCO Global Bond Fund II has the same policies as the PIMCO Global Bond
Fund, except as set forth below. The average portfolio duration of the PIMCO
Global Bond Fund II will normally vary within a three- to
15
<PAGE>
six-year time frame, and the Fund expects to hedge its foreign currency
exposure so that generally no more than 25% of the Fund's total net assets
will be invested in unhedged foreign currency denominated securities. The
PIMCO Global Bond Fund II may not borrow in excess of 10% of the value of its
total assets and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) or for extraordinary or
emergency purposes. The PIMCO Global Bond Fund II may only engage in short
sales that are "against the box," and may not loan its portfolio securities if
their market value exceeds 25% of the total assets of the Fund. In addition,
the PIMCO Global Bond Fund II is subject to different fundamental and non-
fundamental investment restrictions than the PIMCO Global Bond Fund. See
"Investment Restrictions" in this Prospectus and in the Statement of
Additional Information.
The PIMCO Foreign Bond Fund differs from the PIMCO Global Bond and Global
Bond II Funds primarily in the extent to which assets are invested in the
securities of issuers located outside the United States. The Adviser will
select these Funds' 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.
PIMCO International Bond Fund invests in a portfolio of fixed income
securities denominated in major foreign currencies, baskets of foreign
currencies, and the U.S. dollar. The PIMCO International Bond Fund is
available only to private account clients of PIMCO. The Adviser will invest
the assets of the Fund in a number of international bond markets so that,
under normal conditions, the Fund will invest at least 65% of its assets in
fixed income securities of foreign issuers representing at least three foreign
countries or currencies, 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 PIMCO
International Bond Fund will invest only in investment grade securities, i.e.,
in securities rated at least Baa by Moody's or BBB by S&P (or, if unrated,
deemed by the Adviser to be of comparable quality). The average portfolio
duration of this Fund will vary based on the strategy currently being used by
the Adviser in managing the assets of the Fund within the overall PIMCO
private account management program, but is normally not expected to exceed
eight years. The Adviser will select the Fund's foreign country and currency
composition based on its evaluation of relative interest rates, inflation
rates, exchange rates, monetary and fiscal policies, trade and current account
balances, and any other specific factors the Adviser believes to be relevant.
Each of the Foreign Bond, Global Bond, Global Bond II and International Bond
Funds must normally invest at least 65% of its total assets in "bonds." For
this purpose, each of these Funds considers the various types of debt or fixed
income securities in which it invests, as specifically described elsewhere in
this Prospectus, to be "bonds" as referenced in that Fund's name. The use of
this name is not meant to restrict a Fund's investment to the narrow category
of debt securities that are formally called "bonds."
As a non-fundamental, operating policy, the Adviser intends to use foreign
currency-related derivative instruments (currency futures and related options,
currency options, forward contracts and swap agreements) in an effort to hedge
foreign currency risk with respect to at least 75% of the assets of the Fixed
Income Funds (other than the PIMCO Global Bond Fund) denominated in currencies
other than the U.S. dollar. There can be no assurance that the Adviser will be
successful in doing so. The active use of currency derivatives involves
transaction costs which may adversely effect yield and return.
The PIMCO Commercial Mortgage Securities, Foreign Bond, Global Bond, Global
Bond II and International Bond Funds are "non-diversified" for purposes of the
Investment Company Act of 1940 ("1940 Act"), meaning that they may invest a
greater percentage of their assets in the securities of one issuer than the
other Funds. As "non-diversified" portfolios, these Funds may be more
susceptible to risks associated with a single economic, political or
regulatory occurrence than a diversified portfolio might be.
EQUITY FUNDS
The Equity Funds are the PIMCO StocksPLUS Fund and the PIMCO StocksPLUS
Short Strategy Fund. The investment objective of PIMCO StocksPLUS Fund is to
seek to achieve a total return which exceeds the total return performance of
the S&P 500 Index. The investment objective of the PIMCO StocksPLUS Short
Strategy Fund is to seek total return through the implementation of short
investment positions on the S&P 500 Index.
Each of the Equity Funds invests in common stocks, options, futures, options
on futures and swaps consistent with its portfolio management strategy as set
forth below. Assets not invested in equity securities may
16
<PAGE>
PIMCO FUNDS
be invested in securities eligible for purchase by the Fixed Income Funds. Each
of the Equity Funds may invest up to 10% of its assets in fixed income
securities that are below "investment grade," i.e., rated below Baa by Moody's
or BBB by S&P, but at least B (or, if unrated, determined by the Adviser to be
of comparable quality). In addition, each of the Equity Funds may lend its
portfolio securities to brokers, dealers and other financial institutions in
order to earn income. Each of the Equity Funds may invest all of its assets in
derivative instruments, as described below and under "Characteristics of
Securities and Investment Techniques--Derivative Instruments." Each of the
Equity Funds may invest up to 20% of its assets in securities of foreign
issuers, may purchase and sell options and futures on foreign currencies, and
may enter into forward currency contracts.
The Equity Funds differ in composition or strategy as follows:
PIMCO StocksPLUS Fund invests only in common stocks that are represented in
the S&P 500 ("S&P 500 stocks"), stock index futures, options on stock indexes,
and options on stock index futures that are based on the S&P 500 and swap
agreements with respect to the S&P 500 ("S&P 500 derivatives"). StocksPLUS is
the name of a proprietary portfolio management strategy which utilizes S&P 500
derivatives in addition to or in place of S&P 500 stocks to equal or exceed the
performance of the S&P 500. The Fund will seek to remain invested in S&P 500
stocks and S&P 500 derivatives even when the S&P 500 is declining.
The percentage of the PIMCO StocksPLUS Fund's assets invested directly in S&P
500 stocks will vary depending primarily on whether S&P 500 derivatives appear,
in the Adviser's opinion, overvalued or undervalued with respect to the stocks
underlying the S&P 500. The Fund may invest up to 100% of its assets in S&P 500
derivatives. The Fund will maintain a segregated account consisting of assets
determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees, or otherwise maintain offsetting
positions to cover its open positions in S&P 500 derivatives. The Adviser will
actively manage the fixed income assets serving as cover for derivatives, as
well as any other fixed income assets held by the Fund, with a view toward
enhancing the Fund's total return investment performance, subject to an overall
portfolio duration which is normally not expected to exceed one year. See
"Appendix A--Description of Duration."
The S&P 500 is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. Standard and Poor's ("S&P") chooses the
stocks to be included in the S&P 500 solely on a statistical basis. The
weightings of stocks in the index are based on each stock's relative total
market value, that is, its market price per share times the number of shares
outstanding. Stocks represented currently in the S&P 500 represent
approximately two-thirds of the total market value of all U.S. common stocks.
The Fund is neither sponsored by nor affiliated with S&P.
When S&P 500 derivatives appear to be overvalued relative to the S&P 500, the
Fund may invest up to 100% of its assets in a "basket" of S&P 500 stocks. The
composition of this basket will be determined by standard statistical
techniques that analyze the historical correlation between the return of every
stock currently in the S&P 500 and the return on the S&P 500 itself. The
Adviser may employ fundamental stock analysis only to choose among stocks that
have already satisfied the statistical correlation tests. Stocks chosen for the
Fund are not limited to those with any particular weighting in the S&P 500.
Positions in S&P 500 futures and options on futures will be entered into only
to the extent they constitute permissible positions for the Fund according to
applicable rules of the Commodity Futures Trading Commission ("CFTC"). From
time to time, the Adviser may be constrained in its ability to use S&P 500
derivatives either by requirements of the Internal Revenue Code or by an
unanticipated inability to close out positions when it would be most
advantageous to do so. A large number of investors use S&P 500 derivatives for
both hedging and speculative purposes, and although generally this helps
guarantee a liquid market in those instruments, at times liquidity may be
limited. For more information about S&P 500 derivatives, see "Characteristics
and Risks of Securities and Investment Techniques--Derivative Instruments."
PIMCO StocksPLUS Short Strategy Fund invests primarily in S&P 500 short
positions such that the Fund's net asset value is generally expected to vary
inversely to the value of the S&P 500. The Fund is designed for investors
seeking to take advantage of declines in the value of the S&P 500, or investors
wishing to hedge existing long equity positions. The Fund will generally
realize gains only when the price of the S&P 500 Index is declining. When the
S&P 500 is rising, the Fund will generally incur a loss.
The Fund will maintain short positions through the use of a combination of
S&P 500 derivatives, including options, futures and swap agreements. All S&P
500 derivatives will be covered by the maintenance of a
17
<PAGE>
segregated account consisting of assets determined to be liquid by the Adviser
in accordance with procedures established by the Board of Trustees, or through
the maintenance of offsetting positions. It is anticipated that the Fund will
generally remain fully invested in S&P 500 short positions at all times, even
during periods when the S&P 500 is rising. However, the Fund may purchase call
options on S&P 500 futures contracts from time to time in an effort to limit
the total potential decline in the Fund's net asset value. There can be no
assurance that the use of such call options would be effective in limiting the
potential decline in net asset value of the Fund.
The Adviser will actively manage the fixed income portion of the Fund's
investment portfolio that is used as coverage for the S&P 500 derivatives in
an attempt to provide incremental returns. Thus, there will not be a perfect
inverse correlation between the performance of the S&P 500 and the performance
of the Fund. A perfect inverse correlation would exist if the net asset value
of the Fund, including the value of its dividend and capital gains
distributions, increased in exact proportion to decreases in the S&P 500 (or
decreased in exact proportion to increases in the S&P 500). Rather, because of
the Adviser's management of the fixed income securities that are held by the
Fund as cover for the Fund's short positions, it is expected that, if the
value of the S&P 500 were to decrease by 10%, for example, the amount by which
the Fund's net asset value would increase would be an amount slightly in
excess of 10%. Conversely, an increase in the S&P 500 of 10% would result in a
loss to the Fund of slightly less than this amount. There can be no assurance
that the use of such active fixed income management techniques will produce
the intended results.
BALANCED FUNDS
PIMCO Strategic Balanced Fund has as its investment objective the
maximization of total return, consistent with preservation of capital and
prudent investment management. In seeking to achieve this objective, the Fund
invests in the securities eligible for purchase by the PIMCO StocksPLUS Fund
and the PIMCO Total Return Fund. The percentage of the Fund's assets allocated
to equity or fixed income exposure will vary in accordance with an asset
allocation methodology developed by the Adviser. The methodology builds upon
the Adviser's long-standing process of economic forecasting of business cycle
stages by applying to this process a disciplined asset allocation model which
employs certain statistical variance techniques. Depending on the outcome of
this asset allocation methodology, the Fund's equity exposure will vary
between 45% and 75% of its total assets, and its fixed income exposure will
vary between 25% and 55%. There can be no assurance that the Adviser's asset
allocation methodology will be successful.
TOTAL RETURN
The "total return" sought by certain of the Funds will consist of interest
and dividends from underlying securities, capital appreciation reflected in
unrealized increases in value of portfolio securities (realized by the
shareholder only upon selling shares), 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 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. When
interest rates are falling, a portfolio with a shorter duration generally will
not generate as high a level of total return as a portfolio with a longer
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
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PIMCO FUNDS
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.
INVESTMENT RESTRICTIONS
Each Fund's investment objective, except the PIMCO Global Fund II, as set
forth under "Investment Objectives and Policies," and the investment
restrictions set forth below are fundamental policies of the Fund and may not
be changed with respect to a Fund without shareholder approval by vote of a
majority of the outstanding shares of that Fund. Under these restrictions, a
Fund may not:
(1) (a) invest in a security if, as a result of such investment, more
than 25% of its total assets (taken at market value at the time of such
investment) would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply (a) to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements with respect thereto) and
(b) with respect to the Money Market Fund, to securities or obligations
issued by U.S. banks;
(b) for the Global Bond Fund II, concentrate more than 25% of the
value of its total assets in any one industry; (The SEC staff takes the
position that investments in government securities of a single foreign
country, including agencies and instrumentalities of such government, to
the extent such obligations are backed by the assets and revenues of such
government, represent investments in a separate industry for these
purposes.)
(2) with respect to 75% of its assets, invest in a security if, as a
result of such investment, more than 5% of its total assets (taken at
market value at the time of such investment) would be invested in the
securities of any one issuer, except that this restriction does not apply
to securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities (This investment restriction is not applicable to the
Commercial Mortgage Securities Fund, the Foreign Bond Fund, the Global Bond
Fund, the Global Bond Fund II or the International Bond Fund.);
(3) with respect to 75% of its assets, invest in a security if, as a
result of such investment, it would hold more than 10% (taken at the time
of such investment) of the outstanding voting securities of any one issuer
(This restriction is not applicable to the Commercial Mortgage Securities
Fund, the Foreign Bond Fund, the Global Bond Fund, the Global Bond Fund II
or the International Bond Fund.);
(4)(a) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate or interests therein;
(b) for the Global Bond Fund II, purchase or sell real estate, although
it may purchase securities of issuers which deal in real estate, including
securities of real estate investment trusts, and may purchase securities
which are secured by interests in real estate;
(5) purchase or sell commodities or commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit a Fund, subject to
restrictions described in this Prospectus and in the Statement of
Additional Information, from purchasing, selling or entering into futures
contracts, options on futures contracts, foreign currency forward
contracts, foreign currency options, or any interest rate, securities-
related or foreign currency-related hedging instrument, including swap
agreements and other derivative instruments, subject to compliance with any
applicable provisions of the federal securities or commodities laws (this
restriction is not applicable to the Global Bond Fund II.);
(6) for the High Yield, Total Return III, International Bond and
StocksPLUS Funds: purchase securities on margin, except for use of short-
term credit necessary for clearance of purchases and sales of portfolio
securities, but it may make margin deposits in connection with transactions
in options, futures, and options on futures;
(7)(a) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that a Fund may (i) borrow from banks or
enter into reverse repurchase agreements, or employ similar investment
techniques, and pledge its assets in connection therewith, but only if
immediately after each
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borrowing there is asset coverage of 300% and (ii) enter into transactions
in options, futures, options on futures, and other derivative instruments
as described in this Prospectus and in the Statement of Additional
Information (the deposit of assets in escrow in connection with the writing
of covered put and call options and the purchase of securities on a when-
issued or delayed delivery basis, collateral arrangements with respect to
initial or variation margin deposits for futures contracts, and commitments
entered into under swap agreements or other derivative instruments will not
be deemed to be pledges of a Fund's assets);
(b) for the Global Bond Fund II, borrow money in excess of 10% of the
value (taken at the lower of cost or current value) of the Fund's total
assets (not including the amount borrowed) at the time the borrowing is
made, and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might otherwise
require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes; (Such borrowings will be repaid before
any additional investments are purchased.) or pledge, hypothecate, mortgage
or otherwise encumber its assets in excess of 10% of the Fund's total
assets (taken at cost) and then only to secure borrowings permitted above;
(The deposit of securities or cash or cash equivalents in escrow in
connection with the writing of covered call or put options, respectively,
is not deemed to be pledges or other encumbrances.) (For the purpose of
this restriction, collateral arrangements with respect to the writing of
options, futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not deemed to
be a pledge of assets and neither such arrangements nor the purchase or
sale of futures or related options are deemed to be the issuance of a
senior security.)
(8) lend any funds or other assets, except that a Fund may, consistent
with its investment objective and policies: (a) invest in debt obligations,
including bonds, debentures, or other debt securities, bankers' acceptances
and commercial paper, even though the purchase of such obligations may be
deemed to be the making of loans, (b) enter into repurchase agreements, and
(c) lend its portfolio securities in an amount not to exceed one-third of
the value of its total assets, provided such loans are made in accordance
with applicable guidelines established by the Securities and Exchange
Commission and the Trustees of the Trust. (This restriction is not
applicable to the Global Bond Fund II.)
(9)(a) act as an underwriter of securities of other issuers, except to
the extent that in connection with the disposition of portfolio securities,
it may be deemed to be an underwriter under the federal securities laws; or
(b) for the Global Bond Fund II, underwrite securities issued by other
persons except to the extent that, in connection with the disposition of
its portfolio investments, it may be deemed to be an underwriter under
federal securities laws; or
(10)(a) for the High Yield, Total Return III, and StocksPLUS Funds:
maintain a short position, or purchase, write or sell puts, calls,
straddles, spreads or combinations thereof, except as set forth in this
Prospectus and in the Statement of Additional Information for transactions
in options, futures, options on futures, and transactions arising under
swap agreements or other derivative instruments;
(b) for the Money Market, Short-Term, Low Duration, Low Duration II, Low
Duration III, Moderate Duration, Total Return, Total Return II, Commercial
Mortgage Securities, Long-Term U.S. Government, Foreign Bond, Global Bond,
International Bond, StocksPLUS Short Strategy, and Strategic Balanced
Funds: maintain a short position, or purchase, write or sell puts, calls,
straddles, spreads or combinations thereof, except on such conditions as
may be set forth in this Prospectus and in the Statement of Additional
Information.
Each Fund is also subject to non-fundamental restrictions and policies
(which may be changed without shareholder approval) relating to the investment
of its assets and activities. As indicated above, certain fundamental
investment restrictions do not apply to certain Funds. However, the Trust's
non-fundamental restrictions, set forth in the Statement of Additional
Information, may place comparable limitations on these Funds. See "Investment
Restrictions" in the Statement of Additional Information.
Unless otherwise indicated, all limitations applicable to Fund investments
(as stated above and elsewhere in this Prospectus and in the Statement of
Additional Information) apply only at the time a transaction is entered into.
Any subsequent change in a rating assigned by any rating service to a security
(or, if unrated, deemed to be
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PIMCO FUNDS
of comparable quality), or change in the percentage of Fund assets invested in
certain securities or other instruments, or change in the average duration of a
Fund's investment portfolio, resulting from market fluctuations or other
changes in a Fund's total assets will not require a Fund to dispose of an
investment until the Adviser determines that it is practicable to sell or close
out the investment without undue market or tax consequences to the Fund. In the
event that ratings services assign different ratings to the same security, the
Adviser will determine which rating it believes best reflects the security's
quality and risk at that time, which may be the higher of the several assigned
ratings.
CHARACTERISTICS AND RISKS OF SECURITIES AND INVESTMENT TECHNIQUES
The following describes in greater detail different types of securities and
investment techniques used by the individual Funds, and discusses certain
concepts relevant to the investment policies of the Funds. Additional
information about the Funds' investments and investment practices may be found
in the Statement of Additional Information.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. U.S. Government securities include securities
that have no coupons, or have been stripped of their unmatured interest
coupons, individual interest coupons from such securities that trade
separately, and evidences of receipt of such securities. Such securities may
pay no cash income, and are purchased at a deep discount from their value at
maturity. Because interest on zero coupon securities is not distributed on a
current basis but is, in effect, compounded, zero coupon securities tend to be
subject to greater market risk than interest-paying securities of similar
maturities. Custodial receipts issued in connection with so-called trademark
zero coupon securities, such as CATs and TIGRs, are not issued by the U.S.
Treasury, and are therefore not U.S. Government securities, although the
underlying bond represented by such receipt is a debt obligation of the U.S.
Treasury. Other zero coupon Treasury securities (STRIPs and CUBEs) are direct
obligations of the U.S. Government.
CORPORATE DEBT SECURITIES
Corporate debt securities include corporate bonds, debentures, notes and
other similar corporate debt instruments, including convertible securities.
Debt securities may be acquired with warrants attached. Corporate income-
producing securities may also include forms of preferred or preference stock.
The rate of interest 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 (rated below Baa (Moody's) or BBB (S&P)) are described as "speculative"
both by Moody's and S&P. Such securities are sometimes referred to as "junk
bonds," and may be subject to greater market fluctuations, less liquidity and
greater risk of loss of income or principal, including a greater possibility of
default or bankruptcy of the issuer of such securities, than are more highly
rated debt securities. Moody's also describes securities rated Baa as having
speculative characteristics. The Adviser seeks to minimize these risks through
diversification, in-depth credit analysis and attention to current developments
in interest rates and market conditions. See "Appendix B--Description of
Securities Ratings." Investments in high yield securities are discussed
separately below, see "High Yield Securities ("Junk Bonds")."
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VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate securities provide for a periodic adjustment in
the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The
adjustment intervals may be regular, and range from daily up to annually, or
may be event based, such as based on a change in the prime rate.
Each of the Fixed Income Funds may invest in floating rate debt instruments
("floaters"). The interest rate on a floater is a variable rate which is tied
to another interest rate, such as a money-market index or Treasury bill rate.
The interest rate on a floater resets periodically, typically every six
months. While, because of the interest rate reset feature, floaters provide a
Fund with a certain degree of protection against rises in interest rates, a
Fund will participate in any declines in interest rates as well.
Each of the Fixed Income Funds (except the PIMCO Money Market Fund) may also
invest in inverse floating rate debt instruments ("inverse floaters"). The
interest rate on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floating rate security may exhibit greater price volatility than a fixed rate
obligation of similar credit quality. The Funds have adopted a policy under
which no Fund will invest more than 5% of its net assets in any combination of
inverse floater, interest only ("IO"), or principal only ("PO") securities.
See "Mortgage-Related and Other Asset-Backed Securities" for a discussion of
IOs and POs.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
Each of the Funds (except the PIMCO Money Market Fund) may invest all of its
assets in mortgage- or asset-backed securities. The value of some mortgage- or
asset-backed securities in which the Funds invest may be particularly
sensitive to changes in prevailing interest rates, and, like the other
investments of the Funds, the ability of a Fund to successfully utilize these
instruments may depend in part upon the ability of the Adviser to forecast
interest rates and other economic factors correctly.
Mortgage Pass-Through Securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property
in which payments of both interest and principal on the securities are
generally made monthly, in effect "passing through" monthly payments made by
the individual borrowers on the mortgage loans which underlie the securities
(net of fees paid to the issuer or guarantor of the securities). Early
repayment of principal on some mortgage-related securities (arising from
prepayments of principal due to sale of the underlying property, refinancing,
or foreclosure, net of fees and costs which may be incurred) may expose a Fund
to a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, the value of the
premium would be lost in the event of prepayment. Like other fixed income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; however, when interest rates are declining, the value
of mortgage-related securities with prepayment features may not increase as
much as other fixed income securities. The rate of prepayments on underlying
mortgages will affect the price and volatility of a mortgage-related security,
and may have the effect of shortening or extending the effective maturity of
the security beyond what was anticipated at the time of purchase. To the
extent that unanticipated rates of prepayment on underlying mortgages increase
the effective maturity of a mortgage-related security, the volatility of such
security can be expected to increase.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government (in the case of securities
guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the
U.S. Government (in the case of securities guaranteed by FNMA or the Federal
Home Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers) may
be supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit, which may be
issued by governmental entities, private insurers or the mortgage poolers.
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PIMCO FUNDS
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. Similar to a bond, interest and pre-paid principal on a CMO are
paid, in most cases, semi-annually. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured
into multiple classes, with each class bearing a different stated maturity.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class; investors holding the longer
maturity classes receive principal only after the first class has been retired.
CMOs that are issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities will be considered U.S. Government securities by
the Funds, while other CMOs, even if collateralized by U.S. Government
securities, will have the same status as other privately issued securities for
purposes of applying a Fund's diversification tests.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property.
The market for commercial mortgage-backed securities developed more recently
and in terms of total outstanding principal amount of issues is relatively
small compared to the market for residential single-family mortgage-backed
securities. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans. These risks reflect the effects of local and other
economic conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
Commercial mortgage-backed securities may be less liquid and exhibit greater
price volatility than other types of mortgage- or asset-backed securities.
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, such as CMO residuals or
stripped mortgage-backed securities ("SMBS"), and may be structured in classes
with rights to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class),
while the other class will receive all of the principal (the principal-only, or
"PO" class). The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on a Fund's yield to maturity from these securities. The Funds
have adopted a policy under which no Fund will invest more than 5% of its net
assets in any combination of IO, PO, or inverse floater securities. The Funds
may invest in other asset-backed securities that have been offered to
investors. For a discussion of the characteristics of some of these
instruments, see the Statement of Additional Information.
REPURCHASE AGREEMENTS
For the purpose of achieving income, each of the Funds may enter into
repurchase agreements, which entail the purchase of a portfolio eligible
security from a bank or broker-dealer that agrees to repurchase the security at
the Fund's cost plus interest within a specified time (normally one day). If
the party agreeing to repurchase should default, as a result of bankruptcy or
otherwise, the Fund will seek to sell the securities which it holds, which
action could involve procedural costs or delays in addition to a loss on the
securities if their value should fall below their repurchase price. No Fund
will invest more than 15% of its net assets (10% in the case of the PIMCO Money
Market Fund) (taken at current market value) in repurchase agreements maturing
in more than seven days.
REVERSE REPURCHASE AGREEMENTS, DOLLAR ROLLS, AND OTHER BORROWINGS
A reverse repurchase agreement is a form of leverage that involves the sale
of a security by a Fund and its agreement to repurchase the instrument at a
specified time and price. The Fund will maintain a segregated account
consisting of assets determined to be liquid by the Adviser in accordance with
procedures established by the Board of Trustees, maturing not later than the
expiration of the reverse repurchase agreement, to cover its obligations under
reverse repurchase agreements.
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A Fund may enter into dollar rolls, in which the Fund sells mortgage-backed
or other securities for delivery in the current month and simultaneously
contracts to purchase substantially similar securities on a specified future
date. In the case of dollar rolls involving mortgage-backed securities, the
mortgage-backed securities that are purchased will be of the same type and
will have the same interest rate as those sold, but will be supported by
different pools of mortgages. The Fund forgoes principal and interest paid
during the roll period on the securities sold in a dollar roll, but the Fund
is compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the
proceeds of the securities sold. The Fund also could be compensated through
the receipt of fee income equivalent to a lower forward price. The Fund will
maintain a segregated account consisting of assets determined to be liquid by
the Adviser in accordance with procedures established by the Board of
Trustees, to cover its obligations under dollar rolls.
Dollar rolls and reverse repurchase agreements will be subject to the Funds'
limitations on borrowings, which will restrict the aggregate of such
transactions (plus any other borrowings) to 33 1/3% (for each Fund except the
PIMCO Global Bond Fund II ) of a Fund's total assets. Apart from transactions
involving reverse repurchase agreements and dollar rolls, a Fund will not
borrow money, except for temporary administrative purposes. The PIMCO Global
Bond Fund II may not borrow in excess of 10% of the value of its total assets
and then only from banks as a temporary measure to facilitate the meeting of
redemption requests (not for leverage) or for extraordinary or emergency
purposes.
LOANS OF PORTFOLIO SECURITIES
For the purpose of achieving income, the Funds may lend their portfolio
securities to brokers, dealers, and other financial institutions, provided:
(i) the loan is secured continuously by collateral consisting of U.S.
Government securities, cash or cash equivalents (negotiable certificates of
deposit, bankers' acceptances or letters of credit) maintained on a daily
mark-to-market basis in an amount at least equal to the current market value
of the securities loaned; (ii) the Fund may at any time call the loan and
obtain the return of the securities loaned; (iii) the Fund will receive any
interest or dividends paid on the loaned securities; and (iv) the aggregate
market value of securities loaned will not at any time exceed 33 1/3% (25% in
the case of the PIMCO Global Bond Fund II) of the total assets of the Fund.
DELAYED DELIVERY, WHEN-ISSUED, AND FORWARD COMMITMENT TRANSACTIONS
Each of the Funds may purchase or sell securities on a when-issued, delayed
delivery, or forward commitment basis. These transactions involve a commitment
by the Fund to purchase or sell securities for a predetermined price or yield,
with payment and delivery taking place more than seven days in the future, or
after a period longer than the customary settlement period for that type of
security. When such purchases are outstanding, the Fund will set aside and
maintain until the settlement date in a segregated account assets determined
to be liquid by the Adviser in accordance with procedures established by the
Board of Trustees, in an amount sufficient to meet the purchase price.
Typically, no income accrues on securities a Fund has committed to purchase
prior to the time delivery of the securities is made, although a Fund may earn
income on securities it has deposited in a segregated account. When purchasing
a security on a when-issued, delayed delivery, or forward commitment basis,
the Fund assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Fund is not required
to pay for the security until the delivery date, these risks are in addition
to the risks associated with the Fund's other investments. If the Fund remains
substantially fully invested at a time when when-issued, delayed delivery, or
forward commitment purchases are outstanding, the purchases may result in a
form of leverage. When the Fund has sold a security on a when-issued, delayed
delivery, or forward commitment basis, the Fund does not participate in future
gains or losses with respect to the security. If the other party to a
transaction fails to deliver or pay for the securities, the Fund could miss a
favorable price or yield opportunity or could suffer a loss. A Fund may
dispose of or renegotiate a transaction after it is entered into, and may sell
when-issued or forward commitment securities before they are delivered, which
may result in a capital gain or loss. There is no percentage limitation on the
extent to which the Funds may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis.
SHORT SALES
Each of the Funds (except the PIMCO High Yield, Total Return III and
StocksPLUS Funds), and particularly the PIMCO StocksPLUS Short Strategy Fund,
may from time to time effect short sales as part of their overall
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PIMCO FUNDS
portfolio management strategies, including the use of derivative instruments,
or to offset potential declines in value of long positions in similar
securities as those sold short. A short sale (other than a short sale against
the box) is a transaction in which a Fund sells a security it does not own at
the time of the sale in anticipation that the market price of that security
will decline. To the extent that a Fund engages in short sales, it must (except
in the case of short sales "against the box") maintain asset coverage in the
form of assets determined to be liquid by the Adviser in accordance with
procedures established by the Board of Trustees, in a segregated account, or
otherwise cover its position in a permissible manner. A short sale is "against
the box" to the extent that the Fund contemporaneously owns, or has the right
to obtain at no added cost, securities identical to those sold short. The PIMCO
Global Bond Fund II may only engage in short sales that are "against the box."
FOREIGN SECURITIES
Each of the Funds (except the PIMCO Low Duration II and Total Return II
Funds) may invest directly in fixed income securities of non-U.S. issuers. The
PIMCO Money Market, High Yield, Commercial Mortgage Securities and Long-Term
U.S. Government Funds may only invest in U.S. dollar-denominated fixed income
securities of non-U.S. issuers. Each of the Equity Funds may invest directly in
foreign equity securities.
Each of the Funds will limit its foreign investments to securities of issuers
based in developed countries (including Newly Industrialized Countries
("NICs"), such as Taiwan, South Korea and Mexico). The PIMCO Short-Term, Low
Duration and Low Duration III Funds limit their investments in securities of
issuers based in NICs to 5% of their assets, and the remaining Fixed Income
Funds (except the PIMCO Foreign Bond, Global Bond, Global Bond II and
International Bond Funds), and limit their investments in securities of issuers
based in NICs to 10% of their assets. Investing in the securities of issuers in
any foreign country involves special risks and considerations not typically
associated with investing in U.S. companies. Shareholders should consider
carefully the substantial risks involved in investing in securities issued by
companies and governments of foreign nations. 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.
Each of the Fixed Income Funds (except the PIMCO Low Duration II and Total
Return II Funds) may invest in Brady Bonds. Brady Bonds are securities created
through the exchange of existing commercial bank loans to sovereign entities
for new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady. Brady Bonds have been issued only recently, and for that
reason do not have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar), and are actively traded in the over-the-counter secondary market.
Brady Bonds are not considered to be U.S. Government securities. In light of
the residual risk of Brady Bonds and, among other factors, the history of
defaults with respect to commercial bank loans by public and private entities
in countries issuing Brady Bonds, investments in Brady Bonds may be viewed as
speculative. There can be no assurance that Brady Bonds acquired by a Fund will
not be subject to restructuring arrangements or to requests for new credit,
which may cause the Fund to suffer a loss of interest or principal on any of
its holdings. For further information, see the Statement of Additional
Information.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention
25
<PAGE>
(or the failure to intervene) by U.S. or foreign governments or central banks,
by currency controls or political developments in the U.S. or abroad.
Currencies in which the Funds' assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Funds.
All Funds 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 involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. By entering into a forward foreign currency contract, the Fund
"locks in" the exchange rate between the currency it will deliver and the
currency it will receive for the duration of the contract. As a result, a Fund
reduces its exposure to changes in the value of the currency it will deliver
and increases its exposure to changes in the value of the currency it will
exchange into. The effect on the value of a Fund is similar to selling
securities denominated in one currency and purchasing securities denominated
in another. Contracts to sell foreign currency would limit any potential gain
which might be realized by a Fund if the value of the hedged currency
increases. A Fund may enter into these contracts for the purpose of hedging
against foreign exchange risk arising from the Fund's investment or
anticipated investment in securities denominated in foreign currencies. A Fund
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. A Fund may use one currency (or a basket of
currencies) to hedge against adverse changes in the value of another currency
(or a basket of currencies) when exchange rates between the two currencies are
positively correlated. A Fund will segregate assets determined to be liquid by
the Adviser in accordance with procedures established by the Board of
Trustees, in a segregated account to cover forward currency contracts entered
into for non-hedging purposes.
All Funds that may invest in securities denominated in foreign currencies
may invest in options on foreign currencies and foreign currency futures and
options thereon. The Funds also may invest in foreign currency exchange-
related securities, such as foreign currency warrants and other instruments
whose return is linked to foreign currency exchange rates. Each Fund that may
invest in securities denominated in foreign currencies, except the PIMCO
Global Bond Fund, 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.
HIGH YIELD SECURITIES ("JUNK BONDS")
The PIMCO High Yield Fund invests at least 65% of its assets, and the PIMCO
Commercial Mortgage Securities Fund may invest up to 35% of its assets, in
fixed income securities rated lower than Baa by Moody's or lower than BBB by
S&P but rated at least B by Moody's or S&P (or, if not rated, of comparable
quality). In addition, each of the PIMCO Short-Term, Low Duration, Low
Duration III, Moderate Duration, Total Return, Total Return III, Foreign Bond,
Global Bond, Global Bond II, StocksPLUS, StocksPLUS Short Strategy and
Strategic Balanced Funds may invest up to 10% of its assets in such
securities. Securities rated lower than Baa by Moody's or lower than BBB by
S&P are sometimes referred to as "high yield" or "junk" bonds. Securities
rated Baa are considered by Moody's to have some speculative characteristics.
Investors should consider the following risks associated with high yield
securities before investing in these Funds.
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. Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and
the ability of a Fund to achieve its investment objective may, to the extent
of its investments in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than 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. A
projection of an economic downturn or of a period of rising
26
<PAGE>
PIMCO FUNDS
interest rates, for example, could cause a decline in high yield security
prices because the advent of a recession could lessen the ability of a highly
leveraged company to make principal and interest payments on its debt
securities. If the issuer of high yield securities defaults, a Fund may incur
additional expenses to seek recovery. In the case of high yield securities
structured as zero coupon or payment-in-kind securities, the market prices of
such securities are affected to a greater extent by interest rate changes, and
therefore tend to be more volatile than securities which pay interest
periodically and in cash.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations
in the daily net asset value of a Fund'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.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit
ratings in a timely fashion to reflect events since the security was last
rated. The Adviser does not rely solely on credit ratings when selecting
securities for the Funds, and develops its own independent analysis of issuer
credit quality. If a credit rating agency changes the rating of a portfolio
security held by a Fund, the Fund may retain the portfolio security if the
Adviser deems it in the best interest of shareholders.
During the year ended March 31, 1996 (September 30, 1996 for the PIMCO Global
Bond Fund II), based upon the dollar-weighted average ratings of the Funds'
portfolio holdings at the end of each month in the Funds' fiscal year, each
operational Fund that may invest greater than 5% of its assets in securities
rated below investment grade had the following percentages of its net assets
invested in securities rated in the categories indicated as rated by Moody's
(or, if unrated, determined by the Adviser to be of comparable quality). See
"Appendix B--Description of Securities Ratings," for further information.
<TABLE>
<CAPTION>
RATING
--------------------------------------------------------------
BELOW
FUND PRIME 1 AAA AA A PRIME 1 BAA BA B CAA
- ---- ------- ----- ----- ----- ------- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term 12.89% 46.13% 2.85% 17.35% 0.00% 10.96% 6.63% 2.87% 0.31%
Low Duration 9.65 58.17 2.80 10.10 0.00 8.02 10.71 0.54 0.00
High Yield 2.66 1.20 0.00 0.90 0.00 4.17 41.24 49.84 0.00
Total Return 9.80 62.57 6.12 7.35 0.00 5.92 6.23 2.00 0.01
Total Return III 10.22 69.93 1.91 6.49 0.00 4.78 5.36 1.31 0.00
Foreign Bond 2.72 46.26 30.18 8.62 0.51 2.88 5.18 3.65 0.00
Global Bond 15.05 40.36 29.03 5.45 0.50 2.62 2.06 4.92 0.00
Global Bond II*
StocksPLUS 10.17 59.79 4.28 6.45 0.00 11.00 7.60 0.72 0.00
</TABLE>
- --------
* Reflects portfolio holdings of the PIMCO Advisors Global Income Fund for its
fiscal year ended September 30, 1996. The Global Income Fund was reorganized
as the Trust's Global Bond Fund II on January , 1996.
These figures are intended solely to provide disclosure about each Fund's
asset composition during its most recent fiscal year. The asset composition
after this time may or may not be approximately the same as represented by such
figures. In addition, the categories reflect ratings by Moody's, and ratings
assigned by S&P may not be consistent with ratings assigned by Moody's or
other credit ratings services, and the Adviser may not necessarily agree with a
rating assigned by any credit rating agency.
DERIVATIVE INSTRUMENTS
To the extent permitted by the investment objectives and policies of the
Funds, the Funds may (except the PIMCO Money Market Fund) 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 as
further described below. The Funds (except the PIMCO Money Market Fund) also
may enter into swap agreements with respect to foreign currencies, interest
rates, and securities indexes. The Funds 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
27
<PAGE>
strategies. The Funds (except the PIMCO Money Market Fund) may also purchase
and sell options relating to foreign currencies for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another. Each Fund will maintain segregated
accounts consisting of assets determined to be liquid by the Adviser in
accordance with procedures established by the Board of Trustees, (or, as
permitted by applicable regulation, enter into certain offsetting positions)
to cover its obligations under options, futures, and swaps to avoid leveraging
of the Fund.
The Funds consider derivative instruments to consist of securities or other
instruments whose value is derived from or related to the value of some other
instrument or asset, and not to include those securities whose payment of
principal and/or interest depend upon cash flows from underlying assets, such
as mortgage- or asset-backed securities. Each Fund (except the PIMCO Money
Market Fund) may invest all of its assets in derivative instruments, subject
only to the Fund's investment objective and policies. The value of some
derivative instruments in which the Funds invest may be particularly sensitive
to changes in prevailing interest rates, and, like the other investments of
the Funds, the ability of a Fund to successfully utilize these instruments may
depend in part upon the ability of the Adviser to forecast interest rates and
other economic factors correctly. If the Adviser incorrectly forecasts such
factors and has taken positions in derivative instruments contrary to
prevailing market trends, the Funds could be exposed to the risk of loss.
The Funds might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If the Adviser
incorrectly forecasts interest rates, market values or other economic factors
in utilizing a derivatives strategy for a Fund, the Fund might have been in a
better position if it had not entered into the transaction at all. 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 due to the
possible inability of a Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need
for a Fund to sell a portfolio security at a disadvantageous time, because the
Fund is required to maintain asset coverage or offsetting positions in
connection with transactions in derivative instruments and the possible
inability of a Fund to close out or to liquidate its derivatives positions.
Options on Securities, Securities Indexes, and Currencies A Fund may
purchase put options on securities and indexes. One purpose of purchasing put
options is to protect holdings in an underlying or related security against a
substantial decline in market value. A Fund may also purchase call options on
securities and indexes. One purpose of purchasing call options is to protect
against substantial increases in prices of securities the Fund intends to
purchase pending its ability to invest in such securities in an orderly
manner. An option on a security (or index) is a contract that gives the holder
of the option, in return for a premium, the right to buy from (in the case of
a call) or sell to (in the case of a put) the writer of the option the
security underlying the option (or the cash value of the index) at a specified
exercise price at any time during the term of the option. The writer of an
option on a security has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to pay the
exercise price upon delivery of the underlying security. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. An index is designed to reflect specified
facets of a particular financial or securities market, a specific group of
financial instruments or securities, or certain economic indicators.
A Fund may sell put or call options it has previously purchased, which could
result in a net gain or loss depending on whether the amount realized on the
sale is more or less than the premium and other transaction costs paid on the
put or call option which is sold. A Fund may write a call or put option only
if the option is "covered" by the Fund holding a position in the underlying
securities or by other means which would permit immediate satisfaction of the
Fund's obligation as writer of the option. Prior to exercise or expiration, an
option may be closed out by an offsetting purchase or sale of an option of the
same series.
The Funds may write covered straddles consisting of a combination of a call
and a put written on the same underlying security. A straddle will be covered
when sufficient assets are deposited to meet the Funds' immediate obligations.
The Funds may use the same liquid assets to cover both the call and put
options where the exercise price of the call and put are the same, or the
exercise price of the call is higher than that of the put. In such cases, the
Funds will also segregate liquid assets equivalent to the amount, if any, by
which the put is "in the money."
28
<PAGE>
PIMCO FUNDS
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if
the market price of the underlying security remains equal to or greater than
the exercise price (in the case of a put), or remains less than or equal to the
exercise price (in the case of a call), the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security. There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options markets, a Fund may be
unable to close out a position.
Funds that invest in foreign currency-denominated securities may buy or sell
put and call options on foreign currencies. Currency options traded on U.S. or
other exchanges may be subject to position limits which may limit the ability
of a Fund to reduce foreign currency risk using such options. Over-the-counter
options differ from traded options in that they are two-party contracts with
price and other terms negotiated between buyer and seller and generally do not
have as much market liquidity as exchange-traded options. The Funds may be
required to treat as illiquid over-the-counter options purchased and securities
being used to cover certain written over-the-counter options.
Swap Agreements The Funds may enter into interest rate, index, equity and
currency exchange rate swap agreements. These transactions would be entered
into in an attempt to obtain a particular return when it is considered
desirable to do so, possibly at a lower cost to the Fund than if the Fund had
invested directly in the asset that yielded the desired return. Swap agreements
are two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments, which may be adjusted for an interest factor. The gross returns to
be exchanged or "swapped" between the parties are generally calculated with
respect to a "notional amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index. Forms of swap agreements include interest rate caps, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates exceed a specified rate, or "cap"; interest
rate floors, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates fall below a specified
level, or "floor"; and interest rate collars, under which a party sells a cap
and purchases a floor or vice versa in an attempt to protect itself against
interest rate movements exceeding given minimum or maximum levels.
Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based
on the relative values of the positions held by each party to the agreement
(the "net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against amounts owed to the Fund), and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of assets determined to be
liquid by the Adviser in accordance with procedures established by the Board of
Trustees, to avoid any potential leveraging of the Fund's portfolio.
Obligations under swap agreements so covered will not be construed to be
"senior securities" for purposes of the Funds' investment restriction
concerning senior securities. A Fund will not enter into a swap agreement with
any single party if the net amount owed or to be received under existing
contracts with that party would exceed 5% of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Adviser's ability to predict correctly
whether certain types of investments are likely to produce greater returns than
other investments. Because they are two-party contracts and because they may
have terms of greater than seven days, swap agreements may be considered to be
illiquid investments. Moreover, a Fund bears
29
<PAGE>
the risk of loss of the amount expected to be received under a swap agreement
in the event of the default or bankruptcy of a swap agreement counterparty.
The Funds will enter into swap agreements only with counterparties that meet
certain standards for creditworthiness (generally, such counterparties would
have to be eligible counterparties under the terms of the Funds' repurchase
agreement guidelines). Certain restrictions imposed on the Funds by the
Internal Revenue Code may limit the Funds' ability to use swap agreements. The
swaps market is a relatively new market and is largely unregulated. It is
possible that developments in the swaps market, including potential government
regulation, could adversely affect a Fund's ability to terminate existing swap
agreements or to realize amounts to be received under such agreements.
Futures Contracts and Options on Futures Contracts Each of the Fixed Income
Funds (except the PIMCO Money Market Fund) may invest in interest rate futures
contracts and options thereon ("futures options"), and to the extent they can
invest in foreign currency-denominated securities, may also invest in foreign
currency futures contracts and options thereon. Each of the Equity Funds and
the PIMCO Strategic Balanced Fund may invest in interest rate, stock index and
foreign currency futures contracts and options thereon.
There are several risks associated with the use of futures and futures
options for hedging purposes. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the
portfolio securities being hedged. An incorrect correlation could result in a
loss on both the hedged securities in a Fund and the hedging vehicle so that
the portfolio return might have been greater had hedging not been attempted.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or a futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid market for any reason may prevent a Fund from
liquidating an unfavorable position, and the Fund would remain obligated to
meet margin requirements until the position is closed.
The Funds may write covered straddles consisting of a call and a put written
on the same underlying futures contract. A straddle will be covered when
sufficient assets are deposited to meet the Funds' immediate obligations. A
Fund may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise
price of the call is higher than that of the put. In such cases, the Funds
will also segregate liquid assets equivalent to the amount, if any, by which
the put is "in the money."
The Funds will only enter into futures contracts or futures options which
are standardized and traded on a U.S. or foreign exchange or board of trade,
or similar entity, or quoted on an automated quotation system. Each Fund will
use financial futures contracts and related options only for "bona fide
hedging" purposes, as such term is defined in applicable regulations of the
Commodity Futures Trading Commission ("CFTC"), or, with respect to positions
in financial futures and related options that do not qualify as "bona fide
hedging" positions, will enter such positions only to the extent that
aggregate initial margin deposits plus premiums paid by it for open futures
option positions, less the amount by which any such positions are "in-the-
money," would not exceed 5% of the Fund's net assets.
ILLIQUID SECURITIES
Each of the Funds may invest up to 15% of its net assets in illiquid
securities (10% in the case of the PIMCO Money Market Fund). Certain illiquid
securities may require pricing at fair value as determined in good faith under
the supervision of the Board of Trustees. The Adviser may be subject to
significant delays in disposing of illiquid securities, and transactions in
illiquid securities may entail registration expenses and other transaction
costs that are higher than transactions in liquid securities. The term
"illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which a Fund has valued the securities. Illiquid
securities are considered to include, among other things, written over-the-
counter options, securities or other liquid assets being used as cover for
such options, repurchase agreements with maturities in excess of seven days,
certain loan participation interests, fixed time deposits which are not
subject to prepayment or provide for withdrawal penalties upon prepayment
30
<PAGE>
PIMCO FUNDS
(other than overnight deposits), securities that are subject to legal or
contractual restrictions on resale (such as privately placed debt securities)
and other securities whose disposition is restricted under the federal
securities laws (other than securities issued pursuant to Rule 144A under the
Securities Act of 1933 and certain commercial paper that PIMCO has determined
to be liquid under procedures approved by the Board of Trustees).
MANAGEMENT OF THE TRUST
The business affairs of the Trust are managed under the direction of the
Board of Trustees. The Trustees are Guilford C. Babcock, Thomas P. Kemp, Brent
R. Harris, Vern O. Curtis, and William J. Popejoy. Additional information about
the Trustees and the Trust's executive officers may be found in the Statement
of Additional Information under the heading "Management--Trustees and
Officers."
INVESTMENT ADVISER
Pacific Investment Management Company ("PIMCO") serves as investment adviser
("Adviser") to the Funds pursuant to an investment advisory contract. The
Adviser is an investment counseling firm founded in 1971, and had approximately
$ billion in assets under management as of November 30, 1996. PIMCO is a
subsidiary partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). A majority
interest in PIMCO Advisors is held by PIMCO Partners, G.P., a general
partnership between Pacific Investment Management Company, a California
corporation and indirect wholly owned subsidiary of Pacific Mutual Life
Insurance Company ("Pacific Mutual"), and PIMCO Partners, LLC, a limited
liability company controlled by the PIMCO Managing Directors. PIMCO's address
is 840 Newport Center Drive, Suite 360, 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.
The Adviser manages the investment and reinvestment of the assets of each
Fund. The Adviser is responsible for placing orders for the purchase and sale
of each Fund's investments directly with brokers or dealers selected by it in
its discretion. See "Portfolio Transactions."
Information about the individual portfolio managers responsible for
management of the Trust's currently operational Funds, including their
occupations for the past five years, is provided below.
<TABLE>
<CAPTION>
PORTFOLIO MANAGER AND BUSINESS EXPERIENCE (PAST
FUND FIVE YEARS)
---- -----------------------------------------------
<C> <S>
Money Market Fund Leslie Barbi, Vice President, PIMCO. A Fixed
Income Portfolio Manager, Ms. Barbi has managed
the PIMCO Money Market Fund since November 1,
1995. Prior to joining PIMCO in 1993, Ms. Barbi
was associated with Salomon Brothers as a
proprietary Portfolio Manager.
Short-Term Fund David H. Edington, Managing Director, PIMCO. A
StocksPLUS Fund Fixed Income Portfolio Manager, Mr. Edington
Strategic Balanced Fund joined PIMCO in 1987 and has managed the PIMCO
Short-Term, StocksPLUS, and Strategic Balanced
Funds since their inception, October 7, 1987,
May 14, 1993, and June 28, 1996, respectively.
Low Duration Fund William H. Gross, Managing Director, PIMCO. A
Low Duration Fund II Fixed Income Portfolio Manager, Mr. Gross is
Total Return Fund one of the founders of PIMCO and has managed
Total Return Fund II the PIMCO Low Duration, Low Duration II, Total
Total Return Fund III Return, Total Return II and Total Return III
Funds since their inception, May 11, 1987,
November 1, 1991, May 11, 1987, December 30,
1991, and May 1, 1991, respectively.
High Yield Fund Benjamin Trosky, Managing Director, PIMCO. A
Fixed Income Portfolio Manager, Mr. Trosky
joined PIMCO in 1990 and has managed the PIMCO
High Yield Fund since its inception, December
16, 1992.
Long-Term U.S. Government Fund Frank B. Rabinovitch, Managing Director, PIMCO.
A Fixed Income Portfolio Manager, Mr.
Rabinovitch joined PIMCO in 1984 and has
managed the PIMCO Long-Term U.S. Government
Fund since its inception, July 1, 1991.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO MANAGER AND BUSINESS EXPERIENCE (PAST FIVE
FUND YEARS)
---- ----------------------------------------------------
<C> <S>
Foreign Bond Fund Lee R. Thomas, III, Executive Vice President and
Global Bond Fund Senior International Portfolio Manager, PIMCO. A Fixed
Global Bond Fund II Income Portfolio Manager, Mr. Thomas has managed the
International Bond Fund PIMCO Foreign Bond, Global Bond and International Bond
Funds since July 13, 1995, and the PIMCO Global Bond
Fund II since October 1, 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>
FUND ADMINISTRATOR
PIMCO also serves as administrator to the Funds pursuant to an
administration agreement. PIMCO provides administrative services to the Funds,
which include clerical help and accounting, bookkeeping, internal audit
services, and certain other services required by the Funds, preparation of
reports to the Funds' shareholders and regulatory filings. In addition, PIMCO,
at its own expense, arranges for the provision of legal, audit, custody,
transfer agency and other services for the Funds, and is responsible for the
costs of registration of the Trust's shares and the printing of prospectuses
and shareholder reports for current shareholders.
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; (vii) expenses,
such as organizational expenses, which are capitalized in accordance with
generally accepted accounting principles; and (viii) any expenses allocated or
allocable to a specific class of shares, which include fees payable with
respect to the Administrative Class shares and may include certain other
expenses as permitted by the Trust's Multi-Class Plan adopted pursuant to Rule
18f-3 under the 1940 Act and subject to review and approval by the Trustees.
ADVISORY AND ADMINISTRATIVE FEES
The PIMCO Funds feature fixed advisory and administrative fee rates. For
providing investment advisory and administrative services to the Funds as
described above, PIMCO receives monthly fees from each Fund at an annual rate
based on the average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
ADVISORY
FUND FEE RATE
---- --------
<S> <C>
Money Market Fund............................................ 0.15%
Commercial Mortgage Securities, StocksPLUS, StocksPLUS Short
Strategy, and Strategic Balanced Funds...................... 0.40%
All other Funds.............................................. 0.25%
<CAPTION>
ADMINISTRATIVE
FUND (INSTITUTIONAL AND ADMINISTRATIVE CLASS) FEE RATE
--------------------------------------------- --------------
<S> <C>
Money Market Fund and Short-Term Fund........................ 0.20%
Low Duration Fund and Total Return Fund...................... 0.18%
Global Bond and Global Bond II Funds......................... 0.30%
All other Funds.............................................. 0.25%
</TABLE>
Both the investment advisory contract and administration agreement for the
Funds may be terminated by the Trustees at any time on 60 days' written
notice. The investment advisory contract may be terminated by PIMCO on 60
days' written notice. Following the expiration of the two-year period
commencing with the effectiveness of the administration agreement, it may be
terminated by PIMCO on 60 days' written notice. Following their initial two-
year terms, the investment advisory contract and administration agreement will
continue from year to year if approved by the Trustees.
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PIMCO FUNDS
SERVICE FEES
The Trust has adopted an Administrative Services Plan and a Distribution Plan
(the "Plans") with respect to the Administrative Class shares of each Fund.
Under the terms of each Plan, the Trust is permitted to reimburse, out of the
Administrative Class assets of each Fund, in an amount up to 0.25% on an annual
basis of the average daily net assets of that class, financial intermediaries
that provide services in connection with the distribution of shares or
administration of plans or programs that use Fund shares as their funding
medium, and to reimburse certain other distribution-related expenses. The same
entity may not receive both distribution and administrative services fees with
respect to the same assets but may with respect to separate assets receive fees
under both a Distribution Plan and Administrative Services Plan. Fees paid
pursuant to either type of Plan may be paid for shareholder service and the
maintenance of accounts and therefore may constitute "service fees" for
purposes of applicable rules of the National Association of Securities Dealers,
Inc. Each Plan has been adopted in accordance with the requirements of Rule
12b-1 under the 1940 Act and will be administered in accordance with the
provisions of that rule, except that shareholders will not have the voting
rights set forth in Rule 12b-1 with respect to the Administrative Services Plan
that they will have with respect to the Distribution Plan. For more complete
disclosure regarding the Plans and their terms, see the Statement of Additional
Information.
Institutional Class shares of the Trust may also be offered through certain
brokers and financial intermediaries ("service agents") that have established a
shareholder servicing relationship with the Trust on behalf of their customers.
The Trust pays no compensation to such entities. Service agents may impose
additional or different conditions on the purchase or redemption of Trust
shares by their customers and may charge their customers transaction or other
account fees on the purchase and redemption of Trust shares. Each service agent
is responsible for transmitting to its customers a schedule of any such fees
and information regarding any additional or different conditions regarding
purchases and redemptions. Shareholders who are customers of service agents
should consult their service agent for information regarding these fees and
conditions.
DISTRIBUTOR
Shares of the Trust are distributed through PIMCO Funds Distribution Company
(the "Distributor"), an indirect wholly owned subsidiary of PIMCO Advisors. The
Distributor, which is located at 2187 Atlantic Street, Stamford, Connecticut
06902, is a broker-dealer registered with the SEC.
PURCHASE OF SHARES
Each Fund offers its shares in five classes: "Institutional Class,"
"Administrative Class," "Class A," "Class B," and "Class C." This Prospectus
relates only to the Institutional Class and Administrative Class shares of the
Funds. For information regarding Class A, Class B, and Class C shares, see
"Other Information--Multiple Classes of Shares" below.
Shares of the Institutional Class are offered primarily for direct investment
by investors such as pension and profit-sharing plans, employee benefit trusts,
endowments, foundations, corporations and other institutions. They also are
offered through certain financial intermediaries that charge their customers
transaction or other fees with respect to their customers' investment in the
Funds. Shares of the Administrative Class are offered primarily through
employee benefit plan alliances and each Fund pays service fees to such
entities for services they provide to shareholders of that Class.
Shares of either the Institutional Class or the Administrative Class of the
Funds may be purchased at the relevant net asset value of that class without a
sales charge. The minimum initial investment for shares of either class is
$5,000,000. Shares of either class may also be offered to clients of the
Adviser and its affiliates. Shares of the PIMCO International Bond Fund are
offered only to clients of PIMCO who maintain separately managed private
accounts.
Pension and profit-sharing plans, employee benefit trusts and employee
benefit plan alliances and "wrap account" programs established with broker-
dealers or financial intermediaries may purchase shares of either class only if
the plan or program for which the shares are being acquired will maintain an
omnibus or pooled account for each Fund and will not require a Fund to pay any
type of administrative payment per participant account to any third party.
33
<PAGE>
Shares of the Institutional Class may also be offered through fee-based
programs sponsored and maintained by a registered broker-dealer and approved
by the Distributor pursuant to which each investor pays an asset based fee at
an annual rate of at least .50% of the assets in the account to a financial
intermediary for investment advisory and/or administrative services.
INITIAL INVESTMENT
An account may be opened by completing and signing a Client Registration
Application and mailing it to PIMCO Funds at the following address: 840
Newport Center Drive, Suite 360, Newport Beach, California 92660. A Client
Registration Application may be obtained by calling (800) 800-0952.
Except as provided below, purchases of shares can only be made by wiring
federal funds to Investors Fiduciary Trust Company (the "Transfer Agent"), 127
West 10th Street, Kansas City, Missouri 64105. Before wiring federal funds,
the investor must first telephone the Trust at (800) 927-4648 to receive
instructions for wire transfer, and the following information will be
requested: name of authorized person; shareholder name; shareholder account
number; name of Fund and share class; amount being wired; and wiring bank
name.
Shares may be purchased without first wiring federal funds if the proceeds
of the investment are derived from an advisory account maintained by the
investor with PIMCO, PIMCO Advisors or one of their affiliates; from surrender
or other payment from an annuity, insurance, or other contract held by Pacific
Mutual Life Insurance Company; or from an investment by broker-dealers,
institutional clients or other financial intermediaries which have established
a shareholder servicing relationship with the Trust on behalf of their
customers.
All purchase orders are effected at the relevant net asset value for that
class next determined after receipt of the purchase order. A purchase order,
together with payment in proper form, received by the Transfer Agent prior to
the close of business (ordinarily 4:00 p.m., Eastern time; 3:00 p.m., Eastern
time for the PIMCO StocksPLUS, StocksPLUS Short Strategy and Strategic
Balanced Funds) 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 business will
be effected at the net asset value determined on the next business day. The
Trust is "open for business" on each day the New York Stock Exchange is open
for trading, which excludes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Purchase orders will be accepted only on
days on which the Trust is open for business.
With respect to the Funds whose policy is to declare dividends daily (i.e.,
each of the Fixed Income Funds except the PIMCO International Bond Fund), if a
purchase order for shares is received prior to 12:00 noon, Eastern time, and
payment in federal funds is received by the Transfer Agent by the close of the
federal funds wire on the day the purchase order is received, dividends will
accrue starting that day. If a purchase order is received after 12:00 noon,
Eastern time, and payment in federal funds is received by the Transfer Agent
by the close of the federal funds wire on the day the purchase order is
received, or as otherwise agreed to by the Trust, the order will be effected
at that day's net asset value, but dividends will not begin to accrue until
the following business day.
ADDITIONAL INVESTMENTS
Additional investments may be made at any time at the relevant net asset
value for that class by calling the Trust and wiring federal funds to the
Transfer Agent as outlined above.
OTHER PURCHASE INFORMATION
Purchases of a Fund's Institutional Class and Administrative Class shares
will be made in full and fractional shares. In the interest of economy and
convenience, certificates for shares will not be issued.
The Trust and the Distributor each reserves the right, in its sole
discretion, to suspend the offering of shares of the Funds or to reject any
purchase order, in whole or in part, when, in the judgment of management, such
suspension or rejection is in the best interests of the Trust; to waive the
minimum initial investment for certain investors; and to redeem shares if
information provided in the Client Registration Application should prove to be
incorrect in any manner judged by the Trust to be material (e.g., in a manner
such as to render the shareholder ineligible to purchase shares of the Trust).
Purchases and sales of Fund shares should be made for long-term investment
purposes only. The Trust and Adviser each reserves the right to restrict
purchases of Fund shares (including exchanges) when a pattern of frequent
purchases and sales made in response to short-term fluctuations in share price
appears evident.
Institutional Class and Administrative Class shares of the Trust are not
qualified or registered for sale in all states. Prospective investors should
inquire as to whether shares of a particular Fund are available for offer and
34
<PAGE>
PIMCO FUNDS
sale in their state of residence. Shares of the Trust may not be offered or
sold in any state unless registered or qualified in that jurisdiction or unless
an exemption from registration or qualification is available.
Investors may, subject to the approval of the Trust, purchase shares of a
Fund with liquid securities that are eligible for purchase by the Fund
(consistent with such Fund's investment policies and restrictions) and that
have a value that is readily ascertainable in accordance with the Trust's
valuation policies. These transactions will be effected only if the Adviser
intends to retain the security in the Fund as an investment. Assets so
purchased by a Fund will be valued in generally the same manner as they would
be valued for purposes of pricing the Fund's shares, if such assets were
included in the Fund's assets at the time of purchase. The Trust reserves the
right to amend or terminate this practice at any time.
RETIREMENT PLANS
Shares of the Funds are available for purchase by retirement plans, including
Keogh plans, 401(k) plans, 403(b) plans and Individual Retirement Accounts. The
administrator of a plan or employee benefits office can provide participants or
employees with detailed information on how to participate in the plan and how
to elect a Fund as an investment option. Participants in a retirement or
savings plan may be permitted to elect different investment options, alter the
amounts contributed to the plan, or change how contributions are allocated
among investment options in accordance with the plan's specific provisions. The
plan administrator or employee benefits office should be consulted for details.
For questions about participant accounts, participants should contact their
employee benefits office, the plan administrator, or the organization that
provides recordkeeping services for the plan. Investors who purchase shares
through retirement plans should be aware that plan administrators may aggregate
purchase and redemption orders for participants in the plan. Therefore, there
may be a delay between the time the investor places his order with the plan
administrator, and the time the order is forwarded to the Transfer Agent for
execution.
REDEMPTION OF SHARES
REDEMPTIONS BY MAIL
Institutional Class and Administrative Class shares may be redeemed by
submitting a written request to PIMCO Funds, 840 Newport Center Drive, Suite
360, Newport Beach, California 92660, stating the Fund from which the shares
are to be redeemed, the class of shares, the number or dollar amount of the
shares to be redeemed and the account number. The request must be signed
exactly as the names of the registered owners appear on the Trust's account
records, and the request must be signed by the minimum number of persons
designated on the Client Registration Application that are required to effect a
redemption. In order to discourage short-term trading, the PIMCO StocksPLUS
Short Strategy Fund imposes a redemption fee, payable to the Fund, of 1% on all
shares of the Fund held for less than three months.
REDEMPTIONS BY TELEPHONE OR OTHER WIRE COMMUNICATION
If an election is made on the Client Registration Application (or
subsequently in writing), redemptions of shares may be requested by calling the
Trust at (800) 927-4648, by sending a facsimile to (714) 760-4456, or by other
means of wire communication. Investors should state the Fund and class from
which the shares are to be redeemed, the number or dollar amount of the shares
to be redeemed and the account number. Redemption requests of an amount of
$10,000,000 or more may be initiated by telephone, but must be confirmed in
writing by an authorized party prior to processing.
In electing a telephone redemption, the investor authorizes PIMCO and the
Transfer Agent to act on telephone instructions from any person representing
himself to be the investor, and reasonably believed by PIMCO and the Transfer
Agent to be genuine. Neither the Trust nor its Transfer Agent will be liable
for any loss, cost or expense for acting on instructions (whether in writing or
by telephone) believed by the party receiving such instructions to be genuine
and in accordance with the procedures described in this Prospectus.
Shareholders should realize that by electing the telephone or wire redemption
option, they may be giving up a measure of security that they might have if
they were to redeem their shares in writing. Furthermore, interruptions in
telephone service may mean that a shareholder will be unable to effect a
redemption by telephone when desired. The Transfer Agent provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone instructions are genuine (written confirmation is also
provided for
35
<PAGE>
redemption requests received in writing). All telephone transactions are
recorded, and PIMCO or the Transfer Agent may request certain information in
order to verify that the person giving instructions is authorized to do so.
All redemptions, whether initiated by letter or telephone, will be processed
in a timely manner and proceeds will be forwarded by wire in accordance with
the redemption policies of the Trust detailed below. See "Redemption of
Shares--Other Redemption Information."
Shareholders may decline telephone exchange or redemption privileges after
an account is opened by instructing the Transfer Agent in writing at least
seven business days prior to the date the instruction is to be effective.
Shareholders may experience delays in exercising telephone redemption
privileges during periods of abnormal market activity. During periods of
volatile economic or market conditions, shareholders may wish to consider
transmitting redemption orders by telegram, facsimile or overnight courier.
OTHER REDEMPTION INFORMATION
Payment of the redemption price will ordinarily be wired to the investor's
bank one business day after the tender request in the case of the Fixed Income
Funds and the PIMCO Strategic Balanced Fund, and three business days after the
tender request in the case of the Equity Funds, but may take up to seven
business days. Redemption proceeds will be sent by wire only to the bank name
designated on the Client Registration Application. The Trust may suspend the
right of redemption or postpone the payment date at times when the New York
Stock Exchange is closed, or during certain other periods as permitted under
the federal securities laws.
For shareholder protection, a request to change information contained in an
account registration (for example, a request to change the bank designated to
receive wire redemption proceeds) must be received in writing, signed by the
minimum number of persons designated on the Client Registration Application
that are required to effect a redemption, and accompanied by a signature
guarantee from any eligible guarantor institution, as determined in accordance
with the Trust's procedures. Shareholders should inquire as to whether a
particular institution is an eligible guarantor institution. A signature
guarantee cannot be provided by a notary public. In addition, corporations,
trusts and other institutional organizations are required to furnish evidence
of the authority of the persons designated on the Client Registration
Application to effect transactions for the organization.
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem Institutional Class and Administrative Class
shares in any account for their then-current value (which will be promptly
paid to the investor) if at any time, due to redemption by the investor, the
shares in the account do not have a value of at least $100,000 ($10,000 with
respect to accounts opened before January 1, 1995). A shareholder will receive
advance notice of a mandatory redemption and will be given at least 30 days to
bring the value of its account up to at least $100,000, or $10,000, as the
case may be.
The Trust agrees to redeem shares of each Fund solely in cash up to the
lesser of $250,000 or 1% of the net assets during any 90-day period for any
one shareholder. In consideration of the best interests of the remaining
shareholders, the Trust reserves the right to pay any redemption proceeds
exceeding this amount in whole or in part by a distribution in kind of
securities held by a Fund in lieu of cash. 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.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for shares of the same class of any other
Fund based on the respective net asset values of the shares involved, except
that shares of the PIMCO International Fund are available only to private
account clients of PIMCO. An exchange may be made by following the redemption
procedure described above under "Redemptions by Mail" or, if the telephone
redemption option has been elected, by calling the Trust at (800) 927-4648.
Shares of a Fund may also be exchanged for shares of the same class of a
series of the PIMCO Funds: Multi-Manager Series, an affiliated mutual fund
family comprised primarily of equity portfolios managed by the subsidiary
partnerships of PIMCO Advisors. Shareholders interested in such an exchange
may request a prospectus for these funds by contacting the PIMCO Funds at the
same address and telephone number as the Trust.
36
<PAGE>
PIMCO FUNDS
Exchanges may be made only with respect to Funds, or PIMCO Funds: Multi-
Manager Series, registered in the state of residence of the investor or where
an exemption from registration is available. An exchange order is treated the
same as a redemption followed by a purchase and may result in a capital gain or
loss for tax purposes, and special rules may apply in computing tax basis when
determining gain or loss. See "Taxation" in the Statement of Additional
Information.
The Trust reserves the right to modify or revoke the exchange privilege of
any shareholder or to limit or reject any exchange. Although each Fund will
attempt to give shareholders prior notice whenever it is reasonably able to do
so, it may impose these restrictions at any time.
PORTFOLIO TRANSACTIONS
Pursuant to the advisory contract, the Adviser places orders for the purchase
and sale of portfolio investments for the Funds' accounts with brokers or
dealers selected by it in its discretion. In effecting purchases and sales of
portfolio securities for the account of the Funds, the Adviser will seek the
best price and execution of the Funds' orders. In doing so, a Fund may pay
higher commission rates than the lowest available when the Adviser believes it
is reasonable to do so in light of the value of the brokerage and research
services provided by the broker effecting the transaction. The Adviser also may
consider sales of shares of the Trust as a factor in the selection of broker-
dealers to execute portfolio transactions for the Trust.
The Adviser manages the Funds without regard generally to restrictions on
portfolio turnover, except those imposed on its ability to engage in short-term
trading by provisions of the federal tax laws. The use of futures contracts and
other derivative instruments with relatively short maturities may tend to
exaggerate the portfolio turnover rate for some of the Funds. Trading in fixed
income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. The use of futures
contracts may involve the payment of commissions to futures commission
merchants. The higher the rate of portfolio turnover of a Fund, the higher all
these transaction costs borne by the Fund generally will be.
Some securities considered for investment by the Funds may also be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of a Fund 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 Fund and clients in
a manner deemed fair and reasonable by the Adviser.
NET ASSET VALUE
The net asset value per share of each of the Institutional Class and
Administrative Class of each Fund is determined as of the close of trading on
the New York Stock Exchange (ordinarily 4:00 p.m., Eastern time) by dividing
the total market value of a Fund's portfolio investments and other assets
attributable to that class, less any liabilities, by the number of total
outstanding shares of that class. Net asset value will not be determined on
days on which the New York Stock Exchange is closed.
The PIMCO Money Market Fund's securities are normally valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity. See the Statement of
Additional Information for a description of certain conditions and procedures
followed by the PIMCO Money Market Fund in connection with amortized cost
valuation. For all other Funds, 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, at
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 60 days or less), are normally
valued on the basis of quotations obtained from brokers and dealers or pricing
services, which take into account appropriate factors such as institutional-
sized trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data.
37
<PAGE>
Quotations of foreign securities in foreign currency are converted to U.S.
dollar equivalents using foreign exchange quotations received from independent
dealers. 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.
Each Fund's liabilities are allocated among its classes. The total of such
liabilities allocated to a class plus that class' distribution and/or
servicing fees and any other expenses specially allocated to that class are
then deducted from the class' proportionate interest in the Fund's assets, and
the resulting amount for each class is divided by the number of shares of that
class outstanding to produce the "net asset value" per share. Under certain
circumstances, the per share net asset value of the Administrative Class
shares of the Funds that do not declare regular income dividends on a daily
basis may be lower than the per share net asset value of the Institutional
Class shares as a result of the daily expense accruals of the service fee
applicable to the Administrative Class shares. Generally, for Funds that pay
income dividends, those dividends are expected to differ over time by
approximately the amount of the expense accrual differential between a
particular Fund's classes.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Shares begin earning dividends on the effective date of purchase, provided
notification deadlines are met. See "Purchase of Shares." For the Fixed Income
Funds (other than the PIMCO International Bond Fund), dividends are declared
daily from net investment income to shareholders of record at the close of the
previous business day, and distributed to shareholders monthly. The PIMCO
International Bond, Strategic Balanced and Equity Funds intend to declare and
pay as a dividend substantially all of their 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 yearly. Dividend
and capital gain distributions of a Fund will be reinvested in additional
shares of that Fund unless the shareholder elects to have them paid in cash.
Dividends from net investment income with respect to Administrative Class
shares will be lower than those paid with respect to Institutional Class
shares, reflecting the payment of service fees by that class.
Each Fund intends to qualify as a regulated investment company annually and
to elect to be treated as a regulated investment company under the Internal
Revenue Code of 1986, as amended. As such, a Fund 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 Fund intends to
distribute each year substantially all of its net income and gains.
Distributions received by tax-exempt shareholders will not be subject to
federal income tax to the extent permitted under applicable tax law. To the
extent that a shareholder is not exempt from tax on Fund distributions, such
shareholder will be subject to tax on dividends received from a Fund,
regardless of whether received in cash or reinvested in additional shares. All
shareholders must treat dividends, other than capital gain dividends or
dividends that represent a return of capital to shareholders, as ordinary
income. Dividends designated by a Fund as capital gain dividends are taxable
to shareholders as long-term capital gain except as provided by an applicable
tax exemption. Any distributions that are not from a Fund's net investment
income or net capital gain may be characterized as a return of capital to
shareholders or, in some cases, as capital gain. Certain dividends declared in
October, November or December of a calendar year are taxable to shareholders
(who otherwise are subject to tax on dividends) as though received on December
31 of that year if paid to shareholders during January of the following
calendar year. For state income tax purposes, interest on some Federal
obligations generally is not exempt from taxation, whether received directly
by a shareholder or through distributions of investment company taxable income
(for example, interest on FNMA and GNMA Certificates). Each Fund will advise
shareholders annually of the amount and nature of the dividends paid to them.
Taxable shareholders should note that the timing of their investment could
have undesirable tax consequences. If shares are purchased on or just before
the day the Fund declares a dividend, taxable shareholders will pay full price
for the shares and may receive a portion of their investment back as a taxable
distribution.
The preceding discussion relates only to federal income tax; the
consequences under other tax laws may differ. For additional information
relating to the tax aspects of investing in a Fund, see the Statement of
Additional Information.
38
<PAGE>
PIMCO FUNDS
OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on February 19,
1987. The Board of Trustees may establish additional portfolios in the future.
The capitalization of the Trust consists solely of an unlimited number of
shares of beneficial interest with a par value of $0.0001 each. When issued,
shares of the Trust are fully paid, non-assessable and freely transferable.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for
indemnification out of Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. The risk
of a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Trust itself would be unable to meet
its obligations, and thus should be considered remote.
MULTIPLE CLASSES OF SHARES
In addition to Institutional Class and Administrative Class shares, each Fund
offers Class A shares, Class B shares, and Class C shares. These other classes
of the Funds may have different sales charges and expense levels, which will
affect performance. Investors may contact the Distributor at (800) 426-0107 for
more information concerning other classes of shares of the Funds. This
Prospectus relates only to the Institutional Class shares and Administrative
Class shares of the Funds.
VOTING
Shareholders have the right to vote on the election of Trustees and on any
and all matters on which the law or the Declaration of Trust states they may be
entitled to vote. The Trust is not required to hold regular annual meetings of
Trust shareholders and does not intend to do so. Shareholders of a class of
shares have separate voting rights with respect to matters that only affect
that class. See "Other Information--Voting Rights" in the Statement of
Additional Information.
The Declaration of Trust provides that the holders of not less than two-
thirds of the outstanding shares of the Trust may remove a person serving as
Trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust.
Shares entitle their holders to one vote per share (with proportionate voting
for fractional shares). As of , 1996, St. Johns Hospital (Santa Monica,
California) owned a controlling interest (as that term is defined in the 1940
Act) of the PIMCO Money Market Fund; Pacific Mutual Life Insurance Company
(Newport Beach, California), owned a controlling interest of the PIMCO Total
Return Fund II; Archdiocese of Los Angeles (Los Angeles, California) owned a
controlling interest of the PIMCO Total Return Fund III; Firemans Fund
Insurance (New York, New York) owned a controlling interest of the PIMCO Long-
Term U.S. Government Fund; and Southern California Edison (Rosemead,
California) and Charles Schwab & Co., Inc. (San Francisco, California) owned
controlling interests of the PIMCO Foreign Bond Fund. As used in this
Prospectus, the phrase "vote of a majority of the outstanding shares" of a Fund
(or the Trust) means the vote of the lesser of: (1) 67% of the shares of the
Fund (or the Trust) present at a meeting, if the holders of more than 50% of
the outstanding shares are present in person or by proxy; or (2) more than 50%
of the outstanding shares of the Fund (or the Trust).
PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and total return for each
class of shares of its Funds in advertisements or reports to shareholders or
prospective investors. Yield quotations for the PIMCO Money
39
<PAGE>
Market Fund may include current yield and effective yield. Current yield will
be based on income received by a hypothetical investment over a given seven-
day period (less expenses accrued during the period) and "annualized" (i.e.,
assuming that the seven-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment). Effective yield for
the Fund is calculated in the manner similar to that used to calculate current
yield, but reflects the compounding effect on earnings of reinvested
dividends. For the remaining Funds, quotations of yield for a Fund or class
will be based on the investment income per share (as defined by the SEC)
during a particular 30-day (or one-month) period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period. Quotations of average
annual total return for a Fund or class will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund or class over periods of one, five and ten years (up to the life of the
Fund), reflect the deduction of a proportional share of Fund or class expenses
(on an annual basis), and assume that all dividends and distributions are
reinvested when paid.
The Trust also may provide current distribution information to its
shareholders in shareholder reports or other shareholder communications, or in
certain types of sales literature provided to prospective investors. Current
distribution information for a particular class of a Fund will be based on
distributions for a specified period (i.e., total dividends from net
investment income), divided by the relevant class net asset value per share on
the last day of the period and annualized. The rate of current distributions
does not reflect deductions for unrealized losses from transactions in
derivative instruments such as options and futures, which may reduce total
return. Current distribution rates differ from standardized yield rates in
that they represent what a class of a Fund has declared and paid to
shareholders as of the end of a specified period rather than the Fund's actual
net investment income for that period.
Performance information for the Trust may also be compared to various
unmanaged indices, such as the Standard & Poor's 500 Composite Stock Price
Index, the Lehman Brothers Aggregate Bond Index, the Merrill Lynch 1 to 3 Year
Treasury Index, the Lehman Intermediate and 20+ Year Treasury Blend Index, the
Lehman BB Intermediate Corporate Index, indexes prepared by Lipper Analytical
Services, the J.P. Morgan Global Index, the Salomon Brothers World Government
Bond Index-10 Non U.S.-Dollar Hedged and the J.P. Morgan Government Bond Index
Non U.S.-Dollar Hedged, and other entities or organizations which track the
performance of investment companies or investment advisers. Unmanaged indexes
(i.e., other than Lipper) generally do not reflect deductions for
administrative and management costs and expenses. PIMCO may also report to
shareholders or to the public in advertisements concerning the performance of
PIMCO as adviser to clients other than the Trust, and on the comparative
performance or standing of PIMCO in relation to other money managers. Such
comparative information may be compiled or provided by independent ratings
services or by news organizations. Any performance information, whether
related to the Funds or to the Adviser, should be considered in light of a
Fund's investment objectives and policies, characteristics and quality of the
portfolio, and the market conditions during the time period indicated, and
should not be considered to be representative of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the Funds, see the Statement of Additional Information.
Investment results of the Funds will fluctuate over time, and any
presentation of the Funds' total return or yield for any prior period should
not be considered as a representation of what an investor's total return or
yield may be in any future period. The Trust's Annual Report contains
additional performance information for the Funds and is available upon
request, without charge, by calling (800) 927-4648 (Current Shareholders), or
(800) 800-0952 (New Accounts).
40
<PAGE>
PIMCO FUNDS
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 prior to 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
prior to 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 Fund'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. 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.
A-1
<PAGE>
PIMCO FUNDS
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
Certain of the Funds make use of average portfolio credit quality standards
to assist institutional investors whose own investment guidelines limit their
investments accordingly. In determining a Fund's overall dollar-weighted
average quality, unrated securities are treated as if rated, based on the
Adviser's view of their comparability to rated securities. A Fund'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
Fund does not mean that all securities held by the Fund will be rated in that
category or higher. A Fund's investments may range in quality from securities
rated in the lowest category in which the Fund is permitted to invest to
securities rated in the highest category (as rated by Moody's or S&P or, if
unrated, determined by the Adviser to be of comparable quality). The percentage
of a Fund's assets invested in securities in a particular rating category will
vary. Following is a description of Moody's and S&P's ratings applicable to
fixed income securities.
MOODY'S INVESTORS SERVICE, INC.
CORPORATE AND MUNICIPAL BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present that make the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
B-1
<PAGE>
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
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.
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.
B-2
<PAGE>
PIMCO FUNDS
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating will also be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional ratings: The letter "p" indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
r: The "r" is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.
N.R.: Not rated.
B-3
<PAGE>
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.
B-4
<PAGE>
LOGO
PIMCO FUNDS
Pacific Investment Management Series
INVESTMENT ADVISER AND ADMINISTRATOR
Pacific Investment Management Company
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, MO 64105
ACCOUNTANTS
Price Waterhouse LLP
1055 Broadway
Kansas City, MO 64105
COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W., Suite 500
Washington, DC 20005
PROSPECTUS
- --------------------------------------------------------------------------------
January 14, 1997
<PAGE>
PIMCO FUNDS
- ---------------- PROSPECTUS
January 14, 1997
Pacific BOND FUNDS
Investment
Management -Total Return Fund
Series -Total Return Fund II
-Total Return Fund III
-Commercial Mortgage Securities Fund
-High Yield Fund
-Long-Term U.S. Government Fund
-Moderate Duration Fund
SHORT-TERM BOND FUNDS
-Low Duration Fund
-Low Duration Fund II
-Low Duration Fund III
-Short-Term Fund
-Money Market Fund
INTERNATIONAL BOND FUNDS
-Foreign Bond Fund
-Global Bond Fund
-Global Bond Fund II
-International Bond Fund
STOCK FUNDS
-StocksPLUS Fund
-StocksPLUS Short Strategy
STOCK AND BOND FUNDS
-Strategic Balanced Fund
P I M C O (LOGO)
<PAGE>
PIMCO Funds: Pacific Investment Management Series
PROSPECTUS
January 14, 1997
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PIMCO Funds (the "Trust") is an open-end series management investment company
offering nineteen separate investment portfolios (each a "Fund") with different
investment objectives and strategies. Each of the nineteen Funds are described
herein. The Trust is designed to provide access to the professional investment
management services offered by Pacific Investment Management Company ("Pacific
Investment Management"), which serves as investment adviser (the "Adviser") to
the Funds. The address of PIMCO Funds is 840 Newport Center Drive, Suite 360,
Newport Beach, CA 92660.
Each Fund offers three classes of shares in this Prospectus: Class A shares
(generally sold subject to an initial sales charge), Class B shares (sold
subject to a contingent deferred sales charge) and Class C shares (sold subject
to an asset based sales charge). Through a separate prospectus, the Funds offer
two additional classes of shares, Institutional Class shares and Administrative
Class shares. See "Alternative Purchase Arrangements" below.
EACH OF THE FUNDS, EXCEPT THE MONEY MARKET FUND, MAY INVEST ALL OF ITS ASSETS IN
DERIVATIVE INSTRUMENTS, SOME OF WHICH MAY BE PARTICULARLY SENSITIVE TO CHANGES
IN PREVAILING INTEREST RATES. UNEXPECTED CHANGES IN INTEREST RATES MAY ADVERSELY
AFFECT THE VALUE OF A FUND'S INVESTMENTS IN PARTICULAR DERIVATIVE
INSTRUMENTS.
This Prospectus concisely describes the information investors should know before
investing in Class A, Class B or Class C shares of the Funds. Please read this
Prospectus carefully and keep it for further reference.
Information about the investment objective of each Fund, along with a detailed
description of the types of securities in which each Fund may invest and of
investment policies and restrictions applicable to each Fund, is set forth in
this Prospectus. There can be no assurance that the investment objective of any
Fund will be achieved. Because the market value of the Funds' investments will
change, the investment returns and net asset value per share of each Fund also
will vary.
A Statement of Additional information dated January 14, 1997, as supplemented
from time to time, is available free of charge by writing to PIMCO Funds
Distribution Company, 2187 Atlantic Street, Stamford, Connecticut 06902, or by
telephoning 800-426-0107. The Statement of Additional Information, which
contains more detailed information about the Trust, has been filed with the
Securities and Exchange Commission (the "SEC") and is incorporated by reference
in this Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, AND THE SHARES ARE NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
INVESTMENT IN THE MONEY MARKET FUND (OR IN ANY OTHER FUND) IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
THE HIGH YIELD FUND MAY INVEST ALL OF ITS ASSETS, AND THE COMMERCIAL MORTGAGE
SECURITIES FUND MAY INVEST UP TO 35% OF ITS ASSETS, IN JUNK BONDS, WHICH ARE
SUBJECT TO HIGH RISK, AND SPECULATIVE WITH REGARD TO PAYMENT OF INTEREST AND
RETURN OF PRINCIPAL. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING IN THESE FUNDS. SEE "CHARACTERISTICS AND RISKS OF SECURITIES AND
INVESTMENT TECHNIQUES-HIGH YIELD SECURITIES ("JUNK BONDS")."
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary........................................................... X
Schedule of Fees............................................................. X
Financial Highlights......................................................... X
Investment Objectives and Policies........................................... X
Characteristics and Risks of Securities and Investment Techniques............ X
Performance Information...................................................... X
How to Buy Shares............................................................ X
General...................................................................... X
Alternative Purchase Arrangements............................................ X
Exchange Privilege........................................................... X
How to Redeem................................................................ X
Distributor and Distribution and Servicing Plans............................. X
How Net Asset Value is Determined............................................ X
Distributions................................................................ X
Taxes........................................................................ X
Management of the Trust...................................................... X
Description of the Trust..................................................... X
Mailings to Shareholders..................................................... X
Appendix A - Description of Duration......................................... X
Appendix B - Description of Securities Ratings............................... X
</TABLE>
<PAGE>
PIMCO Funds: Pacific Investment Management Series
Prospectus Summary
Pacific Investment Management Company (the "Adviser") is the investment adviser
of all of the Funds. Pacific Investment Management Company is one of the premier
fixed income investment management firms in the U.S. As of September 30, 1996,
Pacific Investment Management Company had over $83 billion in assets under
management. Pacific Investment Management Company invests in all sectors of the
fixed income market, using its total return philosophy--seeking capital
appreciation as well as yield.
PIMCO FUND PROFILES
<TABLE>
<CAPTION>
PIMCO PRIMARY
FUND NAME OBJECTIVE DURATION CREDIT QUALITY/1/
==================================================================================================================================
<S> <C> <C> <C> <C>
BOND FUNDS Total Return Maximum total-return, consistent Intermediate High
with preservation of capital (3-6 years)
-----------------------------------------------------------------------------------------------------
Total Return II Maximum total-return, consistent Intermediate High
with preservation of capital (3-6 years)
-----------------------------------------------------------------------------------------------------
Total Return III Maximum total-return, consistent Intermediate High
with preservation of capital (3-6 years)
-----------------------------------------------------------------------------------------------------
Commercial Mortgage Maximum total-return, consistent Intermediate Medium
Securities with preservation of capital (3-8 years)
-----------------------------------------------------------------------------------------------------
High Yield Maximum total-return, consistent Intermediate Low
with presentation of capital (3-6 years)
-----------------------------------------------------------------------------------------------------
Long-Term U.S. Government Maximum total-return, consistent Long High
with preservation of capital (8+ years)
-----------------------------------------------------------------------------------------------------
Moderate Duration Maximum total-return, consistent Intermediate High
with preservation of capital (2-4 years)
==================================================================================================================================
SHORTER-TERM BOND FUNDS Low Duration Maximum total-return, consistent Short High
with preservation of capital (1-3 years)
-----------------------------------------------------------------------------------------------------
Low Duration II Maximum total-return, consistent Short High
with preservation of capital (1-3 years)
-----------------------------------------------------------------------------------------------------
Low Duration III Maximum total-return, consistent Short High
with preservation of capital (1-3 years)
-----------------------------------------------------------------------------------------------------
Short-Term Maximum current income, consistent Short High
with preservation of capital and (up to 1 year)
daily liquidity
-----------------------------------------------------------------------------------------------------
Money Market Maximum current income, consistent Short High
with preservation of capital and (up to 90 days)
daily liquidity
==================================================================================================================================
INTERNATIONAL BOND FUNDS Foreign Bond Maximum total-return, consistent Intermediate High
with preservation of capital (non-U.S.) (3-6 years)
-----------------------------------------------------------------------------------------------------
Global Bond Maximum total-return, consistent Intermediate High
with preservation of capital (U.S. (3-8 years)
and non-U.S.)
-----------------------------------------------------------------------------------------------------
Global Bond II Maximum total-return, consistent Intermediate High
with preservation of capital (U.S. (3-6 years)
and non-U.S.)
-----------------------------------------------------------------------------------------------------
International Bond Maximum total-return, consistent Intermediate High
with preservation of capital (U.S. (not to exceed
and non-U.S.) 8 years)
==================================================================================================================================
STOCK FUNDS StocksPLUS/2/ Total return which exceeds that of the Short Medium
S&P 500 (stock index futures backed (up to 1 year)
by short-term bonds)
-----------------------------------------------------------------------------------------------------
StocksPLUS Short Total return through implementation Short Medium
Strategy of short positions on the S&P 500 (up to 1 year)
==================================================================================================================================
STOCK AND BOND FUNDS Strategic Balanced Maximum total return, consistent Intermediate High
with preservation of capital (0-6 years)
</TABLE>
1 For specific information concerning the credit quality of the securities in
each Fund's portfolio, see "Investment Objectives and Policies."
2 Available for purchase in tax deferred accounts only.
<PAGE>
4 PIMCO FUNDS - Pacific Investment Management Series
- -----------------------------------------------------------------
SCHEDULE OF FEES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION
EXPENSES (ALL FUNDS) CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Maximum initial sales charge imposed on purchases
(as a percentage of offering price at time of
purchase)
All Funds except for Money Market, Short-Term, Low Duration,
Low Duration II, Low Duration III and StocksPLUS Funds..... 4.75% None None
Short Term, Low Duration, Low Duration II, Low Duration III and
StocksPlus Funds............................................ 3.00% None None
Money Market Fund.................................................. None(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of net asset value at
time of purchase)........................................................ None None None
Maximum contingent deferred sales
charge ("CDSC") (as a percentage
of original purchase price) ............................................. 1%(2) 5%(3) 1%(4)
Redemption Fee
StocksPLUS Short Strategy Fund......................................... 1%(5) 1%(5) 1%(5)
All Other Funds........................................................ None None None
Exchange Fee.............................................................. None(1) None None
</TABLE>
(1) Regular sales charges apply when Class A shares of the Money Market Fund
(on which no sales charge was paid at time of purchase) are exchanged for
shares of any other Fund.
(2) Imposed only in certain circumstances where Class A shares are purchased
without a sales charge at the time of purchase. See "Alternative Purchase
Arrangements" in this Prospectus.
(3) The maximum CDSC is imposed on shares redeemed in the first year. For
shares held longer than one year, the CDSC declines according to the
schedules set forth under "Deferred Sales Charge Alternative--Class B
Shares" in this Prospectus.
(4) The CDSC on Class C shares is imposed only on shares redeemed in the first
year.
(5) On shares held less than 3 months.
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series
- ------------------------------------------------------------------------ 5
<TABLE>
<CAPTION>
EXAMPLE: You would pay the EXAMPLE: You would pay the
following expenses on a $1,000 following expenses on a
ANNUAL FUND investment assuming (1) 5% annual $1,000 investment assuming
OPERATING EXPENSES return and (2) redemption at the end of (1) 5% annual return
CLASS A SHARES (As a percentage of average net assets) each time period: and (2) no redemption:
- ------------------------------------------------------------------------------------------------------------------------------------
Admini- Total Fund
Advisory strative 12b-1 Operating 1 3 5 10 1 3 5 10
Fund Fee Fee Fees/1/ Expenses Year Years Years Years Year Years Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market............... .15% .35% .10%/2/ .60%/3/ $ $ $ $ $ $ $ $
Short-Term................. .25 .35 .25 .85
Low Duration............... .25 .40 .25 .90
Low Duration II............ .25 .40 .25 .90
Low Duration III........... .25 .40 .25 .90
Moderate Duration.......... .25 .40 .25 .90
High Yield................. .25 .40 .25 .90
Total Return............... .25 .40 .25 .90
Total Return II............ .25 .40 .25 .90
Total Return III........... .25 .40 .25 .90
Commercial Mortgage
Securities................ .40 .40 .25 1.05
Long Term U.S. Government.. .25 .40 .25 .90
Foreign Bond............... .25 .45 .25 .95
Global Bond................ .25 .45 .25 .95
Global Bond II............. .25 .45 .25 .95
International Bond......... .25 .45 .25 .95
StocksPLUS................. .40 .40 .25 1.05
StocksPLUS Short Strategy.. .40 .40 .25 1.05
Strategic Balanced......... .40 .40 .25 1.05
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ 12b-1 fees represent servicing fees which are paid annually to the
Distributor and repaid to participating brokers, certain banks and other
financial intermediaries. See "Distributor and Distribution and Servicing
Plans."
/2/ The Distributor has voluntarily undertaken to reduce the 12b-1 fee it
receives with respect to the Money Market Fund to .10% of the Fund's average
daily net assets until further notice. Absent such undertaking, the 12b-1 fee
would be .20% of the Fund's average daily net assets.
/3/ Absent the undertaking noted, the "Total Fund Operating Expenses" for the
Money Market Fund would be .70% of the Fund's average daily net assets.
<TABLE>
<CAPTION>
EXAMPLE: You would pay the EXAMPLE: You would pay the
following expenses on a $1,000 following expenses on a
ANNUAL FUND investment assuming (1) 5% annual $1,000 investment assuming
OPERATING EXPENSES return and (2) redemption at the end of (1) 5% annual return
CLASS B SHARES (As a percentage of average net assets) each time period: and (2) no redemptions:
- ------------------------------------------------------------------------------------------------------------------------------------
Admini- Total Fund
Advisory strative 12b-1 Operating 1 3 5 10 1 3 5 10
Fund Fee Fee Fees/1/ Expenses Year Years Years Years Year Years Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market............... .15% .35% 1.00% 1.50% $ $ $ $ $ $ $ $
Short-Term................. .25 .35 1.00 1.60
Low Duration............... .25 .40 1.00 1.65
Low Duration II............ .25 .40 1.00 1.65
Low Duration III........... .25 .40 1.00 1.65
Moderate Duration.......... .25 .40 1.00 1.65
High Yield................. .25 .40 1.00 1.65
Total Return............... .25 .40 1.00 1.65
Total Return II............ .25 .40 1.00 1.65
Total Return III........... .25 .40 1.00 1.65
Commercial Mortgage
Securities................ .40 .40 1.00 1.80
Long Term U.S. Government.. .25 .40 1.00 1.65
Foreign Bond............... .25 .45 1.00 1.70
Global Bond................ .25 .45 1.00 1.70
Global Bond II............. .25 .45 1.00 1.70
International Bond......... .25 .45 1.00 1.70
StocksPLUS................. .40 .40 1.00 1.80
StocksPLUS Short Strategy.. .40 .40 1.00 1.80
Strategic Balanced......... .40 .40 1.00 1.80
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
6 PIMCO FUNDS - Pacific Investment Management Series
------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLE: You would pay the EXAMPLE: You would pay the
following expenses on a $1,000 following expenses on a
ANNUAL FUND investment assuming (1) 5% annual $1,000 investment ass-
OPERATING EXPENSES return and (2) redemption at the end of assuming (1) 5% annual
CLASS C SHARES (As a percentage of average net assets) each time period: return and (2) no
redemption:
- ------------------------------------------------------------------------------------------------------------------------------------
Admini- Total Fund
Advisory strative 12b-1 Operating 1 3 5 10 1 3 5 10
Fund Fee Fee Fees/1/ Expenses Year Years Years Years Year Years Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market............... .15% .35% .10%/2/ .60%/3/ $ $ $ $ $ $ $ $
Short-Term................. .25 .35 .75 1.35
Low Duration............... .25 .40 .75 1.40
Low Duration II............ .25 .40 .75 1.40
Low Duration III........... .25 .40 .75 1.40
Moderate Duration.......... .25 .40 1.00 1.65
High Yield................. .25 .40 1.00 1.65
Total Return............... .25 .40 1.00 1.65
Total Return II............ .25 .40 1.00 1.65
Total Return III........... .25 .40 1.00 1.65
Commercial Mortgage
Securities................ .40 .40 1.00 1.80
Long Term U.S. Government.. .25 .40 1.00 1.65
Foreign Bond............... .25 .45 1.00 1.70
Global Bond................ .25 .45 1.00 1.70
Global Bond II............. .25 .45 1.00 1.70
International Bond......... .25 .45 1.00 1.70
StocksPLUS................. .40 .40 .75 1.55
StocksPLUS Short Strategy.. .40 .40 1.00 1.80
Strategic Balanced......... .40 .40 1.00 1.80
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ 12b-1 fees which equal or are less than .25% represent servicing fees which
are paid annually to the Distributor and repaid by the Distributor to
participating brokers, certain banks and other financial intermediaries. 12b-1
fees which exceed .25% represent aggregate distribution and servicing fees. See
"Distributor and Distribution and Servicing Plans."
/2/ The Distributor has voluntarily undertaken to reduce the 12b-1 fee it
receives with respect to the Money Market Fund to .10% of the Fund's average
daily net assets until further notice. Absent such undertaking, the 12b-1 fee
would be .20% of the Fund's average daily net assets.
/3/ Absent the undertaking noted, the "Total Fund Operating Expenses" for the
Money Market Fund would be .70% of the Fund's average daily net assets.
The purpose of the foregoing tables is to assist investors in understanding the
various costs and expenses of the Trust that are borne directly or indirectly by
Class A, Class B and Class C shareholders of the Funds. Class A, Class B and
Class C shares of the Funds were not offered prior to the date of this
Prospectus, although Class A, Class B and Class C shares of a predecessor series
of the Global Bond Fund II, which was reorganized as a series of the Trust on
January ___, 1997, were previously offered. The Examples for Class A shares
assume payment of the current maximum applicable sales load. Due to the 12b-1
distribution fee imposed on Class B and Class C shares, a Class B or Class C
shareholder of the Trust may, depending on the length of time the shares are
held, pay more than the economic equivalent of the maximum front-end sales
charges permitted by relevant rules of the National Association of Securities
Dealers, Inc.
NOTE: THE FIGURES SHOWN IN THE EXAMPLES ARE ENTIRELY HYPOTHETICAL. THEY ARE NOT
REPRESENTATIONS OF PAST OR FUTURE PERFORMANCE OR EXPENSES; ACTUAL PERFORMANCE
AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN.
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 7
- -----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights set forth below for the Global Bond Fund II present
certain information and ratios as well as performance information for Class A,
Class B and Class C shares for that Fund. Information for the Fund reflects the
operational history of the Global Income Fund, a former series of PIMCO Advisors
Funds. The Global Income Fund was reorganized as a series of the Trust on
_______, 1997. The information provided below has been audited by Coopers &
Lybrand L.L.P., the independent accountants for the Global Income Fund for the
periods listed, whose report thereon is included in PIMCO Advisors Fund's Annual
Report dated September 30, 1996, which is incorporated by reference in the
Statement of Additional Information and may be obtained from the Distributor
without charge. The remaining Funds did not offer Class A, Class B or Class C
shares prior to the date of this Prospectus.
The following schedule of financial highlights for the Global Bond Fund II is
for shares outstanding throughout the periods listed.
GLOBAL BOND FUND II
CLASS A CLASS B CLASS C
Period Ended September 30,
1996(1) 1996(1) 1996(1)
- ---- ---- ----
[Insert financials to be provided in a post-effective amendment to be filed
pursuant to Rule 485(b) prior to the effective date of this amendment.]
____________
____________
(1) The Fund commenced operations as a series of PIMCO Advisors Funds on
October 1, 1995.
<PAGE>
8 PIMCO FUNDS - Pacific Investment Management Series
-------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and general investment policies of each Fund are
described below. There can be no assurance that the investment objective of any
Fund will be achieved. The value of all securities and other instruments held
by the Funds will vary from time to time in response to a wide variety of market
factors. Consequently, the net asset value per share of each Fund will vary,
except that the Money Market Fund shall attempt to maintain a net asset value of
$1.00 per share, although there can be no assurance that the Fund will be
successful in doing so. The net asset value per share of any Fund may be less
at the time of redemption than it was at the time of investment. The value of
fixed income securities can be expected to vary inversely with changes in
prevailing interest rates, i.e., as interest rates rise, market value tends to
decrease, and vice versa. In addition, certain of the Funds may invest in
securities rated lower than Baa by Moody's or BBB by S&P. Such securities carry
a high degree of credit risk and are considered speculative by the major rating
agencies.
Certain Funds may invest in securities of foreign issuers, which may be subject
to additional risk factors, including foreign currency and political risks, not
applicable to securities of U.S. issuers. Certain of the Funds' investment
techniques may involve a form of borrowing, which may tend to exaggerate the
effect on net asset value of any increase or decrease in the market value of a
Fund's portfolio and may require liquidation of portfolio positions when it is
not advantageous to do so. Certain Funds may sell securities short, which
exposes the Fund to a risk of loss if the value of the security sold short
should increase.
All Funds (except the Money Market Fund) may use derivative instruments,
consisting of futures, options, options on futures, and swap agreements, for
hedging purposes or as part of their investment strategies. Use of these
instruments may involve certain costs and risks, including the risk that a Fund
could not close out a position when it would be most advantageous to do so, the
risk of an imperfect correlation between the value of the securities being
hedged and the value of the particular derivative instrument, and the risk that
unexpected changes in interest rates may adversely affect the value of a Fund's
investments in particular derivative instruments. Unless otherwise indicated,
all limitation applicable to Fund investments (as stated in this Prospectus and
in the Statement of Additional Information) apply only at the time a transaction
is entered into. Any subsequent change in a rating assigned by any rating
service to a security (or, if unrated, deemed to be of comparable quality), or
change in the percentage of Fund assets invested in certain securities or other
instruments, or change in the average duration of a Fund's investment portfolio,
resulting from market fluctuations or other changes in a Fund's total assets
will not require a Fund to dispose of an investment until the Adviser determines
that is practicable to sell or close out the investment without undue market or
tax consequences to the Fund. In the event that ratings services assign
different ratings to the same security, the Adviser will determine which rating
it believes best reflects the security's quality and risk at that time, which
may be the higher of the several assigned ratings.
The Funds offer their shares to both retail and institutional investors.
Institutional shareholders, some of whom also may be investment advisory clients
of Pacific Investment Management, may hold large positions in certain of the
Funds. Such shareholders may on occasion make large redemptions of their
holdings in the Funds to meet their liquidity needs, in connection with
strategic adjustments to their overall portfolio of investments, or for other
purposes. Large redemptions from some Funds could require the Adviser to
liquidate portfolio positions when it is not most desirable to do so.
Liquidation of portfolio holdings also may cause a fund to realize capital
gains.
Specific portfolio securities eligible for purchase by the Funds, investment
techniques that may be used by the Funds, and the risks associated with these
securities and techniques are described more fully under "Characteristics and
Risks of Securities and Investment Techniques" in the Prospectus and "Investment
Objectives and Policies" in the Statement of Additional Information.
FIXED INCOME FUNDS
Each of the Fixed Income Funds differs from the others primarily in the length
of the Fund's duration or the proportion of its investments in certain types of
fixed income securities. For a discussion of the concept of duration, see
"Appendix A--Description of Duration."
The investment objective of the Money Market Fund and Short-Term Fund is to seek
to obtain maximum current income consistent with preservation of capital and
daily liquidity. The Money Market Fund also attempts to maintain a stable net
asset value of $1.00 per share, although there can be no assurance that it will
be successful in doing so. The investment objective of the Global Bond Fund II
is to seek maximum total return, consistent with the preservation of capital.
Each of the remaining Fixed Income Funds seeks to maximize total return,
consistent with preservation of capital and prudent investment management.
<PAGE>
9
In selecting securities for each Fixed Income Fund, the Adviser utilizes
economic forecasting, interest rate anticipation, credit and call risk analysis,
foreign currency exchange rate forecasting, and other security selection
techniques. The proportion of each Fund's assets committed to investment in
securities with particular characteristics (such as maturity, type and coupon
rate) will vary based on the Adviser's outlook for the U.S. and foreign
economies, the financial markets, and other factors.
Each of the Fixed Income Funds will invest at least 65% of its assets in the
following types of securities, which, unless specifically provided otherwise in
the description of the Funds that follows, may be issued by domestic or foreign
entities and denominated in U.S. dollars or foreign currencies: 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; structured notes and loan participations; 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 securities 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 of the Fixed Income Funds may
hold different percentages of its assets in these various types of securities,
and each Fund, except the Money Market Fund, may invest all of its assets in
derivative instruments or in mortgage- or asset-backed securities.
The compositions of the Fixed Income Funds differ as follows:
MONEY MARKET FUND seeks maximum current income consistent with the
preservation of capital and daily liquidity. It attempts to achieve this
objective by investing at least 95% of its total assets, measured at the time of
investment, in a diversified portfolio of the highest quality money market
securities. The Fund may also invest up to 5% of its total assets, measured at
the time of investment, in money market securities that are in the second-
highest rating category for short-term obligations. The Fund's investments in
securities will be limited to U.S. dollar-denominated securities that mature in
397 days or less from the date of purchase. The Fund may invest in the
following: obligations of the U.S. Government (including its agencies and
instrumentalities); short-term corporate debt securities from domestic and
foreign corporations; obligations of domestic and foreign commercial banks,
savings banks, and savings and loan associations; and commercial paper. The Fund
may invest more than 25% of its total assets in securities or obligations issued
by U.S. banks. The dollar-weighted average portfolio maturity of the Fund will
not exceed 90 days.
The Money Market Fund may invest only in U.S. dollar-denominated money market
instruments that present minimal credit risk and, with respect to at least 95%
of its total assets, measured at the time of investment, that are of the highest
quality. The Adviser will make a determination as to whether a security presents
minimal credit risk under procedures adopted by the Board of Trustees. A money
market instrument will be considered to be of the highest quality (1) if rated
in the highest rating category (i) by any two nationally recognized statistical
rating organizations ("NRSROs'') (e.g., Aaa or Prime-1 by Moody's, AAA or A-1 by
S&P), or, (ii) if rated by only one NRSRO, by that NRSRO, and whose acquisition
is approved or ratified by the Board of Trustees; (2) if unrated but issued by
an issuer that has short-term debt obligations of comparable maturity, priority,
and security, and that are rated in the highest rating category by (i) any two
NRSROs or, (ii) if rated by only one NRSRO, by that NRSRO, and whose acquisition
is approved or ratified by the Board of Trustees; or (3) an unrated security
that is of comparable quality to a security rated in the highest rating category
as determined by the Adviser and whose acquisition is approved or ratified by
the Board of Trustees. With respect to no more than 5% of its total assets,
measured at the time of investment, the Fund may also invest in money market
instruments that are in the second-highest rating category for short-term debt
obligations (e.g., rated Aa or Prime-2 by Moody's or AA or A-2 by S&P). A money
market instrument will be considered to be in the second-highest rating category
under the criteria described above with respect to instruments considered to be
of the highest quality, as applied to instruments in the second-highest rating
category. See "Appendix B--Description of Securities Ratings" for a description
of Moody's and S&P's ratings applicable to fixed income securities.
The Money Market Fund may not invest more than 5% of its total assets, measured
at the time of investment, in securities of any one issuer that are of the
highest quality, except that (1) the Fund may invest more than 5% of its total
assets in the securities of a single issuer if rated in the highest rating
category for a period of up to three business days after purchase, provided that
the Fund may not make more than one investment at a time in accordance with this
exception, and (2) this limitation shall not apply to U.S. Government securities
and repurchase agreements with respect thereto. The Fund may not invest more
than the greater of 1% of its total assets or $1,000,000, measured at the time
of investment, in securities of any one issuer that are in the second-highest
rating category, except that this limitation shall not apply to U.S. Government
securities. In the event that an instrument acquired by the Fund is downgraded
or otherwise ceases to be of the quality that is required for securities
purchased by the Fund, the Adviser, under procedures approved by the Board of
Trustees (or the Board of Trustees itself if the Adviser becomes aware an
unrated security is downgraded below high
<PAGE>
10 PIMCO FUNDS - Pacific Investment Management Series
-------------------------------------------------------------------------
quality and the Adviser does not dispose of the security or such security does
not mature within five business days) shall promptly reassess whether such
security presents minimal credit risk and determine whether to retain the
instrument.
SHORT-TERM FUND invests in a diversified portfolio of fixed income securities
of varying maturities. The average portfolio duration of this Fund will normally
not exceed one year. The Fund may invest up to 10% of its assets in fixed income
securities that are rated below investment grade (rated below Baa by Moody's or
BBB by S&P) but rated B or higher by Moody's or S&P (or, if unrated, determined
by the Adviser to be of comparable quality). Securities rated below investment
grade may be referred to colloquially as "junk bonds." For information on the
risks associated with investments in securities rated below investment grade,
see "Appendix B--Description of Securities Ratings.'' The Fund may invest up to
5% of its assets in securities denominated in foreign currencies, and may invest
beyond this limit in U.S. dollar-denominated securities of foreign issuers.
LOW DURATION FUND invests in a diversified portfolio of fixed income
securities of varying maturities. The average portfolio duration of this Fund
will normally vary within a one- to three-year time frame based on the Adviser's
forecast for interest rates. The Fund may invest up to 10% of its assets in
fixed income securities that are rated below investment grade but rated B or
higher by Moody's or S&P (or, if unrated, determined by the Adviser to be of
comparable quality). For information on the risks associated with investments in
securities rated below investment grade, see "Appendix B--Description of
Securities Ratings." The Fund 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. The total rate of return for
this Fund is expected to exhibit less volatility than that of the Moderate
Duration Fund or the Total Return Fund because its duration will be shorter.
LOW DURATION FUND II has the same policies as the Low Duration Fund, except
that its investments in fixed income securities are limited to those of domestic
(U.S.) issuers that are rated at least A by Moody's or S&P (or, if unrated,
determined by the Adviser to be of comparable quality).
LOW DURATION FUND III has the same policies as the Low Duration Fund, except
that it limits its investments with respect to certain socially sensitive
issues. As a matter of non-fundamental policy, the Fund will not invest in the
securities of any issuer determined by the Adviser to be engaged principally in
the provision of healthcare services, the manufacture of alcoholic beverages,
tobacco products, pharmaceuticals or military equipment, or the operation of
gambling casinos. The Fund will also avoid, to the extent possible on the basis
of information available to the Adviser, the purchase of securities of issuers
engaged in the production or trade of pornographic materials. An issuer will be
deemed to be principally engaged in an activity if it derives more than 10% of
its gross revenues from such activities.
MODERATE DURATION FUND invests in a diversified portfolio of fixed income
securities of varying maturities. The average portfolio duration of this Fund
will normally vary within a two- to four-year time frame based on the Adviser's
forecast for interest rates. The Fund may invest up to 10% of its assets in
fixed income securities that are rated below investment grade but rated B or
higher by Moody's or S&P (or, if unrated, determined by the Adviser to be of
comparable quality). For information on the risks associated with investments in
securities rated below investment grade, see "Appendix B--Description of
Securities Ratings." The Fund 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. The total rate of return for
this Fund is expected to exhibit less volatility than that of the Total Return
Fund because its duration will normally be shorter. However, the total rate of
return for this Fund is expected to exhibit more volatility than that of the Low
Duration Fund because its duration will normally be longer.
HIGH YIELD FUND invests under normal circumstances at least 65% of its assets
in a diversified portfolio of fixed income securities rated lower than Baa by
Moody's or lower than BBB by S&P but rated at least B by Moody's or S&P (or, if
unrated, determined by the Adviser to be of comparable quality). Such securities
are colloquially referred to as "junk bonds." The remainder of the Fund's assets
may be invested in investment grade fixed income securities (i.e., securities
rated at least Baa by Moody's or BBB by S&P, or, if unrated, deemed by the
Adviser to be of comparable quality). The average portfolio duration of this
Fund will normally vary within a two- to six-year time frame depending on the
Adviser's view of the potential for total return offered by a particular
duration strategy. The Fund may invest in securities of foreign issuers, but
only those that are U.S. dollar-denominated. The Fund may also engage in hedging
strategies involving equity options.
Investments in high yield securities, while generally providing greater
potential opportunity for capital appreciation and higher yields than
investments in higher rated securities, also entail greater risk, including the
possibility of default or bankruptcy of the issuer of such securities. Risk of
default or bankruptcy may be greater in periods of economic uncertainty or
recession, as the issuers of high yield
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 11
- --------------------------------------------------------------------------------
securities may be less able to withstand general economic downturns. The Adviser
seeks to reduce risk through diversification, credit analysis and attention to
current developments and trends in both the economy and financial markets. The
value of all fixed income securities, including those held by the Fund, can be
expected to change inversely with interest rates. For a further discussion of
the special risks of investing in lower rated securities, see "Characteristics
and Risks of Securities and Investment Techniques--High Yield Securities."
TOTAL RETURN FUND invests under normal circumstances at least 65% of its
assets in a diversified portfolio of fixed income securities of varying
maturities. The average portfolio duration of this Fund will normally vary
within a three- to six-year time frame based on the Adviser's forecast for
interest rates. The Fund may invest up to 10% of its assets in fixed income
securities that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by the Adviser to be of comparable
quality). For information on the risks associated with investments in securities
rated below investment grade, see "Appendix B--Description of Securities
Ratings." The Fund may also 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. Portfolio holdings will be
concentrated in areas of the bond market (based on quality, sector, coupon or
maturity) which the Adviser believes to be relatively undervalued. The total
rate of return for this Fund is expected to exhibit less volatility than that of
the Long-Term U.S. Government Fund because its duration will normally be
shorter.
TOTAL RETURN FUND II has the same policies as the Total Return Fund, except
that its investments in fixed income securities are limited to those of domestic
(U.S.) issuers that are rated at least Baa by Moody's or BBB by S&P (or, if
unrated, determined by the Adviser to be of comparable quality).
TOTAL RETURN FUND III has the same policies as the Total Return Fund, except
that it limits its investments with respect to certain socially sensitive issues
in the same manner as the Low Duration Fund III.
COMMERCIAL MORTGAGE SECURITIES FUND invests at least 65% of its assets in
commercial mortgage-backed securities rated at least Baa by Moody's or BBB by
S&P (or, if unrated, determined by the Adviser to be of comparable quality). The
Fund also may invest up to 35% of its assets in lower-rated securities (but
rated at least B, or, if unrated, determined by the Adviser to be of comparable
quality) if such securities are considered by the Adviser to have attractive
investment characteristics. For information on the risks associated with
investments in securities rated below investment grade, see "Appendix B--
Description of Securities Ratings." The average portfolio duration of this Fund
will normally vary within a three- to eight-year time frame depending on the
Adviser's view of the potential for total return offered by a particular
duration strategy. The Fund may invest in securities of foreign issuers, but
only those that are U.S. dollar-denominated.
LONG-TERM U.S. GOVERNMENT FUND invests in a diversified portfolio of primarily
U.S. Government securities, 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 Fund will have a
minimum average portfolio duration of eight years. For point of reference, the
dollar-weighted average portfolio maturity of the Fund is normally expected to
be more than ten years. The total rate of return is expected to exhibit more
volatility than that of the other Fixed Income Funds due to the greater
investment risk normally associated with longer duration investments. The Long-
Term U.S. Government Fund's investments in fixed income securities are limited
to those of U.S. dollar-denominated securities of domestic and foreign issuers
that are rated at least A by Moody's or S&P (or, if unrated, determined by the
Adviser to be of comparable quality). In addition, the Fund will not acquire a
security if, as a result, more than 10% of the Fund's total assets would be
invested in securities rated below Aa by Moody's or below AA by S&P, or if more
than 25% of the Fund's total assets would be invested in securities rated Aa by
Moody's or AA by S&P.
FOREIGN BOND FUND invests in a portfolio of fixed income securities 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 Fund in a number of international bond markets so that, under normal
circumstances, the Fund will invest at least 85% of its assets in securities 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 Fund may invest up to 10% of its
assets in fixed income securities that are rated below investment grade but
rated B or higher by Moody's or S&P (or, if unrated, determined by the Adviser
to be of comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Appendix B--
Description of Securities Ratings." The average portfolio duration of this Fund
will normally vary within a three- to six-year time frame.
<PAGE>
12 PIMCO FUNDS - Pacific Investment Management Series
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GLOBAL BOND FUND invests in a portfolio of fixed income securities denominated
in major currencies, baskets of foreign currencies (such as the ECU), and the
U.S. dollar. Under normal circumstances, at least 65% of the Fund's assets will
be invested in fixed income securities of issuers located in at least three
countries (one of which may be the United States), 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.
Depending on the Adviser's current opinion as to the proper allocation of assets
among domestic and foreign issuers, investments in the securities of issuers
located outside the United States will normally vary between 25% and 75% of the
Fund's assets. The Fund may invest up to 10% of its assets in fixed income
securities that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by the Adviser to be of comparable
quality). For information on the risks associated with investments in securities
rated below investment grade, see "Appendix B--Description of Securities
Ratings." The average portfolio duration of this Fund will normally vary within
a three- to eight-year time frame.
GLOBAL BOND FUND II has the same policies as the Global Bond Fund except as set
forth below. The average portfolio duration of the Global Bond Fund II will
normally vary within a three- to six-year time frame, and the Fund expects to
hedge its foreign currency exposure so that generally no more than 25% of the
Fund's total net assets will be invested in unhedged foreign currency
denominated securities. The Global Bond Fund II may not borrow in excess of 10%
of the value of its total assets and then only from banks as a temporary measure
to facilitate the meeting of redemption requests (not for leverage) or for
extraordinary or emergency purposes. The Global Bond Fund II may only engage in
short sales that are "against the box," and may not loan its portfolio
securities if their market value exceeds 25% of the total assets of the Fund.
In addition, the Global Bond Fund II is subject to different fundamental and
non-fundamental investment restrictions than the Global Bond Fund. See
"Investment Restrictions" in the Statement of Additional Information.
The Foreign Bond Fund differs from the Global Bond and Global Bond II Funds
primarily in the extent to which assets are invested in the securities of
issuers located outside the United States. The Adviser will select these Funds'
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.
INTERNATIONAL BOND FUND invests in a portfolio of fixed income securities
denominated in major foreign currencies, baskets of foreign currencies, and the
U.S. dollar. The Adviser will invest the assets of the Fund in a number of
international bond markets so that, under normal conditions, the Fund will
invest at least 65% of its assets in fixed income securities of foreign issuers
representing at least three foreign countries or currencies, 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 International Bond Fund will invest only in investment
grade securities, i.e., in securities rated at least Baa by Moody's or BBB by
S&P (or, if unrated, deemed by the Adviser to be of comparable quality). The
average portfolio duration of this Fund will vary based on the strategy
currently being used by the Adviser in managing the assets of the Fund within
the overall PIMCO private account management program, but is normally not
expected to exceed eight years. The Adviser will select the Fund's foreign
country and currency composition based on its evaluation of relative interest
rates, inflation rates, exchange rates, monetary and fiscal policies, trade and
current account balances, and any other specific factors the Adviser believes to
be relevant.
Each of the Foreign Bond, Global Bond, Global Bond II and International Bond
Funds must normally invest at least 65% of its total assets in "bonds." For this
purpose, each of these Funds considers the various types of debt or fixed income
securities in which it invests, as specifically described elsewhere in this
Prospectus, to be "bonds" as referenced in that Fund's name. The use of this
name is not meant to restrict a Fund's investment to the narrow category of debt
securities that are formally called "bonds."
As a non-fundamental, operating policy, the Adviser intends to use foreign
currency-related derivative instruments (currency futures and related options,
currency options, forward contracts and swap agreements) in an effort to hedge
foreign currency risk with respect to at least 75% of the assets of the Fixed
Income Funds (other than the Global Bond Fund) denominated in currencies other
than the U.S. dollar. There can be no assurance that the Adviser will be
successful in doing so. The active use of currency derivatives involves
transaction costs which may adversely effect yield and return.
The Commercial Mortgage Securities, Foreign Bond, Global Bond, Global Bond II
and International Bond Funds are "non-diversified" for purposes of the
Investment Company Act of 1940 ("1940 Act"), meaning that they may invest a
greater percentage of their assets in the securities of one issuer than the
other Funds. As "non-diversified" portfolios, these Funds may be more
susceptible to risks associated with a single economic, political or regulatory
occurrence than a diversified portfolio might be.
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EQUITY FUNDS
The Equity Funds are the StocksPLUS Fund and the StocksPLUS Short Strategy Fund.
The investment objective of the StockPLUS Fund is to seek to achieve a total
return which exceeds the total return performance of the S&P 500 Index. The
investment objective of the StocksPLUS Short Strategy Fund is to seek total
return through the implementation of short investment positions on the S&P 500
Index.
Each of the Equity Funds invests in common stocks, options, futures, options on
futures and swaps consistent with its portfolio management strategy as set forth
below. Assets not invested in equity securities may be invested in securities
eligible for purchase by the Fixed Income Funds. Each of the Equity Funds may
invest up to 10% of its assets in fixed income securities that are below
"investment grade," i.e., rated below Baa by Moody's or BBB by S&P, but at least
B (or, if unrated, determined by the Adviser to be of comparable quality). In
addition, each of the Equity Funds may lend its portfolio securities to brokers,
dealers and other financial institutions in order to earn income. Each of the
Equity Funds may invest all of its assets in derivative instruments, as
described below and under ''Characteristics of Securities and Investment
Techniques--Derivative Instruments.'' Each of the Equity Funds may invest up to
20% of its assets in securities of foreign issuers, may purchase and sell
options and futures on foreign currencies, and may enter into forward foreign
currency contracts.
The Equity Funds differ in composition or strategy as follows:
STOCKSPLUS FUND invests only in common stocks that are represented in the S&P
500 (''S&P 500 stocks''), stock index futures, options on stock indexes, and
options on stock index futures that are based on the S&P 500 and swap agreements
with respect to the S&P 500 ("S&P 500 derivatives"). StocksPLUS is the name of a
proprietary portfolio management strategy which utilizes S&P 500 derivatives in
addition to or in place of S&P 500 stocks to equal or exceed the performance of
the S&P 500. The Fund will seek to remain invested in S&P 500 stocks and S&P 500
derivatives even when the S&P 500 is declining.
The percentage of the StocksPLUS Fund's assets invested directly in S&P 500
stocks will vary depending primarily on whether S&P 500 derivatives appear, in
the Adviser's opinion, overvalued or undervalued with respect to the stocks
underlying the S&P 500. The Fund may invest up to 100% of its assets in S&P 500
derivatives. The Fund will maintain a segregated account consisting of assets
determined to be liquid by the Adviser in accordance with procedures established
by the Board of Trustees, or otherwise maintain offsetting positions to cover
its open positions in S&P 500 derivatives. The Adviser will actively manage the
fixed income assets serving as cover for derivatives, as well as any other fixed
income assets held by the Fund, with a view toward enhancing the Fund's total
return investment performance, subject to an overall portfolio duration which is
normally not expected to exceed one year. See "Appendix A--Description of
Duration."
The S&P 500 is composed of 500 selected common stocks, most of which are listed
on the New York Stock Exchange. Standard and Poor's ("S&P") chooses the stocks
to be included in the S&P 500 solely on a statistical basis. The weightings of
stocks in the index are based on each stock's relative total market value, that
is, its market price per share times the number of shares outstanding. Stocks
represented currently in the S&P 500 represent approximately two-thirds of the
total market value of all U.S. common stocks. The Fund is neither sponsored by
nor affiliated with S&P.
When S&P 500 derivatives appear to be overvalued relative to the S&P 500, the
Fund may invest up to 100% of its assets in a "basket" of S&P 500 stocks. The
composition of this basket will be determined by standard statistical techniques
that analyze the historical correlation between the return of every stock
currently in the S&P 500 and the return on the S&P 500 itself. The Adviser may
employ fundamental stock analysis only to choose among stocks that have already
satisfied the statistical correlation tests. Stocks chosen for the Fund are not
limited to those with any particular weighting in the S&P 500.
Positions in S&P 500 futures and options on futures will be entered into only to
the extent they constitute permissible positions for the Fund according to
applicable rules of the Commodity Futures Trading Commission ("CFTC"). From time
to time, the Adviser may be constrained in its ability to use S&P 500
derivatives either by requirements of the Internal Revenue Code or by an
unanticipated inability to close out positions when it would be most
advantageous to do so. A large number of investors use S&P 500 derivatives for
both hedging and speculative purposes, and although generally this helps
guarantee a liquid market in those instruments, at times liquidity may be
limited. For more information about S&P 500 derivatives, see "Characteristics
and Risks of Securities and Investment Techniques--Derivative Instruments."
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14 PIMCO FUNDS - Pacific Investment Management Series
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STOCKSPLUS SHORT STRATEGY FUND invests primarily in S&P 500 short positions
such that the Fund's net asset value is generally expected to vary inversely to
the value of the S&P 500. The Fund is designed for investors seeking to take
advantage of declines in the value of the S&P 500, or investors wishing to hedge
existing long equity positions. The Fund will generally realize gains only when
the price of the S&P 500 Index is declining. When the S&P 500 is rising, the
Fund will generally incur a loss.
The Fund will maintain short positions through the use of a combination of S&P
500 derivatives, including options, futures and swap agreements. All S&P 500
derivatives will be covered by the maintenance of a segregated account
consisting of liquid assets determined to be liquid by the Adviser in accordance
with procedures established by the Board of Trustees, or through the maintenance
of offsetting positions. It is anticipated that the Fund will generally remain
fully invested in S&P 500 short positions at all times, even during periods when
the S&P 500 Index is rising. However, the Fund may purchase call options on S&P
500 futures contracts from time to time in an effort to limit the total
potential decline in the Fund's net asset value. There can be no assurance that
the use of such call options would be effective in limiting the potential
decline in net asset value of the Fund.
The Adviser will actively manage the fixed income portion of the Fund's
investment portfolio that is used as coverage for the S&P 500 derivatives in an
attempt to provide incremental returns. Thus, there will not be a perfect
inverse correlation between the performance of the S&P 500 and the performance
of the Fund. A perfect inverse correlation would exist if the net asset value of
the Fund, including the value of its dividend and capital gains distributions,
increased in exact proportion to decreases in the S&P 500 (or decreased in exact
proportion to increases in the S&P 500). Rather, because of the Adviser's
management of the fixed income securities that are held by the Fund as cover for
the Fund's short positions, it is expected that, if the value of the S&P 500
were to decrease by 10%, for example, the amount by which the Fund's net asset
value would increase would be an amount slightly in excess of 10%. Conversely,
an increase in the S&P 500 of 10% would result in a loss to the Fund of slightly
less than this amount. There can be no assurance that the use of such active
fixed income management techniques will produce the intended results.
BALANCED FUNDS
STRATEGIC BALANCED FUND has as its investment objective the maximization of
total return, consistent with preservation of capital and prudent investment
management. In seeking to achieve this objective, the Fund invests in the
securities eligible for purchase by the StocksPLUS Fund and the Total Return
Fund. The percentage of the Fund's assets allocated to equity or fixed income
exposure will vary in accordance with an asset allocation methodology developed
by the Adviser. The methodology builds upon the Adviser's long-standing process
of economic forecasting of business cycle stages by applying to this process a
disciplined asset allocation model which employs certain statistical variance
techniques. Depending on the outcome of this asset allocation methodology, the
Fund's equity exposure will vary between 45% and 75% of its total assets, and
its fixed income exposure will vary between 25% and 55%. There can be no
assurance that the Adviser's asset allocation methodology will be successful.
TOTAL RETURN
The "total return" sought by certain of the Funds will consist of interest and
dividends from underlying securities, capital appreciation reflected in
unrealized increases in value of portfolio securities (realized by the
shareholder only upon selling shares), 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 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. When interest rates are
falling, a portfolio with a shorter duration generally will not generate as high
a level of total return as a portfolio with a longer 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
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PIMCO FUNDS - Pacific Investment Management Series 15
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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.
CHARACTERISTICS AND RISKS OF SECURITIES
AND INVESTMENT TECHNIQUES
The following describes in greater detail different types of securities and
investment techniques used by the individual Funds, and discusses certain
concepts relevant to the investment policies of the Funds. Additional
information about the Funds' investments and investment practices may be found
in the Statement of Additional Information.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury securities
(STRIPs and CUBEs) are direct obligations of the U.S. Government.
CORPORATE DEBT SECURITIES
Corporate debt securities include corporate bonds, debentures, notes and other
similar corporate debt instruments, including convertible securities. Debt
securities may be acquired with warrants attached. Corporate income-producing
securities may also include forms of preferred or preference stock. The rate of
interest 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
(rated below Baa (Moody's) or BBB (S&P)) are described as "speculative" both by
Moody's and S&P. Such securities are sometimes referred to as "junk bonds," and
may be subject to greater market fluctuations, less liquidity and greater risk
of loss of income or principal, including a greater possibility of default or
bankruptcy of the issuer of such securities, than are more highly rated debt
securities. Moody's also describes securities rated Baa as having speculative
characteristics. The Adviser seeks to minimize these risks through
diversification, in-depth credit analysis and attention to current developments
in interest rates and market conditions. See "Appendix B--Description of
Securities Ratings." Investments in high yield securities are discussed
separately below, see "High Yield Securities ("Junk Bonds")."
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate securities provide for a periodic adjustment in the
interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.
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Each of the Fixed Income Funds may invest in floating rate debt instruments
("floaters"). The interest rate on a floater is a variable rate which is tied to
another interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
While, because of the interest rate reset feature, floaters provide a Fund with
a certain degree of protection against rises in interest rates, a Fund will
participate in any declines in interest rates as well.
Each of the Fixed Income Funds (except the Money Market Fund) may also invest in
inverse floating rate debt instruments ("inverse floaters"). The interest rate
on an inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floating rate
security may exhibit greater price volatility than a fixed rate obligation of
similar credit quality. The Funds have adopted a policy under which no Fund will
invest more than 5% of its net assets in any combination of inverse floater,
interest only ("IO"), or principal only ("PO") securities. See "Mortgage-Related
and Other Asset-Backed Securities" for a discussion of IOs and POs.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
Each of the Funds (except the Money Market Fund) may invest all of its assets in
mortgage- or asset-backed securities. The value of some mortgage- or asset-
backed securities in which the Funds invest may be particularly sensitive to
changes in prevailing interest rates, and, like the other investments of the
Funds, the ability of a Fund to successfully utilize these instruments may
depend in part upon the ability of the Adviser to forecast interest rates and
other economic factors correctly.
Mortgage Pass-Through Securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property in
which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on some mortgage-related securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose a Fund to a lower rate
of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, the value of the premium would be
lost in the event of prepayment. Like other fixed income securities, when
interest rates rise, the value of a mortgage-related security generally will
decline; however, when interest rates are declining, the value of mortgage-
related securities with prepayment features may not increase as much as other
fixed income securities. The rate of prepayments on underlying mortgages will
affect the price and volatility of a mortgage-related security, and may have the
effect of shortening or extending the effective maturity of the security beyond
what was anticipated at the time of purchase. To the extent that unanticipated
rates of prepayment on underlying mortgages increase the effective maturity of a
mortgage-related security, the volatility of such security can be expected to
increase.
Payment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
GNMA); or guaranteed by agencies or instrumentalities of the U.S. Government (in
the case of securities guaranteed by FNMA or the Federal Home Loan Mortgage
Corporation ("FHLMC"), which are supported only by the discretionary authority
of the U.S. Government to purchase the agency's obligations). Mortgage-related
securities created by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers) may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance and letters of credit, which may be issued by governmental entities,
private insurers or the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. Similar to a bond, interest and pre-paid principal on a CMO are
paid, in most cases, semi-annually. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage pass-
through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into
multiple classes, with each class bearing a different stated maturity. Monthly
payments of principal, including prepayments, are first returned to investors
holding the shortest maturity class; investors holding the longer maturity
classes receive principal only after the first class has been retired. CMOs that
are issued or guaranteed by the U.S. Government or by any of its agencies or
instrumentalities will be considered U.S. Government securities by the Funds,
while other CMOs, even if collateralized by U.S. Government securities, will
have the same status as other privately issued securities for purposes of
applying a Fund's diversification tests.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks
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of investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed securities
may be less liquid and exhibit greater price volatility than other types of
mortgage- or asset-backed securities.
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, such as CMO residuals or stripped
mortgage-backed securities ("SMBS"), and may be structured in classes with
rights to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the principal-only, or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. The Funds have
adopted a policy under which no Fund will invest more than 5% of its net assets
in any combination of IO, PO, or inverse floater securities. The Funds may
invest in other asset-backed securities that have been offered to investors. For
a discussion of the characteristics of some of these instruments, see the
Statement of Additional Information.
REPURCHASE AGREEMENTS
For the purpose of achieving income, each of the Funds may enter into repurchase
agreements, which entail the purchase of a portfolio eligible security from a
bank or broker-dealer that agrees to repurchase the security at the Fund's cost
plus interest within a specified time (normally one day). If the party agreeing
to repurchase should default, as a result of bankruptcy or otherwise, the Fund
will seek to sell the securities which it holds, which action could involve
procedural costs or delays in addition to a loss on the securities if their
value should fall below their repurchase price. No Fund will invest more than
15% of its net assets (10% in the case of the Money Market Fund) (taken at
current market value) in repurchase agreements maturing in more than seven days.
REVERSE REPURCHASE AGREEMENTS, DOLLAR ROLLS, AND OTHER BORROWINGS
A reverse repurchase agreement is a form of leverage that involves the sale of a
security by a Fund and its agreement to repurchase the instrument at a specified
time and price. The Fund will maintain a segregated account consisting of assets
determined to be liquid by the Adviser in accordance with procedures established
by the Board of Trustees, maturing not later than the expiration of the reverse
repurchase agreement, to cover its obligations under reverse repurchase
agreements.
A Fund may enter into dollar rolls, in which the Fund sells mortgage-backed or
other securities for delivery in the current month and simultaneously contracts
to purchase substantially similar securities on a specified future date. In the
case of dollar rolls involving mortgage-backed securities, the mortgage-backed
securities that are purchased will be of the same type and will have the same
interest rate as those sold, but will be supported by different pools of
mortgages. The Fund forgoes principal and interest paid during the roll period
on the securities sold in a dollar roll, but the Fund is compensated by the
difference between the current sales price and the lower price for the future
purchase as well as by any interest earned on the proceeds of the securities
sold. The Fund also could be compensated through the receipt of fee income
equivalent to a lower forward price. The Fund will maintain a segregated account
consisting of assets determined to be liquid by the Adviser in accordance with
procedures established by the Board of Trustees, to cover its obligations under
dollar rolls.
Dollar rolls and reverse repurchase agreements will be subject to the Funds'
limitations on borrowings, which will restrict the aggregate of such
transactions (plus any other borrowings) to 33/1//3% (for each Fund except the
Global Bond Fund II) of such Fund's total assets. Apart from transactions
involving reverse repurchase agreements and dollar rolls, a Fund will not borrow
money, except for temporary administrative purposes. The Global Bond Fund II
may not borrow in excess of 10% of the value of its total assets and then only
from banks as a temporary measure to facilitate the meeting of redemption
requests (not for leverage) or for extraordinary or emergency purposes.
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LOANS OF PORTFOLIO SECURITIES
For the purpose of achieving income, each Fund may lend its portfolio securities
to brokers, dealers, and other financial institutions, provided: (i) the loan is
secured continuously by collateral consisting of U.S. Government securities,
cash or cash equivalents (negotiable certificates of deposit, bankers'
acceptances or letters of credit) maintained on a daily mark-to-market basis in
an amount at least equal to the current market value of the securities loaned;
(ii) the Fund may at any time call the loan and obtain the return of the
securities loaned; (iii) the Fund will receive any interest or dividends paid on
the loaned securities; and (iv) the aggregate market value of securities loaned
will not at any time exceed 33/1//3% (25% in the case of the Global Bond Fund
II) of the total assets of the Fund.
DELAYED DELIVERY, WHEN-ISSUED, AND FORWARD COMMITMENT TRANSACTIONS
Each of the Funds may purchase or sell securities on a when-issued, delayed
delivery, or forward commitment basis. These transactions involve a commitment
by the Fund to purchase or sell securities for a predetermined price or yield,
with payment and delivery taking place more than seven days in the future, or
after a period longer than the customary settlement period for that type of
security. When such purchases are outstanding, the Fund will set aside and
maintain until the settlement date in a segregated account, assets determined to
be liquid by the Adviser in accordance with procedures established by the Board
of Trustees, in an amount sufficient to meet the purchase price. Typically, no
income accrues on securities a Fund has committed to purchase prior to the time
delivery of the securities is made, although a Fund may earn income on
securities it has deposited in a segregated account. When purchasing a security
on a when-issued, delayed delivery, or forward commitment basis, the Fund
assumes the rights and risks of ownership of the security, including the risk of
price and yield fluctuations, and takes such fluctuations into account when
determining its net asset value. Because the Fund is not required to pay for the
security until the delivery date, these risks are in addition to the risks
associated with the Fund's other investments. If the Fund remains substantially
fully invested at a time when when-issued, delayed delivery, or forward
commitment purchases are outstanding, the purchases may result in a form of
leverage. When the Fund has sold a security on a when-issued, delayed delivery,
or forward commitment basis, the Fund does not participate in future gains or
losses with respect to the security. If the other party to a transaction fails
to deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity or could suffer a loss. A Fund may dispose of or renegotiate a
transaction after it is entered into, and may sell when-issued or forward
commitment securities before they are delivered, which may result in a capital
gain or loss. There is no percentage limitation on the extent to which the Funds
may purchase or sell securities on a when-issued, delayed delivery, or forward
commitment basis.
SHORT SALES
Each of the Funds (except the High Yield, Total Return III and StocksPLUS
Funds), and particularly the StocksPLUS Short Strategy Fund, may from time to
time effect short sales as part of their overall portfolio management
strategies, including the use of derivative instruments, or to offset potential
declines in value of long positions in similar securities as those sold short. A
short sale (other than a short sale against the box) is a transaction in which a
Fund sells a security it does not own at the time of the sale in anticipation
that the market price of that security will decline. To the extent that a Fund
engages in short sales, it must (except in the case of short sales "against the
box") maintain asset coverage in the form of assets determined to be liquid by
the Adviser in accordance with procedures established by the Board of Trustees,
in a segregated account, or otherwise cover its position in a permissible
manner. A short sale is "against the box" to the extent that the Fund
contemporaneously owns, or has the right to obtain at no added cost, securities
identical to those sold short. The Global Bond Fund II may only engage in short
sales that are "against the box."
FOREIGN SECURITIES
Each of the Funds (except the Low Duration II and Total Return II Funds) may
invest directly in fixed income securities of non-U.S. issuers. The Money
Market, High Yield, Commercial Mortgage Securities and Long-Term U.S. Government
Funds may only invest in U.S. dollar-denominated fixed income securities of non-
U.S. issuers. Each of the Equity Funds may invest directly in foreign equity
securities.
Each of the Funds will limit its foreign investments to securities of issuers
based in developed countries (including Newly Industrialized Countries ("NICs"),
such as Taiwan, South Korea and Mexico). The Short-Term, Low Duration and Low
Duration III Funds limit their investments in securities of issuers based in
NICs to 5% of their assets, and the remaining Fixed Income Funds (except the
Foreign Bond, Global Bond, Global Bond II and International Bond Funds) limit
their investments in securities of issuers based in NICs to 10% of their assets.
Investing in the securities of issuers in any foreign country involves special
risks and considerations not typically associated with investing in U.S.
companies. Shareholders should consider carefully the substantial risks involved
in investing in
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 19
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securities issued by companies and governments of foreign nations. 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.
Each of the Fixed Income Funds (except the Low Duration II and Total Return II
Funds) may invest in Brady Bonds. Brady Bonds are securities created through the
exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with debt restructurings under a debt restructuring
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady.
Brady Bonds have been issued only recently, and for that reason do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (but primarily the U.S. dollar), and are actively
traded in the over-the-counter secondary market. Brady Bonds are not considered
to be U.S. Government securities. In light of the residual risk of Brady Bonds
and, among other factors, the history of defaults with respect to commercial
bank loans by public and private entities in countries issuing Brady Bonds,
investments in Brady Bonds may be viewed as speculative. There can be no
assurance that Brady Bonds acquired by a Fund will not be subject to
restructuring arrangements or to requests for new credit, which may cause the
Fund to suffer a loss of interest or principal on any of its holdings. For
further information, see the Statement of Additional Information.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention (or the failure to intervene) by
U.S. or foreign governments or central banks, by currency controls or political
developments in the U.S. or abroad. Currencies in which the Funds' assets are
denominated may be devalued against the U.S. dollar, resulting in a loss to the
Funds.
All Funds 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 involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
By entering into a forward foreign currency contract, the Fund ''locks in'' the
exchange rate between the currency it will deliver and the currency it will
receive for the duration of the contract. As a result, a Fund reduces its
exposure to changes in the value of the currency it will deliver and increases
its exposure to changes in the value of the currency it will exchange into. The
effect on the value of a Fund is similar to selling securities denominated in
one currency and purchasing securities denominated in another. Contracts to sell
foreign currency would limit any potential gain which might be realized by a
Fund if the value of the hedged currency increases. A Fund may enter into these
contracts for the purpose of hedging against foreign exchange risk arising from
the Fund's investment or anticipated investment in securities denominated in
foreign currencies. A Fund 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. A Fund may use one currency
(or a basket of currencies) to hedge against adverse changes in the value of
another currency (or a basket of currencies) when exchange rates between the two
currencies are positively correlated. A Fund will segregate assets determined to
be liquid by the Adviser in accordance with procedures established by the Board
of Trustees, in a segregated account to cover forward currency contracts entered
into for non-hedging purposes.
All Funds that may invest in securities denominated in foreign currencies may
invest in options on foreign currencies and foreign currency futures and options
thereon. The Funds also may invest in foreign currency exchange-related
securities, such as foreign currency warrants and other instruments whose return
is linked to foreign currency exchange rates. Each Fund that may invest in
securities denominated in foreign currencies, except the Global Bond Fund, 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.
<PAGE>
20 PIMCO FUNDS - Pacific Investment Management Series
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HIGH YIELD SECURITIES ("JUNK BONDS")
The High Yield Fund invests at least 65% of its assets, and the Commercial
Mortgage Securities Fund may invest up to 35% of its assets, in fixed income
securities rated lower than Baa by Moody's or lower than BBB by S&P but rated at
least B by Moody's or S&P (or, if not rated, of comparable quality). In
addition, each of the Short-Term, Low Duration, Low Duration III, Moderate
Duration, Total Return, Total Return III, Foreign Bond, Global Bond, Global Bond
II, StocksPLUS, StocksPLUS Short Strategy and Strategic Balanced Funds may
invest up to 10% of its assets in such securities. Securities rated lower than
Baa by Moody's or lower than BBB by S&P are sometimes referred to as "high
yield" or "junk" bonds. Securities rated Baa are considered by Moody's to have
some speculative characteristics. Investors should consider the following risks
associated with high yield securities before investing in these Funds.
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.
Analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities, and the ability of a
Fund to achieve its investment objective may, to the extent of its investments
in high yield securities, be more dependent upon such creditworthiness analysis
than would be the case if the Fund were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than 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. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of high yield securities
defaults, a Fund may incur additional expenses to seek recovery. In the case of
high yield securities structured as zero coupon or payment-in-kind securities,
the market prices of such securities are affected to a greater extent by
interest rate changes, and therefore tend to be more volatile than securities
which pay interest periodically and in cash.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of a Fund'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.
The use of credit ratings as the sole method of evaluating high yield securities
can involve certain risks. For example, credit ratings evaluate the safety of
principal and interest payments, not the market value risk of high yield
securities. Also, credit rating agencies may fail to change credit ratings in a
timely fashion to reflect events since the security was last rated. The Adviser
does not rely solely on credit ratings when selecting securities for the Funds,
and develops its own independent analysis of issuer credit quality. If a credit
rating agency changes the rating of a portfolio security held by a Fund, the
Fund may retain the portfolio security if the Adviser deems it in the best
interest of shareholders.
During the year ended March 31, 1996 (September 30, 1996 for the Global Bond
Fund II), based upon the dollar-weighted average ratings of the Funds' portfolio
holdings at the end of each month in the Funds' fiscal year, each operational
Fund that may invest greater than 5% of its assets in securities rated below
investment grade had the following percentages of its net assets invested in
securities rated in the categories indicated as rated by Moody's (or, if
unrated, determined by the Adviser to be of comparable quality). See "Appendix
B--Description of Securities Ratings," for further information.
RATING
------
<TABLE>
<CAPTION>
BELOW
-------
FUND PRIME 1 AAA AA A PRIME 1 BAA BA B CAA
- ---- ------- ------ ------ ----- ------- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term 12.89% 46.13% 2.85% 17.35% 0.00% 10.96% 6.63% 2.87% 0.31%
Low Duration 9.65 58.17 2.80 10.10 0.00 8.02 10.71 0.54 0.00
High Yield 2.66 1.20 0.00 0.90 0.00 4.17 41.24 49.84 0.00
Total Return 9.80 62.57 6.12 7.35 0.00 5.92 6.23 2.00 0.01
Total Return III 10.22 69.93 1.91 6.49 0.00 4.78 5.36 1.31 0.00
</TABLE>
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 21
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<TABLE>
<CAPTION>
BELOW
-------
FUND PRIME 1 AAA AA A PRIME 1 BAA BA B CAA
---- ------- ------ ------ ----- ------- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Bond 2.72 46.26 30.18 8.62 0.51 2.88 5.18 3.65 0.00
Global Bond 15.05 40.36 29.03 5.45 0.50 2.62 2.06 4.92 0.00
Global Bond II/*/
StocksPLUS 10.17 59.79 4.28 6.45 0.00 11.00 7.60 0.72 0.00
</TABLE>
/*/ Reflects portfolio holdings of the PIMCO Advisors Global Income Fund for
its fiscal year ended September 30, 1996. The Global Income Fund was
reorganized as the Trust's Global Bond Fund II on January __, 1996.
These figures are intended solely to provide disclosure about each Fund's asset
composition during its most recent fiscal year. The asset composition after
this time may or may not be approximately the same as represented by such
figures. In addition, the categories reflect ratings by Moody's, and ratings
assigned by S&P may not be consistent with ratings assigned by Moody's or other
credit ratings services, and the Adviser may not necessarily agree with a rating
assigned by any credit rating agency.
DERIVATIVE INSTRUMENTS
To the extent permitted by the investment objectives and policies of the Funds,
the Funds may (except the Money Market Fund) 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 as further described
below. The Funds (except the Money Market Fund) also may enter into swap
agreements with respect to foreign currencies, interest rates, and securities
indexes. The Funds 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 Funds (except the Money Market Fund) may also
purchase and sell options relating to foreign currencies for purposes of
increasing exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to another. Each Fund will maintain
segregated accounts consisting of assets determined to be liquid by the Adviser
in accordance with procedures established by the Board of Trustees, (or, as
permitted by applicable regulation, enter into certain offsetting positions) to
cover its obligations under options, futures, and swaps to avoid leveraging of
the Fund.
The Funds consider derivative instruments to consist of securities or other
instruments whose value is derived from or related to the value of some other
instrument or asset, and not to include those securities whose payment of
principal and/or interest depend upon cash flows from underlying assets, such as
mortgage- or asset-backed securities. Each Fund (except the Money Market Fund)
may invest all of its assets in derivative instruments, subject only to the
Fund's investment objective and policies. The value of some derivative
instruments in which the Funds invest may be particularly sensitive to changes
in prevailing interest rates, and, like the other investments of the Funds, the
ability of a Fund to successfully utilize these instruments may depend in part
upon the ability of the Adviser to forecast interest rates and other economic
factors correctly. If the Adviser incorrectly forecasts such factors and has
taken positions in derivative instruments contrary to prevailing market trends,
the Funds could be exposed to the risk of loss.
The Funds might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If the Adviser
incorrectly forecasts interest rates, market values or other economic factors in
utilizing a derivatives strategy for a Fund, the Fund might have been in a
better position if it had not entered into the transaction at all. 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 due to the possible inability of a
Fund to purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for a Fund to sell a portfolio
security at a disadvantageous time, because the Fund is required to maintain
asset coverage or offsetting positions in connection with transactions in
derivative instruments and the possible inability of a Fund to close out or to
liquidate its derivatives positions.
Options on Securities, Securities Indexes, and Currencies A Fund may purchase
put options on securities and indexes. One purpose of purchasing put options is
to protect holdings in an underlying or related security against a substantial
decline in market value. A Fund may also purchase call options on securities and
indexes. One purpose of purchasing call options is to protect against
substantial increases in prices of securities the Fund intends to purchase
pending its ability to invest in such securities in an orderly manner. An option
on a security (or index) is a contract that gives the holder of the option, in
return for a premium, the right to buy from (in the case of a call) or sell to
(in the case of a put) the writer of the option the security underlying the
option (or the cash value of the index)
<PAGE>
22 PIMCO FUNDS - Pacific Investment Management Series
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at a specified exercise price at any time during the term of the option. The
writer of an option on a security has the obligation upon exercise of the option
to deliver the underlying security upon payment of the exercise price or to pay
the exercise price upon delivery of the underlying security. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. An index is designed to reflect specified
facets of a particular financial or securities market, a specific group of
financial instruments or securities, or certain economic indicators.
A Fund may sell put or call options it has previously purchased, which could
result in a net gain or loss depending on whether the amount realized on the
sale is more or less than the premium and other transaction costs paid on the
put or call option which is sold. A Fund may write a call or put option only if
the option is "covered" by the Fund holding a position in the underlying
securities or by other means which would permit immediate satisfaction of the
Fund's obligation as writer of the option. Prior to exercise or expiration, an
option may be closed out by an offsetting purchase or sale of an option of the
same series.
The Funds may write covered straddles consisting of a combination of a call and
a put written on the same underlying security. A straddle will be covered when
sufficient assets are deposited to meet the Funds' immediate obligations. The
Funds may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security remains equal to or greater than the
exercise price (in the case of a put), or remains less than or equal to the
exercise price (in the case of a call), the Fund will lose its entire investment
in the option. Also, where a put or call option on a particular security is
purchased to hedge against price movements in a related security, the price of
the put or call option may move more or less than the price of the related
security. There can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Fund may be unable to close
out a position.
Funds that invest in foreign currency-denominated securities may buy or sell put
and call options on foreign currencies. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of a
Fund to reduce foreign currency risk using such options. Over-the-counter
options differ from traded options in that they are two-party contracts with
price and other terms negotiated between buyer and seller and generally do not
have as much market liquidity as exchange-traded options. The Funds may be
required to treat as illiquid over-the-counter options purchased and securities
being used to cover certain written over-the-counter options.
Swap Agreements The Funds may enter into interest rate, index, equity and
currency exchange rate swap agreements. These transactions would be entered into
in an attempt to obtain a particular return when it is considered desirable to
do so, possibly at a lower cost to the Fund than if the Fund had invested
directly in the asset that yielded the desired return. Swap agreements are two-
party contracts entered into primarily by institutional investors for periods
ranging from a few weeks to more than one year. In a standard swap transaction,
two parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments, which
may be adjusted for an interest factor. The gross returns to be exchanged or
"swapped" between the parties are generally calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. Forms
of swap agreements include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap"; interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified level, or "floor"; and
interest rate collars, under which a party sells a cap and purchases a floor or
vice versa in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.
Most swap agreements entered into by the Funds would calculate the obligations
of the parties to the agreement on a "net basis." Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 23
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or received under the agreement based on the relative values of the positions
held by each party to the agreement (the "net amount"). A Fund's current
obligations under a swap agreement will be accrued daily (offset against amounts
owed to the Fund), and any accrued but unpaid net amounts owed to a swap
counterparty will be covered by the maintenance of a segregated account
consisting of assets determined to be liquid by the Adviser in accordance with
procedures established by the Board of Trustees, to avoid any potential
leveraging of the Fund's portfolio. Obligations under swap agreements so covered
will not be construed to be "senior securities" for purposes of the Funds'
investment restriction concerning senior securities. A Fund will not enter into
a swap agreement with any single party if the net amount owed or to be received
under existing contracts with that party would exceed 5% of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Adviser's ability to predict correctly
whether certain types of investments are likely to produce greater returns than
other investments. Because they are two-party contracts and because they may
have terms of greater than seven days, swap agreements may be considered to be
illiquid investments. Moreover, a Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Funds will enter into swap
agreements only with counterparties that meet certain standards for
creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Funds' repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code may limit
the Funds' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
Futures Contracts and Options on Futures Contracts Each of the Fixed Income
Funds (except the Money Market Fund) may invest in interest rate futures
contracts and options thereon ("futures options"), and to the extent they can
invest in foreign currency-denominated securities, may also invest in foreign
currency futures contracts and options thereon. Each of the Equity Funds and the
Strategic Balanced Fund may invest in interest rate, stock index and foreign
currency futures contracts and options thereon.
There are several risks associated with the use of futures and futures options
for hedging purposes. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the portfolio securities
being hedged. An incorrect correlation could result in a loss on both the hedged
securities in a Fund and the hedging vehicle so that the portfolio return might
have been greater had hedging not been attempted. There can be no assurance that
a liquid market will exist at a time when a Fund seeks to close out a futures
contract or a futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a particular
contract, no trades may be made that day at a price beyond that limit. In
addition, certain of these instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent a Fund from liquidating an unfavorable position, and the
Fund would remain obligated to meet margin requirements until the position is
closed.
The Funds may write covered straddles consisting of a call and a put written on
the same underlying futures contract. A straddle will be covered when sufficient
assets are deposited to meet the Funds' immediate obligations. A Fund may use
the same liquid assets to cover both the call and put options where the exercise
price of the call and put are the same, or the exercise price of the call is
higher than that of the put. In such cases, the Funds will also segregate liquid
assets equivalent to the amount, if any, by which the put is "in the money."
The Funds will only enter into futures contracts or futures options which are
standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. Each Fund will use
financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission ("CFTC"), or, with respect to positions in financial
futures and related options that do not qualify as "bona fide hedging"
positions, will enter such positions only to the extent that aggregate initial
margin deposits plus premiums paid by it for open futures option positions, less
the amount by which any such positions are "in-the-money," would not exceed 5%
of the Fund's net assets.
ILLIQUID SECURITIES
Each of the Funds may invest up to 15% of its net assets in illiquid securities
(10% in the case of the Money Market Fund). Certain illiquid securities may
require pricing at fair value as determined in good faith under the supervision
of the Board of Trustees. The Adviser may be subject to significant delays in
disposing of illiquid securities, and transactions in illiquid securities may
entail registration expenses and other transaction costs that are higher than
transactions in liquid securities. The term "illiquid securities" for
<PAGE>
24 PIMCO FUNDS - Pacific Investment Management Series
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this purpose means securities that cannot be disposed of within seven days in
the ordinary course of business at approximately the amount at which a Fund has
valued the securities. Illiquid securities are considered to include, among
other things, written over-the-counter options, securities or other liquid
assets being used as cover for such options, repurchase agreements with
maturities in excess of seven days, certain loan participation interests, fixed
time deposits which are not subject to prepayment or provide for withdrawal
penalties upon prepayment (other than overnight deposits), securities that are
subject to legal or contractual restrictions on resale (such as privately placed
debt securities) and other securities whose disposition is restricted under the
federal securities laws (other than securities issued pursuant to Rule 144A
under the Securities Act of 1933 and certain commercial paper that Pacific
Investment Management has determined to be liquid under procedures approved by
the Board of Trustees).
PERFORMANCE INFORMATION
From time to time the Trust may make available certain information about the
performance of the Class A, Class B and Class C shares of some or all of the
Funds. Performance information is computed separately for each Fund's Class A,
Class B and Class C shares in accordance with the formulas described below.
Because Class B and Class C shares bear the expense of the distribution fee
attending the deferred sales charge (Class B) and asset based sales charge
(Class C) alternatives and certain other expenses, it is expected that, under
normal circumstances, the level of performance of a Fund's Class B and Class C
shares will be lower than that of the Fund's Class A shares.
The Trust may, from time to time, include the yield and total return for each
class of shares of its Funds in advertisements or reports to shareholders or
prospective investors. Yield quotations for the Money Market Fund may include
current yield and effective yield. Current yield will be based on income
received by a hypothetical investment over a given seven-day period (less
expenses accrued during the period) and "annualized" (i.e., assuming that the
seven-day yield would be received for 52 weeks, stated in terms of an annual
percentage return on the investment). Effective yield for the Fund is calculated
in the manner similar to that used to calculate current yield, but reflects the
compounding effect on earnings of reinvested dividends. For the remaining Funds,
quotations of yield for a Fund or class will be based on the investment income
per share (as defined by the SEC) during a particular 30-day (or one-month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and will be computed by dividing net
investment income by the maximum public offering price per share on the last day
of the period. Quotations of average annual total return for a Fund or class
will be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, five and ten
years (up to the life of the Fund), reflect the deduction of a proportional
share of Fund or class expenses (on an annual basis), and assume that all
dividends and distributions are reinvested when paid.
The Trust also may provide current distribution information to its shareholders
in shareholder reports or other shareholder communications, or in certain types
of sales literature provided to prospective investors. Current distribution
information for a particular class of a Fund will be based on distributions for
a specified period (i.e., total dividends from net investment income), divided
by the relevant class net asset value per share on the last day of the period
and annualized. The rate of current distributions does not reflect deductions
for unrealized losses from transactions in derivative instruments such as
options and futures, which may reduce total return. Current distribution rates
differ from standardized yield rates in that they represent what a class of a
Fund has declared and paid to shareholders as of the end of a specified period
rather than the Fund's actual net investment income for that period.
Performance information for the Trust may also be compared to various unmanaged
indices, such as the Standard & Poor's 500 Composite Stock Price Index, the
Lehman Brothers Aggregate Bond Index, the Merrill Lynch 1 to 3 Year Treasury
Index, the Lehman Intermediate and 20+ Year Treasury Blend Index, the Lehman BB
Intermediate Corporate Index, indexes prepared by Lipper Analytical Services,
the J.P. Morgan Global Index, the Salomon Brothers World Government Bond Index-
10 Non U.S.-Dollar Hedged and the J.P. Morgan Government Bond Index Non U.S.-
Dollar Hedged, and other entities or organizations which track the performance
of investment companies or investment advisers. Unmanaged indexes (i.e., other
than Lipper) generally do not reflect deductions for administrative and
management costs and expenses. The Adviser may also report to shareholders or to
the public in advertisements concerning the performance of the Adviser as
adviser to clients other than the Trust, and on the comparative performance or
standing of the Adviser in relation to other money managers. Such comparative
information may be compiled or provided by independent ratings services or by
news organizations. Any performance information, whether related to the Funds or
to the Adviser, should be considered in light of a Fund's investment objectives
and policies, characteristics and quality of the portfolio, and the market
conditions during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. For a description of the
methods used to determine yield and total return for the Funds, see the
Statement of Additional Information.
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 25
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Investment results of the Funds will fluctuate over time, and any presentation
of the Funds' total return or yield for any prior period should not be
considered as a representation of what an investor's total return or yield may
be in any future period.
HOW TO BUY SHARES
Class A, B and C shares of each Fund of the Trust are continuously offered
through the Trust's principal underwriter, PIMCO Funds Distribution Company (the
"Distributor"), and through other firms which have dealer agreements with the
Distributor ("participating brokers") or which have agreed to act as introducing
brokers for the Distributor ("introducing brokers").
There are two ways to purchase Class A, B or C shares: either 1) through your
dealer or broker which has a dealer agreement or 2) directly by mailing an
Account Application with payment, as described below under the heading Direct
Investment, to the Distributor (if no dealer is named in the application, the
Distributor may act as dealer).
Each Fund currently offers and sells three classes of shares in this Prospectus
(Class A, Class B and Class C). Institutional Class shares and Administrative
Class shares of the Funds are offered through a separate prospectus. Shares may
be purchased at a price equal to their net asset value per share next determined
after receipt of an order, plus a sales charge which, at the election of the
purchaser, may be imposed either (i) at the time of the purchase in the case of
Class A shares (the "initial sales charge alternative"), (ii) on a contingent
deferred basis in the case of Class B shares (the "deferred sales charge
alternative"), or (iii) by the deduction of an ongoing asset based sales charge
in the case of Class C shares (the "asset based sales charge alternative"). In
certain circumstances, Class A and Class C shares are also subject to a
contingent deferred sales charge. See "Alternative Purchase Arrangements."
Purchase payments for Class B and Class C shares are fully invested at the net
asset value next determined after acceptance of the trade. Purchase payments
for Class A shares, less the applicable sales charge, are invested at the net
asset value next determined after acceptance of the trade.
All purchase orders received by the Distributor prior to the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time), on a
regular business day, are processed at that day's offering price. However,
orders received by the Distributor from dealers or brokers after the offering
price is determined that day will receive such offering price if the orders were
received by the dealer or broker from its customer prior to such determination
and were transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 p.m. Eastern time) or, in the case of certain
retirement plans, received by the Distributor prior to 10:00 a.m. Eastern time
on the next business day. Purchase orders received on other than a regular
business day will be executed on the next succeeding regular business day. The
Distributor, in its sole discretion, may accept or reject any order for purchase
of Fund shares. The sale of shares will be suspended during any period in which
the New York Stock Exchange (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 Funds to dispose of their securities or to determine fairly the value of
their net assets, or during any other period permitted by the SEC for the
protection of investors.
Except for purchases through the PIMCO Auto Invest plan, the PIMCO Auto Exchange
plan and tax-qualified programs referred to below, the minimum initial
investment in Class A, B or C shares of the Trust is $1,000 and in any Fund is
$250, and the minimum additional investment is $100 per Fund. For information
about dealer commissions, see "Alternative Purchase Arrangements" below. Persons
selling Fund shares may receive different compensation for selling Class A,
Class B or Class C shares. Normally Trust shares purchased through
participating brokers are held in the investor's account with that broker.
DIRECT INVESTMENT Investors who wish to invest in Class A, B or C shares of the
Trust directly, rather than through a participating broker, may do so by opening
an account with the Distributor. To open an account, an investor should complete
the Account Application included with this Prospectus. All shareholders who
open direct accounts with the Distributor will receive from the Distributor
individual confirmations of each purchase, redemption, dividend reinvestment,
exchange or transfer of Trust shares, including the total number of Trust shares
owned as of the confirmation date except that purchases which result from the
reinvestment of daily-accrued dividends and/or distributions will be confirmed
once each calendar quarter. See "Distributions" below. Information regarding
direct investment or any other features or plans offered by the Trust may be
obtained by calling the Distributor at 800-426-0107 or by calling your broker.
<PAGE>
26 PIMCO FUNDS - Pacific Investment Management Series
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PURCHASE BY MAIL Investors who wish to invest directly may send a check payable
to PIMCO Funds Distribution Company, along with a completed application form to:
PIMCO Funds Distribution Company
P.O. Box 5866
Denver, CO 80217-5866
Purchases are accepted subject to collection of checks at full value and
conversion into federal funds. Payment by a check drawn on any member of the
Federal Reserve System can normally be converted into federal funds within two
business days after receipt of the check. Checks drawn on a non-member bank may
take up to 15 days to convert into federal funds. In all cases, the purchase
price is based on the net asset value next determined after the purchase order
and check are accepted, even though the check may not yet have been converted
into federal funds.
SUBSEQUENT PURCHASES OF SHARES Subsequent purchases of Class A, B or C shares
can be made as indicated above by mailing a check with a letter describing the
investment or with the additional investment portion of a confirmation
statement. Except for subsequent purchases through the PIMCO Auto Invest plan,
the PIMCO Auto Exchange plan, tax-qualified programs and PIMCO Fund Link
referred to below, and except during periods when an Automatic Withdrawal plan
is in effect, the minimum subsequent purchase is $100 in any Fund. All payments
should be made payable to PIMCO Funds Distribution Company and should clearly
indicate the shareholder's account number. Checks should be mailed to the
address above under "Purchase by Mail."
TAX-QUALIFIED RETIREMENT PLANS The Distributor makes available retirement plan
services and documents for Individual Retirement Accounts (IRAs), for which
First National Bank of Boston serves as trustee. These accounts include
Simplified Employee Pension Plan (SEP) and Salary Reduction Simplified Employee
Pension Plan (SAR/SEP) IRA accounts and prototype documents. In addition,
prototype documents are available for establishing 403(b)(7) Custodial Accounts
with First National Bank of Boston as custodian. This type of plan is available
to employees of certain non-profit organizations.
The Distributor also makes available prototype documents for establishing Money
Purchase and/or Profit Sharing Plans and 401(k) Retirement Savings Plans.
Investors should call the Distributor at 800-426-0107 for further information
about these plans and should consult with their own tax advisers before
establishing any retirement plan. Investors who maintain their accounts with
participating brokers should consult their broker about similar types of
accounts that may be offered through the broker. The minimum initial and
subsequent investment in any Fund for tax-qualified plans is $25.
PIMCO AUTO INVEST The PIMCO Auto Invest plan provides for periodic investments
into the shareholder's account with the Trust by means of automatic transfers of
a designated amount from the shareholder's bank account. Investments may be
made monthly or quarterly, and may be in any amount subject to a minimum of $50
per month for each Fund in which shares are purchased through the plan. Further
information regarding the PIMCO Auto Invest plan is available from the
Distributor or participating brokers. You may enroll by completing the
appropriate section on the PIMCO Funds Account Application, or you may obtain an
Auto-Invest Application by calling the Distributor or your broker.
PIMCO AUTO EXCHANGE The PIMCO Auto Exchange plan establishes regular, periodic
exchanges from one Fund to another. The plan provides for regular investments
into a shareholder's account in a specific Fund by means of automatic exchanges
of a designated amount from another Fund account of the same class of shares and
with identical account registration.
Exchanges may be made monthly or quarterly, and may be in any amount subject to
a minimum of $50 for each Fund whose shares are purchased through the plan.
Further information regarding the PIMCO Auto Exchange plan is available from the
Distributor at 800-426-0107 or participating brokers. You may enroll by
completing an application which may be obtained from the Distributor or by
telephone request at 800-426-0107. For more information on exchanges, see
"Exchange Privilege".
PIMCO FUND LINK (Does not apply to shares held in broker "street name"
accounts.) PIMCO Fund Link ("Fund Link") connects your Fund account with a bank
account. Fund Link may be used for subsequent purchases and for redemptions and
other transactions described under "How to Redeem." Purchase transactions are
effected by electronic funds transfers from the shareholder's account at a U.S.
bank or other financial institution that is an Automated Clearing House ("ACH")
member. Investors may use Fund Link to make subsequent purchases of shares in
amounts from $50 to $10,000. To initiate such purchases, call 800-852-8457.
All such calls will be recorded. Fund Link is normally established within 45
days of receipt of an Application by Shareholder Services, Inc. (the "Transfer
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 27
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Agent"). The minimum investment by Fund Link is $50 per Fund. Shares will be
purchased on the regular business day the Distributor receives the funds through
the ACH system, provided the funds are received before the close of regular
trading on the New York Stock Exchange. If the funds are received after the
close of regular trading, the shares will be purchased on the next regular
business day.
Fund Link privileges must be requested on the PIMCO Funds Account Application.
To establish Fund Link on an existing account, complete a Fund Link Application,
which is available from the Distributor or your broker, with signatures
guaranteed from all shareholders of record for the account. See "Signature
Guarantee" under "General" below. Such privileges apply to each shareholder of
record for the account unless and until the Distributor receives written
instructions from a shareholder of record canceling such privileges. Changes of
bank account information must be made by completing a new Fund Link Application
signed by all owners of record of the account, with all signatures guaranteed.
The Distributor, the Transfer Agent and the Fund may rely on any telephone
instructions believed to be genuine and will not be responsible to shareholders
for any damage, loss or expenses arising out of such instructions. The Fund
reserves the right to amend, suspend or discontinue Fund Link privileges at any
time without prior notice.
GENERAL
Changes in registration or account privileges may be made in writing to the
Transfer Agent. Signature guarantees may be required. See "Signature Guarantee"
below.
All correspondence must include the account number and must be sent to:
PIMCO Funds Distribution Company
P.O. Box 5866
Denver, CO 80217-5866
SIGNATURE GUARANTEE When a signature guarantee is called for, the shareholder
should have "Signature Guaranteed" stamped under his signature and guaranteed by
any of the following entities: U.S. banks, foreign banks having a U.S.
correspondent bank, credit unions, savings associations, U.S. registered dealers
and brokers, municipal securities dealers and brokers, government securities
dealers and brokers, national securities exchanges, registered securities
associations and clearing agencies (each an "Eligible Guarantor Institution").
The Distributor reserves the right to reject any signature guarantee pursuant to
its written signature guarantee standards or procedures, which may be revised in
the future to permit it to reject signature guarantees from Eligible Guarantor
Institutions that do not, based on credit guidelines, satisfy such written
standards or procedures. The Trust may change the signature guarantee
requirements from time to time upon notice to shareholders, which may be given
by means of a new or supplemented Prospectus.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Trust offers investors three classes of shares in this Prospectus (Class A,
Class B and Class C) which bear sales charges in different forms and amounts and
which bear different levels of expenses. Through a separate prospectus, the
Funds offer two additional classes of shares, Institutional Class shares and
Administrative Class shares, to pension and profit sharing plans, employee
benefit plans, endowments, foundations, corporations and other institutions,
Institutional Class and Administrative Class shares are sold without sales
charges and have different expenses than Class A, Class B and Class C shares.
As a result of lower sales charges and/or operating expenses, Administrative
Class and Institutional Class shares are generally expected to achieve high
investment return than Class A , Class B or Class C shares. To obtain more
information about Institutional Class or Administrative Class shares, please
call the Distributor at 800-426-0107.
The alternative purchase arrangements are designed to enable a retail investor
to choose the method of purchasing Fund shares that is most beneficial to the
investor based on all factors to be considered, which include: the amount and
intended length of the investment, the particular Fund and whether the investor
intends to exchange shares for shares of other Funds. Generally, when making an
investment decision, investors should at least consider the anticipated life of
an intended investment in the Funds, the accumulated distribution and servicing
fees plus contingent deferred sales charges on Class B or Class C shares, the
initial sales charge plus accumulated servicing fees on Class A shares (plus a
contingent deferred sales charge in certain circumstances), the possibility that
the anticipated higher return on Class A shares due to the lower ongoing charges
will offset the initial sales charge paid on such shares, the automatic
conversion of Class B shares to Class A shares and the difference in the
contingent deferred sales charges applicable to Class A, B and C shares.
<PAGE>
28 PIMCO FUNDS - Pacific Investment Management Series
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CLASS A: The initial sales charge alternative (Class A) might be preferred by
investors purchasing shares of sufficient aggregate value to qualify for
reductions in the initial sales charge applicable to such shares. Similar
reductions are not available on the contingent deferred sales charge alternative
(Class B) or the asset based sales charge alternative (Class C). Class A shares
are subject to a servicing fee but are not subject to a distribution fee and,
accordingly, such shares are expected to pay correspondingly higher dividends on
a per share basis. However, because initial sales charges are deducted at the
time of purchase, not all of the purchase payment for Class A shares is invested
initially. Class B and Class C shares might be preferable to investors who wish
to have all purchase payments invested initially, although remaining subject to
higher distribution and servicing fees and, for certain periods, being subject
to a contingent deferred sales charge. An investor who qualifies for an
elimination of the Class A initial sales charge should also consider whether he
or she anticipates redeeming shares in a time period which will subject such
shares to a contingent deferred sales charge as described below. See "Initial
Sales Charge Alternative -- Class A Shares -- Class A Deferred Sales Charge"
below.
CLASS B: Class B shares might be preferred by investors who intend to invest in
the Funds for longer periods and who do not intend to purchase shares of
sufficient aggregate value to qualify for sales charge reductions applicable to
Class A shares. Both Class B and Class C shares can be purchased at net asset
value without an initial sales charge. However, unlike Class C shares, Class B
shares convert into Class A shares after the shares have been held for seven
years. After the conversion takes place, the shares will no longer be subject
to a contingent deferred sales charge, and will be subject to the servicing fees
charged for Class A shares which are lower than the distribution and servicing
fees charged on either Class B or Class C shares. See "Deferred Sales Charge
Alternative -- Class B Shares" below.
CLASS C: Class C shares might be preferred by investors who intend to purchase
shares which are not of sufficient aggregate value to qualify for Class A sales
charges of 1% or less and who wish to have all purchase payments invested
initially. Class C shares are preferable to Class B shares for investors who
intend to maintain their investment for intermediate periods and therefore may
also be preferable for investors who are unsure of the intended length of their
investment. Unlike Class B shares, Class C shares are not subject to a
contingent deferred sales charge after they have been held for one year and are
subject to only a 1% contingent deferred sales charge during the first year.
However, because Class C shares do not convert into Class A shares, Class B
shares are preferable to Class C shares for investors who intend to maintain
their investment in the Funds for long periods. See "Asset Based Sales Charge
Alternative -- Class C Shares" below.
In determining which class of shares to purchase, an investor should always
consider whether any waiver or reduction of a sales charge or a contingent
deferred sales charge is available. See generally "Initial Sales Charge
Alternative -- Class A Shares" and "Waiver of Contingent Deferred Sales Charges"
below.
There is no size limit on purchases of Class A shares. The maximum single
purchase of Class B shares accepted is $249,999. The maximum single purchase of
Class C shares accepted is $999,999. The Funds may refuse any order to purchase
shares.
For a description of the Distribution and Servicing Plans and distribution and
servicing fees payable thereunder with respect to Class A, Class B and Class C
shares, see "Distributor and Distribution and Servicing Plans" below.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES The contingent deferred sales
charge applicable to Class A and Class C shares is currently waived for (i) any
partial or complete redemption in connection with a distribution without penalty
under Section 72(t) of the Internal Revenue Code of 1986, as amended (the
"Code") from a retirement plan, including a 403(b)(7) plan or an IRA (a) upon
attaining age 59 1/2, (b) as part of a series of substantially equal periodic
payments, or (c) in the case of an employer sponsored retirement plan, upon
separation from service and attaining age 55; (ii) any partial or complete
redemption in connection with a qualifying loan or hardship withdrawal from an
employer sponsored retirement plan; (iii) any complete redemption in connection
with a distribution from a qualified employer retirement plan in connection with
termination of employment or termination of the employer's plan and the transfer
to another employer's plan or to an IRA; (iv) any partial or complete redemption
following death or disability (as defined in the Code) of a shareholder
(including one who owns the shares as joint tenant with his or her spouse) from
an account in which the deceased or disabled is named, provided the redemption
is requested within one year of the death or initial determination of
disability; (v) any redemption resulting from a return of an excess contribution
to a qualified employer retirement plan or an IRA; or (vi) certain periodic
redemptions under an Automatic Withdrawal Plan from an account meeting certain
minimum balance requirements, in amounts meeting certain maximums established
from time to time by the Distributor; (vii) redemptions by Trustees, officers
and employees of the Trust and by directors, officers and employees of the
Distributor and the Adviser; (viii) redemptions effected pursuant to a Fund's
right to involuntarily redeem a shareholder's account if the aggregate net asset
value of shares held in such shareholder's
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 29
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account is less than a minimum account size specified in such Fund's prospectus;
(ix) involuntary redemptions caused by operation of law; (x) redemption of
shares of any Fund that is combined with another Fund, investment company, or
personal holding company by virtue of a merger, acquisition or other similar
reorganization transaction; (xi) redemptions by a shareholder who is a
participant making periodic purchases of not less than $50 through certain
employer sponsored savings plans that are clients of a broker-dealer with which
the Distributor has an agreement with respect to such purchases; or (xii)
redemptions effected by trustees or other fiduciaries who have purchased shares
for employer sponsored plans, the administrator for which has an agreement with
the Distributor with respect to such purchases.
The contingent deferred sales charge applicable to Class B shares is currently
waived for any partial or complete redemption (a) in connection with a
distribution without penalty under Section 72(t) of the Code from a 403(b)(7)
plan or an IRA upon attaining age 59 1/2 and (b) following death or disability
(as defined in the Code) of a shareholder (including one who owns the shares as
joint tenant with his or her spouse) from an account in which the deceased or
disabled is named, provided the redemption is requested within one year of the
death or initial determination of disability.
The Distributor may require documentation prior to waiver of the contingent
deferred sales charge for any class including distribution letters,
certification by plan administrators, applicable tax forms, death certificates,
physicians certificates, etc.
INITIAL SALES CHARGE ALTERNATIVE - CLASS A SHARES
Class A shares are sold at a public offering price equal to their net asset
value per share plus a sales charge, as set forth below. As indicated below
under "Class A Deferred Sales Charge," certain investors that purchase
$1,000,000 or more of any Fund's Class A shares (and thus pay no initial sales
charge) may be subject to a 1% contingent deferred sales charge if they redeem
such shares during the first 18 months after their purchase.
ALL FUNDS EXCEPT MONEY MARKET, SHORT-TERM, LOW DURATION, LOW DURATION II, LOW
DURATION III AND STOCKSPLUS FUNDS
<TABLE>
<CAPTION>
DISCOUNT OR
SALES COMMISSION
SALES CHARGE TO DEALERS
CHARGE AS % OF AS % OF
AS % OF THE PUBLIC PUBLIC
AMOUNT OF NET AMOUNT OFFERING OFFERING
PURCHASE VESTED PRICE PRICE
- -------- -------- ------ ---------
<S> <C> <C> <C>
$0-$49,999 4.99% 4.75% 4.00%
$50,000-$99,999 4.44% 4.25% 3.50%
$100,000-$249,999 3.90% 3.75% 3.00%
$250,000-$499,999 2.56% 2.50% 2.00%
$500,000-$999,999 1.78% 1.75% 1.50%
$1,000,000+ 0.00%/1/ 0.00%/1/ 0.50%
</TABLE>
SHORT-TERM, LOW DURATION, LOW DURATION II, LOW DURATION III AND STOCKSPLUS FUNDS
<TABLE>
<CAPTION>
DISCOUNT OR
SALES COMMISSION
SALES CHARGE TO DEALERS
CHARGE AS % OF AS % OF
AS % OF THE PUBLIC PUBLIC
AMOUNT OF NET AMOUNT OFFERING OFFERING
PURCHASE VESTED PRICE PRICE
- -------- -------- ------ ---------
<S> <C> <C> <C>
$0-$49,999 3.09% 3.00% 2.50%
$50,000-$99,999 2.56% 2.50% 2.00%
$100,000-$249,999 2.04% 2.00% 1.50%
$250,000-$499,999 1.52% 1.50% 1.25%
$500,000-$999,999 1.27% 1.25% 1.00%
$1,000,000+ 0.00%/1/ 0.00%/1/ 0.50%
</TABLE>
/1/ As shown, investors that purchase more than $1,000,000 of any Fund's Class
A shares will not pay any initial sales charge on such purchase. However,
except with regard to purchases of Class A shares of the Money Market Fund,
purchasers of $1,000,000 or more of Class A shares (other than those
<PAGE>
30 PIMCO FUNDS - Pacific Investment Management Series
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purchasers described below under "Sales at Net Asset Value" where no
commission is paid) will be subject to a contingent deferred sales charge
of 1% if such shares are redeemed during the first 18 months after such
shares are purchased unless such purchaser is eligible for a waiver of the
contingent deferred sales charge as described under "Waiver of Contingent
Deferred Sales Charge" above. See "Class A Deferred Sales Charge" below.
The Distributor will pay a commission to dealers who sell amounts of
$1,000,000 or more of Class A shares (or who sell Class A shares at net
asset value to certain employer-sponsored plans as outlined in "Sales at
Net Asset Value" of each of the Equity Funds, according to the following
schedule: 0.75% of the first $2,000,000; 0.50% of amounts from $200,000,001
to $5,000,000 and 0.25% of amounts over $5,000,000; and for Class A shares
of each of the Fixed Income Funds (except for the Money Market Fund for
which no payment is made), according to the following schedule: 0.50% of
the first $2,000,000 and 0.25% of amounts over $2,000,000.
No initial sales charge applies to purchases of Class A shares of the Money
Market Fund. However, if a shareholder exchanges Class A shares of the Money
Market Fund, for which no sales load was paid at the time of purchase, for Class
A shares of any other Fund, the sales charge shown above for the other Fund
applies at the time of the exchange.
Each Fund receives the entire net asset value of its Class A shares purchased by
investors. The Distributor receives the sales charge shown above less any
applicable discount or commission "reallowed" to participating brokers in the
amounts indicated in the table above. The Distributor may, however, elect to
reallow the entire sales charge to participating brokers for all sales with
respect to which orders are placed with the Distributor for any particular Fund
during a particular period. A participating broker who receives a reallowance
of 90% or more of the sales charge may be deemed to be an "underwriter" under
the Securities Act of 1933. During such periods as may from time to time be
designated by the Distributor, the Distributor will pay an additional amount of
up to 0.50% of the purchase price on sales of Class A shares of all or selected
Funds purchased to each participating broker which obtains purchase orders in
amounts exceeding thresholds established from time to time by the Distributor.
Shares issued pursuant to the automatic reinvestment of income dividends or
capital gains distributions are issued at net asset value and are not subject to
any sales charges.
Under the circumstances described below, investors may be entitled to pay
reduced sales charges for Class A shares.
COMBINED PURCHASE PRIVILEGE Investors may qualify for a reduced sales charge by
combining purchases of the Class A shares of one or more Funds into a "single
purchase," if the resulting purchase totals at least $50,000. The term single
purchase refers to: (i) a single purchase by an individual, or concurrent
purchases, which in the aggregate are at least equal to the prescribed amounts,
by an individual, his spouse and their children under the age of 21 years
purchasing Class A shares of the Funds for his, her or their own account; (ii) a
single purchase by a trustee or other fiduciary purchasing shares for a single
trust, estate or fiduciary account although more than one beneficiary is
involved; or (iii) a single purchase for the employee benefit plans of a single
employer. For further information, consult the Statement of Additional
Information or call the Distributor at 800-426-0107 or your broker.
CUMULATIVE QUALITY DISCOUNT (RIGHT OF ACCUMULATION) A purchase of additional
Class A shares of any Fund may qualify for a Cumulative Quantity Discount at the
rate applicable to the discount bracket obtained by adding:
(i) the investor's current purchase;
(ii) the value (at the close of business on the day of the current
purchase) of all Class A shares of any Fund (other than the Money
Market Fund) held by the investor computed at the maximum offering
price; and
(iii) the value of all shares described in paragraph (ii) owned by another
shareholder eligible to be combined with the investor's purchase
into a "single purchase" as defined above under "Combined Purchase
Privilege."
For example, if you owned Class A shares of the Total Return Fund worth $25,000
at the current maximum offering price and wished to purchase Class A shares of
the Global Bond Fund worth an additional $30,000, the sales charge for the
$30,000 purchase would be at the 4.25% rate applicable to a single $55,000
purchase of shares of the Global Bond Fund, rather than the 4.75% rate.
An investor or participating broker must notify the Distributor whenever a
quantity discount or reduced sales charge is applicable to a purchase and must
provide the Distributor with sufficient information at the time of purchase to
verify that each purchase qualifies for the privilege or discount. Upon such
notification, the investor will receive the lowest applicable sales charge. The
quantity discounts described above may be modified or terminated at any time.
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 31
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LETTER OF INTENT An investor may also obtain a reduced sales charge by means of
a written Letter of Intent, which expresses an intention to invest not less than
$50,000 within a period of 13 months in Class A shares of any Fund(s) (other
than the Money Market Fund). Each purchase of shares under a Letter of Intent
will be made at the public offering price or prices applicable at the time of
such purchase to a single transaction of the dollar amount indicated in the
Letter. At the investor's option, a Letter of Intent may include purchases of
Class A shares of any Fund made not more than 90 days prior to the date the
Letter of Intent is signed; however, the 13-month period during which the Letter
is in effect will begin on the date of the earliest purchase to be included and
the sales charge on any purchases prior to the Letter will not be adjusted.
Investors qualifying for the Combined Purchase Privilege described above may
purchase shares of the Funds under a single Letter of Intent. For example, if at
the time you sign a Letter of Intent to invest at least $100,000 in Class A
shares of any Fund (other than the Money Market, Short-Term, Low Duration, Low
Duration II, Low Duration III and StocksPLUS Funds), you and your spouse each
purchase Class A shares of the Global Bond Fund worth $30,000 (for a total of
$60,000), it will only be necessary to invest a total of $40,000 during the
following 13 months in Class A shares of any of the Funds (other than the Money
Market, Short-Term, Low Duration, Low Duration II, Low Duration III and
StocksPLUS Funds) to qualify for the 3.75% sales charge on the total amount
being invested (the sales charge applicable to an investment of $100,000 in any
of the Funds (other than Money Market, Short-Term, Low Duration, Low Duration
II, Low Duration III and StocksPLUS Funds).
A Letter of Intent is not a binding obligation to purchase the full amount
indicated. The minimum initial investment under a Letter of Intent is 5% of such
amount. Shares purchased with the first 5% of such amount will be held in
escrow (while remaining registered in your name) to secure payment of the higher
sales charge applicable to the shares actually purchased in the event the full
intended amount is not purchased. If the full amount indicated is not
purchased, a sufficient amount of such escrowed shares will be involuntarily
redeemed to pay the additional sales charge applicable to the amount actually
purchased, if necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released.
If you wish to enter into a Letter of Intent in conjunction with your initial
investment in Class A shares of a Fund, you should complete the appropriate
portion of the Account Application included with this Prospectus. If you are a
current Class A shareholder desiring to do so you can obtain a form of Letter of
Intent by contacting the Distributor at 800-426-0107 or any broker participating
in this program.
REINSTATEMENT PRIVILEGE A Class A shareholder who has caused any or all of his
shares (other than Money Market Fund shares that were not acquired by exchanging
Class A shares of another Fund) to be redeemed may reinvest all or any portion
of the redemption proceeds in Class A shares of any Fund at net asset value
without any sales charge, provided that such reinvestment is made within 120
calendar days after the redemption or repurchase date. Shares are sold to a
reinvesting shareholder at the net asset value next determined as described
above. A reinstatement pursuant to this privilege will not cancel the
redemption transaction and, consequently, any gain or loss so realized may be
recognized for federal tax purposes except that no loss may be recognized to the
extent that the proceeds are reinvested in shares of the same Fund within 30
days. The reinstatement privilege may be utilized by a shareholder only once,
irrespective of the number of shares redeemed, except that the privilege may be
utilized without limit in connection with transactions whose sole purpose is to
transfer a shareholder's interest in a Fund to his Individual Retirement Account
or other qualified retirement plan account. An investor may exercise the
reinstatement privilege by written request sent to the Distributor or to the
investor's broker.
SALES AT NET ASSET VALUE Each Fund may sell its Class A shares at net asset
value without a sales charge to a) current or retired officers, trustees,
directors or employees of the Trust, the Adviser or the Distributor, to a spouse
or child of such person or to any trust, profit sharing or pension plan for the
benefit of any such person, b) current or retired trustees of Cash Accumulation
Trust, a registered investment company for which PIMCO Advisors L.P. acts as
investment adviser, c) current registered representatives and other full-time
employees of participating brokers or such persons' spouses, d) trustees or
other fiduciaries purchasing shares for certain employer sponsored plans that
have at least 100 eligible participants or at least $1 million in total plan
assets, e) trustees or other fiduciaries purchasing shares for certain employer-
sponsored plans, the trustee, fiduciary or administrator for which has an
agreement with the Distributor with respect to such purchases, f) participants
investing through accounts known as "wrap accounts" established with brokers or
dealers approved by the Distributor where such brokers or dealers are paid a
single, inclusive fee for brokerage and investment management services, g)
broker-dealers or registered investment advisers affiliated with such broker-
dealers with which the Distributor has an agreement for the use of PIMCO Funds
in particular investment products for which a fee is charged, and h) trust
accounts for which trust companies affiliated with the Trust or the Adviser
serve as trustee. As described above, the Distributor will not pay any initial
commission to dealers upon the sale of Class A shares to the purchasers
described in this paragraph except for sales to purchasers described under d) or
e) in this paragraph.
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32 PIMCO FUNDS - Pacific Investment Management Series
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CLASS A DEFERRED SALES CHARGE For all Funds except the Money Market Fund,
investors who purchase $1,000,000 or more of Class A shares (and, thus, purchase
such shares without any initial sales charge) may be subject to a 1% contingent
deferred sales charge (the "Class A CDSC") if such shares are redeemed within 18
months of their purchase. The Class A CDSC does not apply to investors
purchasing $1,000,000 or more of any Fund's Class A shares if such investors are
otherwise eligible to purchase Class A shares without any sales charge because
they are described under "Sales at Net Asset Value" above.
For purchases subject to the Class A CDSC, a 1% CDSC will apply for any
redemption of such Class A shares that occurs within 18 months of their
purchase. No CDSC will be imposed if the shares redeemed have been acquired
through the reinvestment of dividends or capital gains distributions or if the
amount redeemed is derived from increases in the value of the account above the
amount of purchase payments subject to the CDSC. In determining whether a CDSC
is payable, it is assumed that Class A shares acquired through the reinvestment
of dividends and distributions are redeemed first, and thereafter that Class A
shares that have been held by an investor for the longest period of time are
redeemed first.
The Class A CDSC does not apply to Class A shares of the Money Market Fund but,
if Money Market Fund Class A shares are purchased in a transaction that, for any
other Fund, would be subject to the CDSC (i.e., a purchase of $1,000,000 or
more) and are subsequently exchanged for Class A shares of any other Fund, a
Class A CDSC will apply to the shares of the Fund acquired by exchange for a
period of 18 months from the date of the exchange.
The Class A CDSC is currently waived in connection with certain redemptions as
described above under "Alternative Purchase Arrangements -- Waiver of Contingent
Deferred Sales Charge."
For more information about the Class A CDSC, call the Distributor at 800-426-
0107.
PARTICIPATING BROKERS Investment dealers and other financial intermediaries
provide varying arrangements for their clients to purchase and redeem Fund
shares. Some may establish higher minimum investment requirements than set
forth above. Firms may arrange with their clients for other investment or
administrative services and may independently establish and charge additional
amounts to their clients for such services, which charges would reduce clients'
return. Firms also may hold Fund shares in nominee or street name as agent for
and on behalf of their customers. In such instances, the Trust's transfer agent
will have no information with respect to or control over accounts of specific
shareholders. Such shareholders may obtain access to their accounts and
information about their accounts only from their broker. In addition, certain
privileges with respect to the purchase and redemption of shares or the
reinvestment of dividends may not be available through such firms. Some firms
may participate in a program allowing them access to their clients' accounts for
servicing including, without limitation, transfers of registration and dividend
payee changes; and may perform functions such as generation of confirmation
statements and disbursement of cash dividends. This Prospectus should be read
in connection with such firms' material regarding their fees and services.
DEFERRED SALES CHARGE ALTERNATIVE - CLASS B SHARES
Class B shares are sold at their current net asset value without any initial
sales charge. The full amount of an investor's purchase payment will be invested
in shares of the Fund(s) selected. A contingent deferred sales charge ("CDSC")
will be imposed on Class B shares (including Class B Money Market Fund shares)
if an investor redeems an amount which causes the current value of the
investor's account for a Fund to fall below the total dollar amount of purchase
payments subject to the CDSC, except that no CDSC is imposed if the shares
redeemed have been acquired through the reinvestment of dividends or capital
gains distributions or if the amount redeemed is derived from increases in the
value of the account above the amount of purchase payments subject to the CDSC.
Class B shares of the Money Market Fund are not offered for initial purchase but
may be obtained through exchanges of Class B shares of other Funds. See
"Exchange Privilege" below.
Class B shares are not available for purchase by employer sponsored retirement
plans.
Whether a CDSC is imposed and the amount of the CDSC will depend on the number
of years since the investor made a purchase payment from which an amount is
being redeemed. Purchases are subject to the CDSC according to the following
schedule:
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 33
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YEAR SINCE PURCHASE PERCENTAGE CONTINGENT
PAYMENT WAS MADE DEFERRED SALES CHARGE
---------------------- ---------------------
First.................... 5
Second................... 4
Third.................... 3
Fourth................... 3
Fifth.................... 2
Sixth.................... 1
Seventh.................. 0
Eighth................... *
* Class B shares convert into Class A shares as described below.
In determining whether a CDSC is payable, it is assumed that the purchase
payment from which a redemption is made is the earliest purchase payment from
which a redemption or exchange has not already been fully effected.
In determining whether an amount is available for redemption without incurring a
CDSC, the purchase payments made for all Class B shares in the shareholder's
account with the particular Fund are aggregated, and the current value of all
such shares is aggregated. Any CDSC imposed on a redemption of Class B shares is
paid to the Distributor.
Class B shares are subject to higher distribution fees than Class A shares for a
fixed period after their purchase, after which they automatically convert to
Class A shares and are no longer subject to such higher distribution fees.
Class B shares of each Fund automatically convert into Class A shares after they
have been held for seven years.
For sales of Class B shares made and services rendered to Class B shareholders,
the Distributor intends to make payments to participating brokers, at the time a
shareholder purchases Class B shares, of 4% of the purchase amount for each of
the Funds. During such periods as may from time to time be designated by the
Distributor, the Distributor will pay selected participating brokers an
additional amount of up to 0.50% of the purchase price on sales of Class B
shares of all or selected Funds purchased to each participating broker which
obtains purchase orders in amounts exceeding thresholds established from time to
time by the Distributor.
The Class B CDSC is currently waived in connection with certain redemptions as
described above under "Alternative Purchase Arrangements -- Waiver of Contingent
Deferred Sales Charges."
For more information about the Class B CDSC, call the Distributor at 800-426-
0107.
ASSET BASED SALES CHARGE ALTERNATIVE - CLASS C SHARES
Class C shares are sold at their current net asset value without any initial
sales charge. A CDSC is imposed on Class C shares (including Class C Money
Market Fund shares) if an investor redeems an amount which causes the current
value of the investor's account for a Fund to fall below the total dollar amount
of purchase payments subject to the CDSC, except that no CDSC is imposed if the
shares redeemed have been acquired through the reinvestment of dividends or
capital gains distributions or if the amount redeemed is derived from increases
in the value of the account above the amount of purchase payments subject to the
CDSC. All of an investor's purchase payments are invested in shares of the
Fund(s) selected.
Whether a CDSC is imposed and the amount of the CDSC will depend on the number
of years since the investor made a purchase payment from which an amount is
being redeemed. Purchases are subject to the CDSC according to the following
schedules:
YEAR SINCE PURCHASE PERCENTAGE CONTINGENT
PAYMENT WAS MADE DEFERRED SALES CHARGE
------------------------ ---------------------
First................ 1
Thereafter........... 0
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34 PIMCO FUNDS - Pacific Investment Management Series
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In determining whether a CDSC is payable, it is assumed that the purchase
payment from which the redemption is made is the earliest purchase payment (from
which a redemption or exchange has not already been effected).
The following example will illustrate the operation of the CDSC:
Assume that an individual opens an account and makes a purchase payment of
$10,000 for Class C shares of a Fund and that six months later the value of
the investor's account for that Fund has grown through investment
performance and reinvestment of distributions to $11,000. The investor
then may redeem up to $1,000 from that Fund ($11,000 minus $10,000) without
incurring a CDSC. If the investor should redeem $3,000, a CDSC would be
imposed on $2,000 of the redemption (the amount by which the investor's
account for the Fund was reduced below the amount of the purchase payment).
At the rate of 1%, the CDSC would be $20.
In determining whether an amount is available for redemption without incurring a
CDSC, the purchase payments made for all Class C shares in the shareholder's
account with the particular Fund are aggregated, and the current value of all
such shares is aggregated. Any CDSC imposed on a redemption of Class C shares is
paid to the Distributor.
Unlike Class B shares, Class C shares do not automatically convert to any other
class of shares of the Funds.
Except as described below, for sales of Class C shares made and services
rendered to Class C shareholders, the Distributor expects to make payments to
participating brokers, at the time the shareholder purchases Class C shares, of
1.00% (representing 0.75% distribution fees and 0.25% servicing fees) of the
purchase amount for all Funds. For sales of Class C shares made to participants
making periodic purchases of not less than $50 through certain employer
sponsored savings plans which are clients of a broker-dealer with which the
Distributor has an agreement with respect to such purchases, no payments are
made at the time of purchase. During such periods as may from time to time be
designated by the Distributor, the Distributor will pay an additional amount of
up to 0.50% of the purchase price on sales of Class C shares of all or selected
Funds purchased to each participating broker which obtains purchase orders in
amounts exceeding thresholds established from time to time by the Distributor.
The Class C CDSC is currently waived in connection with certain redemptions as
described above under "Alternative Purchase Arrangements -- Waiver of Contingent
Deferred Sales Charges."
For more information about the Class C CDSC, contact the Distributor at 800-426-
0107.
EXCHANGE PRIVILEGE
A shareholder may exchange Class A, Class B and Class C shares of any Fund for
the same Class of shares of any other Fund in an account with identical
registration on the basis of their respective net asset values (except that a
sales charge will apply on exchanges of Class A shares of the Money Market Fund
on which no sales load was paid at the time of purchase). Class A, B and C
shares of each Fund may also be exchanged for shares of the same Class of a
series of PIMCO Funds: Multi-Manager Series, an affiliated mutual fund family
comprised primarily of equity portfolios managed by the subsidiary partnerships
of PIMCO Advisors L.P. Class A shares of the Money Market Fund may be exchanged
for Class A shares of any other Fund, but the usual sales charges applicable to
investments in such other Fund apply on shares for which no sales load was paid
at the time of purchase. There are currently no exchange fees or charges for
Class A, B or C shares. Except with respect to tax-qualified programs and
exchanges effected through the PIMCO Auto Exchange plan, exchanges are subject
to the $250 minimum initial purchase requirement for each Fund. An exchange
will constitute a taxable sale for federal income tax purposes.
Investors who maintain their account with the Distributor may exchange shares by
a written exchange request sent to PIMCO Funds Distribution Company, P.O. Box
5866, Denver, CO 80217-5866 or, unless the investor has specifically declined
telephone exchange privileges on the Account Application or elected in writing
not to utilize telephone exchanges, by a telephone request to the Transfer Agent
at 800-852-8457. The Trust will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and may be liable for any
losses due to unauthorized or fraudulent instructions if it fails to employ such
procedures. The Trust will require a form of personal identification prior to
acting on a caller's telephone instructions, will provide written confirmations
of such transactions and will record telephone instructions. Exchange forms are
available from the Distributor at 800-426-0107 and may be used if there will be
no change in the registered name or address of the shareholder. Changes in
registration information or account
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 35
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privileges may be made in writing to the Transfer Agent, Shareholder Services,
Inc., P.O. Box 5866, Denver, Colorado 80217-5866, or by use of forms which are
available from the Distributor. A signature guarantee is required. See
"Signature Guarantee" under "General." Telephone exchanges may be made between
9:00 a.m. Eastern time and the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. Eastern time) on any day the Exchange is open
(generally weekdays other than normal holidays). The Trust reserves the right
to refuse exchange purchases if, in the judgment of the Adviser, the purchase
would adversely affect the Fund and its shareholders. In particular, a pattern
of exchanges characteristic of "market-timing" strategies may be deemed by the
Adviser to be detrimental to the Fund. Although the Trust has no current
intention of terminating or modifying the exchange privilege, it reserves the
right to do so at any time. Except as otherwise permitted by SEC regulations,
the Trust will give 60 days' advance notice to shareholders of any termination
or material modification of the exchange privilege. For further information
about exchange privileges, contact your participating broker or call the
Transfer Agent at 800-426-0107.
With respect to Class B and Class C shares, or Class A shares subject to a CDSC,
if less than all of an investment is exchanged out of a Fund, any portion of the
investment attributable to capital appreciation and/or reinvested dividends or
capital gains distributions will be exchanged first, and thereafter any portions
exchanged will be from the earliest investment made in the Fund from which the
exchange was made. Shareholders should take into account the effect of any
exchange on the applicability of any CDSC that may be imposed upon any
subsequent redemption. Although the Class A CDSC does not apply to Class A
shares of the Money Market Fund Class A shares purchased in a transaction that
would otherwise be subject to the Class A CDSC (i.e., most purchases of
$1,000,000 or more) are subsequently exchanged for Class A shares of any other
Fund, a Class A CDSC will apply to the shares of the Fund acquired by exchange
for a period of 18 months from the date of the exchange. See "Initial Sales
Charge Alternative -- Class A Shares -- Class A Deferred Sales Charge" above.
AUTO EXCHANGE Investors may also select the PIMCO Auto Exchange plan which
establishes automatic periodic exchanges. For further information on automatic
exchanges see "PIMCO Auto Exchange" under "How to Buy Shares."
HOW TO REDEEM
Class A, B or C shares may be redeemed through a participating broker, by
telephone, by submitting a written redemption request directly to the Transfer
Agent (for non-broker accounts) or through an Automatic Withdrawal Plan or PIMCO
Fund Link.
A CDSC may apply to a redemption of Class A, Class B or Class C shares. See
"Alternative Purchase Arrangements" above. Shares are redeemed at their net
asset value next determined after a proper redemption request has been received,
less any applicable CDSC. In order to discourage short-term trading, the
StocksPLUS Short Strategy Fund imposes a redemption fee, payable to the Fund, of
1% on all shares of the Fund held for less than three months. There is no charge
by the Distributor (other than an applicable CDSC) with respect to a redemption;
however, a participating broker who processes a redemption for an investor may
charge customary commissions for its services. Dealers and other financial
services firms are obligated to transmit orders promptly. Requests for
redemption received by dealers or other firms prior to the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) on a
regular business day and received by the Distributor prior to the close of the
Distributor's business day will be confirmed at the net asset value effective as
of the closing of the Exchange on that day, less any applicable CDSC.
DIRECT REDEMPTION A shareholder's original Account Application permits the
shareholder to redeem by written request and by telephone (unless the
shareholder specifically elects not to utilize telephone redemptions) and to
elect one or more of the additional redemption procedures described below. A
shareholder may change the instructions indicated on his original Account
Application, or may request additional redemption options, only by transmitting
a written direction to the Transfer Agent. Requests to institute or change any
of the additional redemption procedures will require a signature guarantee.
Redemption proceeds will normally be mailed to the redeeming shareholder within
seven days or, in the case of wire transfer or Fund Link redemptions, sent to
the designated bank account within one business day. Fund Link redemptions may
be received by the bank on the second or third business day. In cases where
shares have recently been purchased by personal check, redemption proceeds may
be withheld until the check has been collected, which may take up to 15 days.
To avoid such withholding, investors should purchase shares by certified or bank
check or by wire transfer.
WRITTEN REQUESTS (Does not apply to shares held in broker "street name"
accounts.) To redeem shares in writing, a shareholder must send the following
items to the Fund's Transfer Agent, Shareholder Services, Inc., P.O.
<PAGE>
36 PIMCO FUNDS - Pacific Investment Management Series
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Box 5866, Denver, Colorado 80217-5866: (1) a written request for redemption
signed by all registered owners exactly as the account is registered on the
Transfer Agent's records, including fiduciary titles, if any, and specifying the
account number and the dollar amount or number of shares to be redeemed; (2) for
certain redemptions described below, a guarantee of all signatures on the
written request or on the share certificate or accompanying stock power, if
required, as described under "Signature Guarantee"; and (3) any additional
documents which may be required by the Transfer Agent for redemption by
corporations, partnerships or other organizations, executors, administrators,
trustees, custodians or guardians, or if the redemption is requested by anyone
other than the shareholder(s) of record. Transfers of shares are subject to the
same requirements. A signature guarantee is not required for redemptions of
$50,000 or less, requested by and payable to all shareholders of record for the
account, to be sent to the address of record for that account. To avoid delay
in redemption or transfer, shareholders having any questions about these
requirements should contact the Transfer Agent in writing or by calling 1-800-
426-0107 before submitting a request. REDEMPTION TRANSFER REQUESTS WILL NOT BE
HONORED UNTIL ALL REQUIRED DOCUMENTS IN THE PROPER FORM HAVE BEEN RECEIVED BY
THE TRANSFER AGENT.
If the proceeds of the redemption (i) exceed $50,000, (ii) are to be paid to a
person other than the record owner, (iii) are to be sent to an address other
than the address of the account on the Transfer Agent's records, or (iv) are to
be paid to a corporation, partnership, trust or fiduciary, the signature(s) on
the redemption request and on the certificates, if any, or stock power must be
guaranteed as described above, except that the Distributor may waive the
signature guarantee requirement for redemptions up to $2,500 by a trustee of a
qualified retirement plan, the administrator for which has an agreement with the
Distributor.
TELEPHONE REDEMPTIONS (Does not apply to shares held in broker "street name"
accounts.) The Trust accepts telephone requests for redemption of shares for
amounts up to $50,000 within any 7 calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions. The
proceeds of a telephone redemption will be sent to the record shareholder at his
record address. Changes in account information must be made in a written
authorization with a signature guarantee. See "Signature Guarantee" under
"General." Telephone redemptions will not be accepted during the 30-day period
following any change in an account's record address.
By completing an Account Application, an investor agrees that the Trust, the
Distributor and the Transfer Agent shall not be liable for any loss incurred by
the investor by reason of the Trust accepting unauthorized telephone redemption
requests for his account if the Trust reasonably believes the instructions to be
genuine. Thus, shareholders risk possible losses in the event of a telephone
redemption not authorized by them. The Trust may accept telephone redemption
instructions from any person identifying himself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service. The Trust will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and may be liable for any
losses due to unauthorized or fraudulent instructions if it fails to employ such
procedures. The Trust will require a form of personal identification prior to
acting on a caller's telephone instructions, will provide written confirmations
of such transactions and will record telephone instructions.
A shareholder making a telephone redemption should call the Transfer Agent at
800-852-8457 and state (i) the name of the shareholder as it appears on the
Transfer Agent's records, (ii) his account number with the Trust, (iii) the
amount to be withdrawn and (iv) the name of the person requesting the
redemption. Usually the proceeds are sent to the investor on the next Trust
business day after the redemption is effected, provided the redemption request
is received prior to the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time) that day. If the redemption request is
received after the closing of the Exchange, the redemption is effected on the
following Trust business day at that day's net asset value and the proceeds are
usually sent to the investor on the second following Trust business day. The
Trust reserves the right to terminate or modify the telephone redemption service
at any time. During times of severe disruptions in the securities markets, the
volume of calls may make it difficult to redeem by telephone, in which case a
shareholder may wish to send a written request for redemption as described under
"Written Requests" above. Telephone communications may be recorded by the
Distributor or the Transfer Agent.
FUND LINK REDEMPTIONS (Does not apply to shares held in broker "street name"
accounts.) If a shareholder has established Fund Link, the shareholder may
redeem shares by telephone and have the redemption proceeds sent to a designated
account at a financial institution. Fund Link is normally established within 45
days of receipt of the Application by the Transfer Agent. To use Fund Link for
redemptions, call the Transfer Agent at 800-852-8457. Subject to the
limitations set forth above under "Telephone Redemptions," the Distributor, the
Trust and the Transfer Agent may rely on instructions by any registered owner
believed to be genuine and will not be responsible to any shareholder for any
loss, damage or expense arising out of such instructions. Requests received by
the Transfer Agent prior to the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. Eastern time) on a business day will be processed
at the net asset value on that day and the proceeds (less any CDSC) will
normally be sent to the designated bank account on the following business day
and received by the bank on the second or third business day. If the redemption
request is received after
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 37
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the close of regular trading on the Exchange, the redemption is effected on the
following business day. Shares purchased by check may not be redeemed through
Fund Link until such shares have been owned (i.e., paid for) for at least 15
days. Changes in bank account information must be made by completing a new Fund
Link Application, signed by all owners of record of the account, with all
signatures guaranteed. See "Signature Guarantee" under "General." See "PIMCO
Fund Link" under "How to Buy Shares" for information on establishing the Fund
Link privilege. The Trust may terminate the Fund Link program at any time
without notice to shareholders.
EXPEDITED WIRE TRANSFER REDEMPTIONS (Does not apply to shares held in broker
"street name" accounts.) If a shareholder has given authorization for expedited
wire redemption, shares can be redeemed and the proceeds sent by federal wire
transfer to a single previously designated bank account. Requests received by
the Trust prior to the close of the Exchange will result in shares being
redeemed that day at the next determined net asset value (less any CDSC) and
normally the proceeds being sent to the designated bank account the following
business day. The bank must be a member of the Federal Reserve wire system.
Delivery of the proceeds of a wire redemption request may be delayed by the
Trust for up to 7 days if the Distributor deems it appropriate under then
current market conditions. Once authorization is on file, the Trust will honor
requests by any person identifying himself as the owner of an account or the
owner's broker by telephone at 800-852-8457 or by written instructions. The
Trust cannot be responsible for the efficiency of the Federal Reserve wire
system or the shareholder's bank. The Trust does not currently charge for wire
transfers. The shareholder is responsible for any charges imposed by the
shareholder's bank. The minimum amount that may be wired is $2,500. The Trust
reserves the right to change this minimum or to terminate the wire redemption
privilege. Shares purchased by check may not be redeemed by wire transfer until
such shares have been owned (i.e., paid for) for at least 15 days. Expedited
wire transfer redemptions may be authorized by completing a form available from
the Distributor. Wire redemptions may not be used to redeem shares in
certificated form. To change the name of the single bank account designated to
receive wire redemption proceeds, it is necessary to send a written request with
signatures guaranteed to PIMCO Funds Distribution Company, P.O. Box 5866,
Denver, CO 80217-5866. See "Signature Guarantee" under "General."
AUTOMATIC WITHDRAWAL PLAN An investor who owns or buys shares of a Fund having a
net asset value of $10,000 or more may open an Automatic Withdrawal Plan and
have a designated sum of money (not less than $100 per Fund) paid monthly (or
quarterly) to the investor or another person. Such a plan may be established by
completing the appropriate section of the PIMCO Funds Account Application or you
may obtain an Automatic Withdrawal Plan Application from the Distributor or your
broker. If an Automatic Withdrawal Plan is set up after the account is
established providing for payment to a person other than the record shareholder
or to an address other than the address of record, a signature guarantee is
required. See "Signature Guarantee" under "General." Shares of each class of
any Fund are deposited in a plan account and all distributions are reinvested in
additional shares of that class of the Fund at net asset value. Shares in a plan
account are then redeemed at net asset value (less any applicable CDSC) to make
each withdrawal payment. Any applicable CDSC may be waived for certain
redemptions under an Automatic Withdrawal Plan. See "Waiver of Contingent
Deferred Sales Charges" under "Alternative Purchase Agreements" above.
Redemptions for the purpose of withdrawals are ordinarily made on the business
day preceding the day of payment at that day's closing net asset value and
checks are mailed on the day of payment selected by the shareholder. The
Transfer Agent may accelerate the redemption and check mailing date by one day
to avoid weekend delays. Payment will be made to any person the investor
designates; however, if the shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary, except in the case
of a profit-sharing or pension plan where payment will be made to the designee.
As withdrawal payments may include a return of principal, they cannot be
considered a guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with an Automatic Withdrawal Plan may result
in a gain or loss for tax purposes. Continued withdrawals in excess of income
will reduce and possibly exhaust invested principal, especially in the event of
a market decline. The maintenance of an Automatic Withdrawal Plan concurrently
with purchases of additional shares of the Fund would be disadvantageous to the
investor because of the CDSC that may become payable on such withdrawals in the
case of Class A, Class B or Class C shares and because of the initial sales
charge in the case of Class A shares. For this reason, the minimum investment
accepted for a Fund while an Automatic Withdrawal Plan is in effect for that
Fund is $1,000, and an investor may not maintain a plan for the accumulation of
shares of the Fund (other than through reinvestment of distributions) and an
Automatic Withdrawal Plan at the same time. The Trust or the Distributor may
terminate or change the terms of the Automatic Withdrawal Plan at any time.
Because the Automatic Withdrawal Plan may involve invasion of capital, investors
should consider carefully with their own financial advisers whether the plan and
the specified amounts to be withdrawn are appropriate in their circumstances.
The Trust and the Distributor make no recommendations or representations in this
regard.
<PAGE>
38 PIMCO FUNDS - Pacific Investment Management Series
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DISTRIBUTOR AND DISTRIBUTION AND SERVICING PLANS
PIMCO Funds Distribution Company (the "Distributor"), an indirect, wholly-owned
subsidiary of PIMCO Advisors L.P., is the principal underwriter of the Trust's
shares and in that connection makes distribution and servicing payments to
participating brokers and servicing payments to certain banks and other
financial intermediaries in connection with the sale of Class B or Class C
shares and servicing payments to participating brokers, certain banks and other
financial intermediaries in connection with the sale of Class A shares. In the
case of Class A shares, these parties are compensated based on the amount of the
front-end sales charge reallowed by the Distributor, except in cases where Class
A shares are sold without a front-end sales charge. In the case of Class B
shares, participating brokers and other financial intermediaries are compensated
by an advance of a sales commission by the Distributor. In the case of Class C
shares, part or all of the first year's distribution and servicing fee is
generally paid at the time of sale. Pursuant to a Distribution Contract with
the Trust, the Distributor bears various other promotional and sales related
expenses, including the cost of printing and mailing prospectuses to persons
other than shareholders.
CLASS A SERVICING FEES: As compensation for services rendered and expenses borne
by the Distributor in connection with personal services rendered to Class A
shareholders of the Trust and the maintenance of Class A shareholder accounts,
the Trust pays the Distributor servicing fees up to the annual rates set forth
below (calculated as a percentage of each Fund's average daily net assets
attributable to Class A shares):
SERVICING
FUND FEE
---- ---------
All Funds except the Money Market Fund.......... .25%
Money Market Fund* ............................. .10%
* Subject to increase by action of the Trust's Trustees to a rate not
exceeding .25% per annum. Also, subject to increase to a rate not
exceeding 0.20% if the Distributor ceases to voluntarily waive any
portion of the fee.
CLASS B DISTRIBUTION AND SERVICING FEES: As compensation for services rendered
and expenses borne by the Distributor in connection with the distribution of
Class B shares of each Fund of the Trust (including the Money Market Fund) and
in connection with personal services rendered to Class B shareholders of the
Trust and the maintenance of Class B shareholder accounts, the Trust pays the
Distributor distribution fees and servicing fees up to the annual rates set
forth below (calculated as a percentage of each Fund's average daily net assets
attributable to Class B shares):
FUND DISTRIBUTION FEE SERVICING FEE
---- ---------------- -------------
All Funds .75% .25%
CLASS C DISTRIBUTION AND SERVICING FEES: As compensation for services rendered
and expenses borne by the Distributor in connection with the distribution of
Class C shares of the Trust and in connection with personal services rendered to
Class C shareholders of the Trust and the maintenance of Class C shareholder
accounts, the Trust pays the Distributor distribution fees and servicing fees up
to the annual rates set forth below (calculated as a percentage of each Fund's
average daily net assets attributable to Class B shares):
<TABLE>
<CAPTION>
DISTRIBUTION SERVICING
FUND FEE FEE
---- ------------ ---------
<S> <C> <C>
All Funds except the Money Market, Short-Term, Low Duration,
Low Duration II, Low Duration III and StocksPLUS Funds........ .75% .25%
Money Market Fund*............................................ .00% .10%
Short-Term, Low Duration, Low Duration II, Low Duration III
and StocksPLUS Funds*......................................... .50% .25%
</TABLE>
* Subject to increase by action of the Trust's Trustees to a rate not
exceeding .75% per annum with respect to the distribution fee for the Money
Market, Short-Term, Low Duration, Low Duration II, Low Duration III and
StocksPLUS Funds, and .25% per annum with respect to the servicing fee on
shares of the Money Market Fund. Also, with respect to the servicing fee
on shares of the Money Market Fund, such fee is subject to increase to a
rate of .20% if the Distributor ceases to voluntarily waive any portion of
the fee.
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 39
---------------------------------------------------------------------
The Class A servicing fees and Class B and C distribution and servicing fees
paid to the Distributor are made under Distribution and Servicing Plans adopted
pursuant to Rule 12b-l under the Investment Company Act of 1940 and are of the
type known as "compensation" plans. This means that, although the Trustees of
the Trust are expected to take into account the expenses of the Distributor and
its predecessors in their periodic review of the Distribution and Servicing
Plans, the fees are payable to compensate the Distributor for services rendered
even if the amount paid exceeds the Distributor's expenses.
The distribution fee applicable to Class B and C shares may be spent by the
Distributor on any activities or expenses primarily intended to result in the
sale of Class B or C shares, respectively, including compensation to, and
expenses (including overhead and telephone expenses) of, financial consultants
or other employees of the Distributor or of participating or introducing brokers
who engage in distribution of Class B or C shares, printing of prospectuses and
reports for other than existing Class B or C shareholders, advertising and
preparation, printing and distribution of sales literature. The servicing fee,
applicable to Class A , Class B and Class C shares of the Trust, may be spent by
the Distributor on personal services rendered to shareholders of the Trust and
the maintenance of shareholder accounts, including compensation to, and expenses
(including telephone and overhead expenses) of, financial consultants or other
employees of the Distributor or participating or introducing brokers, certain
banks and other financial intermediaries who aid in the processing of purchase
or redemption requests or the processing of dividend payments, who provide
information periodically to shareholders showing their positions in a Fund's
shares, who forward communications from the Trust to shareholders, who render
ongoing advice concerning the suitability of particular investment opportunities
offered by the Trust in light of the shareholders' needs, who respond to
inquiries from shareholders relating to such services, or who train personnel in
the provision of such services. Distribution and servicing fees may also be
spent on interest relating to unreimbursed distribution or servicing expenses
from prior years.
Many of the Distributor's sales and servicing efforts involve the Trust as a
whole, so that fees paid by any class of shares of any Fund may indirectly
support sales and servicing efforts relating to the other Funds' shares of the
same class. In reporting its expenses to the Trustees, the Distributor itemizes
expenses that relate to the distribution and/or servicing of a single Fund's
shares, and allocates other expenses among the Funds based on their relative net
assets. Expenses allocated to each Fund are further allocated among its classes
of shares annually based on the relative sales of each class, except for any
expenses that relate only to the sale or servicing of a single class. The
Distributor may make payments to brokers (and with respect to servicing fees
only, to certain banks and other financial intermediaries) of up to the
following percentages annually of the average daily net assets attributable to
shares in the accounts of their customers or clients:
CLASS A SHARES*
SERVICING
FEE
---------
All Funds except the Money Market Fund...... .25%
Money Market Fund .......................... .10%
CLASS B SHARES*
(Payable only with respect to shares outstanding for one year or more)
SERVICING
FEE
---------
All Funds .................................. .25%
CLASS C SHARES -- PURCHASED ON OR AFTER JULY 1, 1991*
(Payable only with respect to shares outstanding for one year or more except
in the case of shares for which no payment is made to the party at the time of
sale)
<PAGE>
40 PIMCO FUNDS - Pacific Investment Management Series
---------------------------------------------------------------------
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FEE FEE
--------- ------------
<S> <C> <C>
All Funds except the Money Market, Short-Term, Low Duration,
Low Duration II, Low Duration III and StocksPLUS Funds........ .25% .65%
Money Market Fund............................................. .10% --
Short-Term, Low Duration, Low Duration II, Low Duration III
and StocksPLUS Funds.......................................... .25% .40%
</TABLE>
CLASS C SHARES -- PURCHASED BEFORE JULY 1, 1991*
<TABLE>
<CAPTION>
SERVICING
FEE
---------
<S> <C>
All Funds except the Money Market Fund ...... .25%
Money Market Fund ........................... .10%
</TABLE>
* Applies, in part, to Class A, B and C shares of the Trust
issued to former shareholders of PIMCO Advisors Funds in
connection with the reorganizations/mergers of series of PIMCO
Advisors Funds as/with Funds of the Trust in a transaction which
took place on January __, 1997.
The Distributor may from time to time pay additional cash bonuses or other
incentives to selected participating brokers in connection with the sale or
servicing of Class A, B and C shares of the Funds. On some occasions, such
bonuses or incentives may be conditioned upon the sale of a specified minimum
dollar amount of the shares of a Fund and/or all of the Funds together or a
particular class of shares, during a specific period of time. The Distributor
currently expects that such additional bonuses or incentives will not exceed
0.50% of the amount of any sale.
If in any year the Distributor's expenses incurred in connection with the
distribution of Class B and C shares and, for Class A, B and C Shares, in
connection with the servicing of shareholders and the maintenance of shareholder
accounts exceed the distribution and/or servicing fees paid by the Trust, the
Distributor would recover such excess only if the Distribution and Servicing
Plan with respect to such class of shares continues to be in effect in some
later year when the distribution and/or servicing fees exceed the Distributor's
expenses. The Trust is not obligated to repay any unreimbursed expenses that
may exist at such time, if any, as the relevant Distribution and Servicing Plan
terminates.
From time to time, expenses of principal underwriters incurred in connection
with the sale of Class B and Class C shares of the Funds and in connection with
the servicing of Class B and Class C shareholders of the Funds and the
maintenance of shareholder accounts may exceed the distribution and servicing
fees collected by the Distributor. Class B and C Distribution and Servicing
Plans were in effect prior to the date of this Prospectus for the Global Income
Fund, a series of PIMCO Advisors Funds which reorganized as the Global Bond Fund
II series of the Trust on January __, 1997. The remaining Funds did not offer
Class B or Class C shares prior to the date of this Prospectus. As of September
30, 1996, such expenses were approximately $__________ in excess of payments
under the Distribution and Servicing Plan for PIMCO Advisors Funds with respect
to Class C shares and $______ in excess of payments under the Distribution and
Servicing Plan with respect to Class B shares of such series of PIMCO Advisors
Funds. The allocation of such excess for the Global Bond Fund II as of September
30, 1996 was as follows:
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 41
---------------------------------------------------------------------
Excess Expenses
<TABLE>
<CAPTION>
CLASS B CLASS C
------- -------
(As a Percentage (As a Percentage
($ in Thousands) of Net Assets) ($ in Thousands) of Net Assets)
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Global Bond Fund II
(formerly PIMCO
Advisors Global
Income Fund)
</TABLE>
HOW NET ASSET VALUE IS DETERMINED
The net asset value per share of Class A, B and C shares of each Fund is
determined as of the close of trading on the New York Stock Exchange (ordinarily
4:00 p.m., Eastern time) by dividing the total market value of a Fund's
portfolio investments and other assets attributable to that class, less any
liabilities, by the number of total outstanding shares of that class. Net asset
value will not be determined on days on which the New York Stock Exchange is
closed.
The Money Market Fund's securities are normally valued using the amortized cost
method of valuation. This involves valuing a security at cost on the date of
acquisition and thereafter assuming a constant accretion of a discount or
amortization of a premium to maturity. See the Statement of Additional
Information for a description of certain conditions and procedures followed by
the Money Market Fund in connection with amortized cost valuation. For all other
Funds, 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, at 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 60 days or less), are normally valued on the basis of quotations
obtained from brokers and dealers or pricing services, which take into account
appropriate factors such as institutional-sized trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data.
Quotations of foreign securities in foreign currency are converted to U.S.
dollar equivalents using foreign exchange quotations received from independent
dealers. 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.
Each Fund's liabilities are allocated among its classes. The total of such
liabilities allocated to a class plus that class' distribution and/or servicing
fees and any other expenses specially allocated to that class are then deducted
from the class' proportionate interest in the Fund's assets, and the resulting
amount for each class is divided by the number of shares of that class
outstanding to produce the "net asset value" per share. Under certain
circumstances, the per share net asset value of the Class B and Class C shares
of the Funds that do not declare regular income dividends on a daily basis may
be lower than the per share net asset value of the Class A shares as a result of
the daily expense accruals of the distribution fee applicable to the Class B and
Class C shares. Generally, for Funds that pay income dividends, those dividends
are expected to differ over time by approximately the amount of the expense
accrual differential between a particular Fund's classes.
<PAGE>
42 PIMCO FUNDS - Pacific Investment Management Series
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DISTRIBUTIONS
Each Fund pays out as dividends substantially all of its net investment income
(which comes from dividends and interest it receives or is deemed to receive
from its investments) and net realized short-term capital gains. For these
purposes and for federal income tax purposes, a portion of the premiums from
certain expired call or put options written by the Fund, net gains from closing
purchase and sale transactions with respect to such options, and net gains from
futures transactions are treated as short-term capital gains. Each Fund
distributes substantially all of its net realized capital gains, if any, after
giving effect to any available capital loss carry-over.
Shares begin earning dividends on the effective date of purchase, which is the
date that funds are received by the Trust for the purchase of shares. For the
Fixed Income Funds (other than the International Bond Fund), dividends are
declared daily from net investment income to shareholders of record at the close
of the previous business day, and distributed to shareholders monthly. The
International Bond, Strategic Balanced and the Equity Funds intend to declare
and pay as a dividend substantially all of their 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 yearly. Dividend and
capital gain distributions of a Fund will be reinvested in additional shares of
that Fund unless the shareholder elects to have them paid in cash. Dividends
from net investment income with respect to Class B and Class C shares are
expected to be lower than those paid with respect to Class A shares as a result
of the distribution fees applicable to Class B and C shares.
Dividends and capital gains distributions may be declared more or less
frequently in the discretion of the Trustees. There are no charges on reinvested
dividends.
Shareholders may elect to invest dividends and/or distributions paid by any Fund
in shares of the same class of any other Fund of the Trust at net asset value.
The shareholder must have an account existing in the Fund selected for
investment with the identical registered name and address and must elect this
option on the Account Application, on a form provided for that purpose or by a
telephone request to the Transfer Agent at 800-426-0107. For further information
on this option, contact your broker or call the Distributor at 800-426-0107.
TAXES
Each Fund intends to qualify as a regulated investment company annually and to
elect to be treated as a regulated investment company under the Internal Revenue
Code of 1986, as amended. As such, a Fund 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 Fund intends to distribute each year
substantially all of its net income and gains.
Distributions received by tax-exempt shareholders will not be subject to federal
income tax to the extent permitted under applicable tax law. To the extent that
a shareholder is not exempt from tax on Fund distributions, such shareholder
will be subject to tax on dividends received from a Fund, regardless of whether
received in cash or reinvested in additional shares. All shareholders must treat
dividends, other than capital gain dividends or dividends that represent a
return of capital to shareholders, as ordinary income. Dividends designated by a
Fund as capital gain dividends are taxable to shareholders as long-term capital
gain except as provided by an applicable tax exemption. Any distributions that
are not from a Fund's net investment income or net capital gain may be
characterized as a return of capital to shareholders or, in some cases, as
capital gain. Certain dividends declared in October, November or December of a
calendar year are taxable to shareholders (who otherwise are subject to tax on
dividends) as though received on December 31 of that year if paid to
shareholders during January of the following calendar year. For state income tax
purposes, interest on some Federal obligations generally is not exempt from
taxation, whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on FNMA and GNMA
Certificates). Each Fund will advise shareholders annually of the amount and
nature of the dividends paid to them.
Taxable shareholders should note that the timing of their investment could have
undesirable tax consequences. If shares are purchased on or just before the day
the Fund declares a dividend, taxable shareholders will pay full price for the
shares and may receive a portion of their investment back as a taxable
distribution.
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 43
-------------------------------------------------------------------------------
The preceding discussion relates only to federal income tax; the consequences
under other tax laws may differ. For additional information relating to the tax
aspects of investing in a Fund, see the Statement of Additional Information.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are managed under the direction of the Board
of Trustees. The Trustees are Guilford C. Babcock, Thomas P. Kemp, Brent R.
Harris, Vern O. Curtis, and William J. Popejoy. Additional information about the
Trustees and the Trust's executive officers may be found in the Statement of
Additional Information under the heading "Management--Trustees and Officers."
INVESTMENT ADVISER
Pacific Investment Management Company ("Pacific Investment Management") serves
as investment adviser ("Adviser") to the Funds pursuant to an investment
advisory contract. The Adviser is an investment counseling firm founded in 1971,
and had approximately $____ billion in assets under management as of November
30, 1996. Pacific Investment Management is a subsidiary partnership of PIMCO
Advisors L.P. (''PIMCO Advisors''). A majority interest in PIMCO Advisors is
held by PIMCO Partners, G.P., a general partnership between Pacific Investment
Management Company, a California corporation and indirect wholly owned
subsidiary of Pacific Mutual Life Insurance Company ("Pacific Mutual"), and
PIMCO Partners, LLC, a limited liability company controlled by the PIMCO
Managing Directors. Pacific Investment Management's address is 840 Newport
Center Drive, Suite 360, Newport Beach, California 92660. Pacific Investment
Management is registered as an investment adviser with the Securities and
Exchange Commission ("SEC") and as a commodity trading advisor with the CFTC.
The Adviser manages the investment and reinvestment of the assets of each Fund.
The Adviser is responsible for placing orders for the purchase and sale of each
Fund's investments directly with brokers or dealers selected by it in its
discretion. See "Portfolio Transactions."
Information about the individual portfolio managers responsible for management
of the Trust's currently operational Funds, including their occupations for the
past five years, is provided below.
<TABLE>
<CAPTION>
FUND PORTFOLIO MANAGER AND BUSINESS EXPERIENCE (PAST FIVE YEARS)
- ---- ----------------------------------------------------------
<S> <C>
Money Market Fund Leslie Barbi, Vice President, Pacific Investment Management. A Fixed Income
Portfolio Manager, Ms. Barbi has managed the Money Market Fund since
November 1, 1995. Prior to joining Pacific Investment Management in 1993, Ms.
Barbi was associated with Salomon Brothers as a proprietary Portfolio Manager.
Short-Term Fund David H. Edington, Managing Director, Pacific Investment Management. A Fixed
StocksPLUS Fund Income Portfolio Manager, Mr. Edington joined Pacific Investment Management
Strategic Balanced Fund in 1987 and has managed the Short-Term, StocksPLUS, and Strategic Balanced
Funds since their inception, October 7, 1987, May 14, 1993 and June 28, 1996,
respectively.
Low Duration Fund William H. Gross, Managing Director, Pacific Investment Management. A Fixed
Low Duration Fund II Income Portfolio Manager, Mr. Gross is one of the founders of Pacific Investment
Total Return Fund Management and has managed the Low Duration, Low Duration II, Total Return,
Total Return Fund II Total Return II and Total Return III Funds since their inception, May 11,
Total Return Fund III 1987, November 1, 1991, May 11, 1987, December 30, 1991, and May 1,
1991, respectively.
</TABLE>
<PAGE>
44 PIMCO FUNDS - Pacific Investment Management Series
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<TABLE>
<S> <C>
High Yield Fund Benjamin Trosky, Managing Director, Pacific Investment Management. A Fixed
Income Portfolio Manager, Mr. Trosky joined Pacific Investment Management in
1990 and has managed the High Yield Fund since its inception, December 16,
1992.
Long Term U.S. Frank B. Rabinovitch, Managing Director, Pacific Investment Management. A
Government Fund Fixed Income Portfolio Manager, Mr. Rabinovitch joined Pacific Investment
Management in 1984 and has managed the Long-Term U.S. Government Fund
since its inception, July 1, 1991.
Foreign Bond Fund Lee R. Thomas, III, Executive Vice President and Senior International
Global Bond Fund Portfolio Manager, Pacific Investment Management. A Fixed Income Portfolio
Global Bond Fund II Manager, Mr. Thomas has managed the Foreign Bond, Global Bond and
International Bond Fund International Bond Funds since July 13, 1995, and the Global Bond Fund II since
October 1, 1995. Prior to joining Pacific Investment Management 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>
FUND ADMINISTRATOR
Pacific Investment Management also serves as administrator to the Funds pursuant
to an administration agreement. Pacific Investment Management provides
administrative services to the Funds, which include clerical help and
accounting, bookkeeping, internal audit services, and certain other services
required by the Funds, preparation of reports to the Funds' shareholders and
regulatory filings. In addition, Pacific Investment Management, at its own
expense, arranges for the provision of legal, audit, custody, transfer agency
and other services for the Funds, and is responsible for the costs of
registration of the Trust's shares and the printing of prospectuses and
shareholder reports for current shareholders.
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 Pacific Investment Management
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 Pacific Investment
Management or the Trust, and any counsel retained exclusively for their benefit;
(vi) extraordinary expenses, including costs of litigation and indemnification
expenses; (vii) expenses, such as organizational expenses, which are capitalized
in accordance with generally accepted accounting principles; and (viii) any
expenses allocated or allocable to a specific class of shares, which include
distribution and servicing fees payable with respect to Class A, B and C shares
and may include certain other expenses as permitted by the Trust's Multi-Class
Plan adopted pursuant to Rule 18f-3 under the 1940 Act and subject to review and
approval by the Trustees.
ADVISORY AND ADMINISTRATIVE FEES
The PIMCO Funds feature fixed advisory and administrative fee rates. For
providing investment advisory and administrative services to the Funds as
described above, Pacific Investment Management receives monthly fees from each
Fund at an annual rate based on the average daily net assets of the Fund
attributable to its Class A, B and C shares as follows:
<TABLE>
<CAPTION>
ADVISORY
FUND FEE RATE
---- --------
<S> <C>
Money Market Fund....................................................... 0.15%
Commercial Mortgage Securities, StocksPLUS, StocksPLUS Short Strategy
and Strategic Balanced Funds............................................ 0.40%
All other Funds.................................................... 0.25%
</TABLE>
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 45
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADMINISTRATIVE
FUND FEE RATE
---- --------
<S> <C>
Money Market Fund and Short-Term Fund................................... 0.35%
Foreign Bond, Global Bond, Global Bond II and International Bond Funds.. 0.45%
All other Funds......................................................... 0.40%
</TABLE>
Both the investment advisory contract and administration agreement with respect
to Class A, Class B and Class C shares of the Funds may be terminated by the
Trustees at any time on 60 days' written notice. The investment advisory
contract may be terminated by Pacific Investment Management on 60 days' written
notice. Following the expiration of the one-year period commencing with the
effectiveness of the administration agreement, it may be terminated by Pacific
Investment Management on 60 days' written notice. Following its initial two-year
term, the investment advisory contract will continue from year to year if
approved by the Trustees. Following its initial one-year term, the
administration agreement with respect to Class A, Class B and Class C shares of
the Funds will continue from year to year if approved by the Trustees.
DESCRIPTION OF THE TRUST
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on February 19, 1987.
The Board of Trustees may establish additional portfolios in the future. The
capitalization of the Trust consists solely of an unlimited number of shares of
beneficial interest with a par value of $0.0001 each. When issued, shares of the
Trust are fully paid, non-assessable and freely transferable.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all loss and expense of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
and thus should be considered remote.
MULTIPLE CLASSES OF SHARES
In addition to Class A, Class B, and Class C shares, each Fund offers
Institutional Class and Administrative Class shares. These other classes of the
Funds may have different sales charges and expense levels, which will affect
performance. Investors may contact the Distributor at 800-426-0107 for more
information concerning other classes of shares of the Funds. This Prospectus
relates only to the Class A, Class B, and Class C shares of the Funds.
VOTING
Shareholders have the right to vote on the election of Trustees and on any and
all matters on which the law or the Declaration of Trust states they may be
entitled to vote. The Trust is not required to hold regular annual meetings of
Trust shareholders and does not intend to do so. Shareholders of a class of
shares have separate voting rights with respect to matters that only affect that
class. See ''Other Information--Voting Rights'' in the Statement of Additional
Information.
The Declaration of Trust provides that the holders of not less than two-thirds
of the outstanding shares of the Trust may remove a person serving as Trustee
either by declaration in writing or at a meeting called for such purpose. The
Trustees are required
<PAGE>
46 PIMCO FUNDS - Pacific Investment Management Series
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to call a meeting for the purpose of considering the removal of a person serving
as Trustee if requested in writing to do so by the holders of not less than 10%
of the outstanding shares of the Trust.
Shares entitle their holders to one vote per share (with proportionate voting
for fractional shares). [As of May 21, 1996, St. Johns Hospital (Santa Monica,
California) owned a controlling interest (as that term is defined in the 1940
Act) of the Money Market Fund; Pacific Mutual Life Insurance Company (Newport
Beach, California), owned a controlling interest of the Total Return Fund II;
Archdiocese of Los Angeles (Los Angeles, California) owned a controlling
interest of the Total Return Fund III; Firemans Fund Insurance (New York, New
York) owned a controlling interest of the Long-Term U.S. Government Fund; and
Southern California Edison (Rosemead, California) and Charles Schwab & Co., Inc.
(San Francisco, California) owned controlling interests of the Foreign Bond
Fund. As used in this Prospectus, the phrase ''vote of a majority of the
outstanding shares'' of a Fund (or the Trust) means the vote of the lesser of:
(1) 67% of the shares of the Fund (or the Trust) present at a meeting, if the
holders of more than 50% of the outstanding shares are present in person or by
proxy; or (2) more than 50% of the outstanding shares of the Fund (or the
Trust).
MAILINGS TO SHAREHOLDERS
To reduce the volume of mail shareholders receive, it is anticipated that only
one copy of most Trust reports, such as the Trust's annual report, will be
mailed to a shareholder's household (same surname, same address). A shareholder
may call 800-227-7337 if additional shareholder reports are desired.
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 47
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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 prior to 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 prior to 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 Fund'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. 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.
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
Certain of the Funds make use of average portfolio credit quality standards to
assist institutional investors whose own investment guidelines limit their
investments accordingly. In determining a Fund's overall dollar-weighted average
quality, unrated securities are treated as if rated, based on the Adviser's view
of their comparability to rated securities. A Fund'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 Fund does not
mean that all securities held by the Fund will be rated in that category or
higher. A Fund's investments may range in quality from securities rated in the
lowest category in which the Fund is permitted to invest to securities rated in
the highest category (as rated by Moody's or S&P or, if unrated, determined by
the Adviser to be of comparable quality). The percentage of a Fund's assets
invested in securities in a particular rating category will vary. Following is a
description of Moody's and S&P's ratings applicable to fixed income securities.
<PAGE>
48 PIMCO FUNDS - Pacific Investment Management Series
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MOODY'S INVESTORS SERVICE, INC.
CORPORATE AND MUNICIPAL BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as ''gilt edge.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than with Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's 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:
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 49
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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
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.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay
<PAGE>
50 PIMCO FUNDS - Pacific Investment Management Series
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interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC- debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional ratings: The letter ''p'' indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
r: The ''r'' is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and interest only and
principal only mortgage securities.
The absence of an ''r'' symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
COMMERCIAL PAPER RATING DEFINITIONS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from A for the
highest quality obligations to D for the lowest. These categories are as
follows:
<PAGE>
PIMCO FUNDS - Pacific Investment Management Series 51
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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.
<PAGE>
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52 PIMCO FUNDS - Pacific Investment Management Series
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[ART]
PIMCO FUNDS
- -----------
Pacific Investment Management Series
INVESTMENT ADVISER AND Pacific Investment Management Company, 840 Newport
ADMINISTRATOR Center Drive, Suite 360, Newport Beach, CA 92660
- --------------------------------------------------------------------------------
DISTRIBUTOR PIMCO Funds Distribution Company, 2187 Atlantic Street,
Stamford, CT 06902
- --------------------------------------------------------------------------------
CUSTODIAN [ ]
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING Shareholder Services, Inc., P.O. Box 5866, Denver,
AGENT AND TRANSFER AGENT Colorado 80217
- --------------------------------------------------------------------------------
For further information about the Trust, call __________________________.
[PRINTED ON RECYCLED PAPER USING SOY-BASED INKS.]
<PAGE>
PIMCO Funds
Pacific Investment Management Series
Statement of Additional Information
PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund") currently consisting of nineteen separate investment portfolios
(the "Funds"): the PIMCO Money Market Fund; the PIMCO Short-Term Fund; the PIMCO
Low Duration Fund; the PIMCO Low Duration Fund II; the PIMCO Low Duration Fund
III; the PIMCO Moderate Duration Fund; the PIMCO High Yield Fund; the PIMCO
Total Return Fund; the PIMCO Total Return Fund II; the PIMCO Total Return Fund
III; the PIMCO Commercial Mortgage Securities Fund; the PIMCO Long-Term U.S.
Government Fund; the PIMCO Foreign Bond Fund; the PIMCO Global Bond Fund; the
PIMCO Global Bond Fund II; the PIMCO International Bond Fund; the PIMCO
StocksPLUS Fund; the PIMCO StocksPLUS Short Strategy Fund; and the PIMCO
Strategic Balanced Fund. Shares of the PIMCO International Bond Fund are
offered only to clients of PIMCO who maintain separately managed private
accounts.
The Trust's investment adviser is Pacific Investment Management Company
("PIMCO" or the "Adviser"), 840 Newport Center Drive, Suite 360, Newport Beach,
California 92660. PIMCO is a subsidiary partnership of PIMCO Advisors L.P.
("PIMCO Advisors").
This Statement of Additional Information is not a Prospectus, and should be
used in conjunction with a Prospectus for the Trust. The Funds offer five
classes of shares, offered through two Prospectuses. Class A, Class B, and
Class C shares are offered through the "Retail Prospectus" and Institutional
Class and Administrative Class shares are offered through the "Institutional
Prospectus," each dated January 14, 1997 (collectively, the "Prospectuses"). A
copy of the applicable Prospectus may be obtained free of charge at the address
and telephone number listed below.
Institutional Prospectus: Retail Prospectus:
PIMCO Funds PIMCO Advisors Distribution Company
840 Newport Center Drive 2187 Atlantic Street
Suite 360 Stamford, Connecticut 06902
Newport Beach, California 92660 Telephone: (800) 426-0107
Telephone: (800) 927-4648
January 14, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES............................................................................................ 1
Borrowing................................................................................................................ 1
Corporate Debt Securities................................................................................................ 2
Participation on Creditors Committee..................................................................................... 3
Mortgage-Related and Other Asset-Backed Securities....................................................................... 4
Foreign Securities....................................................................................................... 8
Foreign Currency Exchange-Related Securities............................................................................. 10
Bank Obligations......................................................................................................... 11
Loan Participations...................................................................................................... 12
Short Sales.............................................................................................................. 14
Derivative Instruments................................................................................................... 15
Warrants to Purchase Securities.......................................................................................... 22
Illiquid Securities...................................................................................................... 22
Social Investment Policies............................................................................................... 23
INVESTMENT RESTRICTIONS....................................................................................................... 23
Fundamental Investment Restrictions...................................................................................... 23
Non-Fundamental Investment Restrictions.................................................................................. 25
........................................................................................................................ 29
MANAGEMENT OF THE TRUST....................................................................................................... 29
Trustees and Officers.................................................................................................... 29
Compensation Table....................................................................................................... 33
Investment Adviser....................................................................................................... 33
Fund Administrator............................................................................................................ 36
Expense Limitations...................................................................................................... 39
DISTRIBUTION OF TRUST SHARES.................................................................................................. 39
Distributor and Multi-Class Plan......................................................................................... 39
Contingent Deferred Sales Charge and Initial Sales Charge................................................................ 40
Distribution and Servicing Plans for Class A, Class B and Class C Shares................................................. 40
Distribution and Administrative Services Plans for Administrative Class Shares........................................... 41
Purchases, Exchanges and Redemptions..................................................................................... 43
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................................................................... 44
Investment Decisions..................................................................................................... 44
Brokerage and Research Services.......................................................................................... 45
Portfolio Turnover....................................................................................................... 45
NET ASSET VALUE............................................................................................................... 46
TAXATION...................................................................................................................... 47
Distributions............................................................................................................ 48
Sales of Shares.......................................................................................................... 48
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Backup Withholding....................................................................................................... 48
Options, Futures and Forward Contracts, and Swap Agreements.............................................................. 48
Short Sales.............................................................................................................. 49
Passive Foreign Investment Companies..................................................................................... 49
Foreign Currency Transactions............................................................................................ 50
Foreign Taxation......................................................................................................... 50
Original Issue Discount.................................................................................................. 51
Other Taxation........................................................................................................... 52
OTHER INFORMATION............................................................................................................. 52
Capitalization........................................................................................................... 52
Performance Information.................................................................................................. 52
Voting Rights............................................................................................................ 59
Certain Ownership of Trust Shares........................................................................................ 59
The Reorganization of the PIMCO Money Market and Total Return II Funds................................................... 66
The Reorganization of the PIMCO Global Bond Fund II...................................................................... 66
Code of Ethics........................................................................................................... 66
Custodian, Transfer Agent and Dividend Disbursing Agent.................................................................. 67
Independent Accountants.................................................................................................. 67
Counsel.................................................................................................................. 67
Registration Statement................................................................................................... 67
Financial Statements..................................................................................................... 68
</TABLE>
ii
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of each Fund are
described in the Prospectus. Additional information concerning the
characteristics of certain of the Funds' investments is set forth below.
Borrowing
A Fund may borrow for temporary administrative purposes. This borrowing
may be unsecured. Provisions of the Investment Company Act of 1940 ("1940 Act")
require a Fund to maintain continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed, with an exception for borrowings not in excess of 5% of the
Fund's total assets made for temporary administrative purposes. Any borrowings
for temporary administrative purposes in excess of 5% of the Fund's total assets
must maintain continuous asset coverage. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, a Fund may be
required to sell some of its portfolio holdings within three days to reduce the
debt and restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time. Borrowing will
tend to exaggerate the effect on net asset value of any increase or decrease in
the market value of a Fund's portfolio. Money borrowed will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased. A Fund also may be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or other fee
to maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate.
In addition to borrowing for temporary purposes, a Fund may enter into
reverse repurchase agreements and mortgage dollar rolls. A reverse repurchase
agreement involves the sale of a portfolio-eligible security by a Fund, coupled
with its agreement to repurchase the instrument at a specified time and price.
The Fund will maintain a segregated account with its custodian consisting of
assets determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees, equal (on a daily mark-to-market basis) to
its obligations under reverse repurchase agreements with broker-dealers (but not
banks). However, reverse repurchase agreements involve the risk that the market
value of securities retained by the Fund may decline below the repurchase price
of the securities sold by the Fund which it is obligated to repurchase. Reverse
repurchase agreements will be subject to the Funds' limitations on borrowings,
which will restrict the aggregate of such transactions (plus any other
borrowings) to 33 1/3% (for each Fund except the PIMCO Global Bond Fund II) of a
Fund's total assets.
The PIMCO Global Bond Fund II may not borrow in excess of 10% of the value
of its total assets and then only from banks as a temporary measure to
facilitate the meeting of redemption requests (not for leverage) or for
extraordinary or emergency purposes.
A "mortgage dollar roll," is similar to reverse repurchase agreements in
certain respects. In a "dollar roll" transaction a Fund sells a mortgage-
related security, such as a security issued by the Government National Mortgage
Association ("GNMA"), to a dealer and simultaneously agrees to repurchase a
similar security (but not the same security) in the future at a pre-determined
price. A "dollar roll" can be viewed, like a reverse repurchase agreement, as a
collateralized borrowing in which a Fund pledges a mortgage-related security to
a dealer to obtain cash. Unlike in the case of reverse repurchase agreements,
the dealer with which a Fund enters into a dollar roll transaction is not
obligated to return the same securities as those originally sold by the Fund,
but only securities which are "substantially identical." To be considered
"substantially identical," the securities returned
1
<PAGE>
to a Fund generally must: (1) be collateralized by the same types of underlying
mortgages; (2) be issued by the same agency and be part of the same program; (3)
have a similar original stated maturity; (4) have identical net coupon rates;
(5) have similar market yields (and therefore price); and (6) satisfy "good
delivery" requirements, meaning that the aggregate principal amounts of the
securities delivered and received back must be within 2.5% of the initial amount
delivered.
A Fund's obligations under a dollar roll agreement must be covered by
liquid assets, such as cash or high quality debt securities equal in value to
the securities subject to repurchase by the Fund, maintained in a segregated
account. Dollar rolls will be subject to the Funds' limitations on borrowings,
which will restrict the aggregate of such transactions (plus any other
borrowings) to 331/3% (for each Fund except the PIMCO Global Bond Fund II) of a
Fund's total assets. Furthermore, because dollar roll transactions may be for
terms ranging between one and six months, dollar roll transactions may be deemed
"illiquid" and subject to a Fund's overall limitations on investments in
illiquid securities.
Corporate Debt Securities
A Fund's investments in U.S. dollar or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities) which meet the
minimum ratings criteria set forth for the Fund, or, if unrated, are in the
Adviser's opinion comparable in quality to corporate debt securities in which
the Fund may invest. The rate of return or return of principal on some debt
obligations may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies.
Among the corporate bonds in which the Funds may invest are convertible
securities. A convertible security is a bond, debenture, note, or other
security that entitles the holder to acquire common stock or other equity
securities of the same or a different issuer. A convertible security generally
entitles the holder to receive interest paid or accrued until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities. Convertible securities rank senior to common stock in a
corporation's capital structure and, therefore, generally entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security.
A convertible security may be subject to redemption at the option of the
issuer at a predetermined price. If a convertible security held by a Fund is
called for redemption, the Fund would be required to permit the issuer to redeem
the security and convert it to underlying common stock, or would sell the
convertible security to a third party. A Fund generally would invest in
convertible securities for their favorable price characteristics and total
return potential and would normally not exercise an option to convert.
Securities rated Baa and BBB are the lowest which are considered
"investment grade" obligations. Moody's Investor Services, Inc. ("Moody's")
describes securities rated Baa as "medium-grade" obligations; they are "neither
highly protected nor poorly secured . . . [i]nterest 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." Standard & Poor's ("S&P") describes
securities rated BBB as "regarded as having an adequate capacity to pay interest
and repay principal . . . [w]hereas 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 . . .
than in higher rated categories."
2
<PAGE>
Investments in securities rated below investment grade that are eligible
for purchase by certain of the Funds (i.e., rated B or better by Moody's or
S&P), and in particular, by the PIMCO High Yield Fund, are described as
"speculative" by both Moody's and S&P. Investment in lower rated corporate debt
securities ("high yield securities") generally provides greater income and
increased opportunity for capital appreciation than investments in higher
quality securities, but they also typically entail greater price volatility and
principal and income risk. These high yield securities are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. The market for these securities is
relatively new, and many of the outstanding high yield securities have not
endured a major business recession. A long-term track record on default rates,
such as that for investment grade corporate bonds, does not exist for this
market. Analysis of the creditworthiness of issuers of debt securities that are
high yield 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 investment grade securities.
The prices of high yield securities have been found to be less sensitive to
interest-rate changes than higher-rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection
of an economic downturn or of a period of rising interest rates, for example,
could cause a decline in high yield security prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If an issuer of high
yield securities defaults, in addition to risking payment of all or a portion of
interest and principal, the Funds may incur additional expenses to seek
recovery. In the case of high yield securities structured as zero-coupon or
pay-in-kind securities, their market prices are affected to a greater extent by
interest rate changes, and therefore tend to be more volatile than securities
which pay interest periodically and in cash.
The secondary market on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Funds
could sell a high yield security, and could adversely affect the daily net asset
value of the shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of high
yield securities especially in a thinly-traded market. When secondary markets
for high yield securities are less liquid than the market for higher grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
The Adviser seeks to minimize the risks of investing in all securities through
diversification, in-depth credit analysis and attention to current developments
in interest rates and market conditions.
Participation on Creditors Committee
A Fund (in particular, the PIMCO High Yield Fund) may from time to time
participate on committees formed by creditors to negotiate with the management
of financially troubled issuers of securities held by the Fund. Such
participation may subject the Fund to expenses such as legal fees and may make
the Fund an "insider" of the issuer for purposes of the federal securities laws,
and therefore may restrict the Fund's ability to trade in or acquire additional
positions in a particular security when it might otherwise desire to do so.
Participation by the Fund on such committees also may expose the Fund to
potential liabilities under the federal bankruptcy laws or other laws governing
the rights of creditors and debtors. The Fund will participate on such
committees only when the Adviser believes that such participation is necessary
or desirable to enforce the Fund's rights as a creditor or to protect the value
of securities held by the Fund.
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Mortgage-Related and Other Asset-Backed Securities
Mortgage-related securities are interests in pools of residential or
commercial mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations, see "Mortgage Pass-Through
Securities." The Funds may also invest in debt securities which are secured with
collateral consisting of mortgage-related securities, see "Collateralized
Mortgage Obligations," and in other types of mortgage-related securities.
Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect,
these payments are a "pass-through" of the monthly payments made by the
individual borrowers on their residential or commercial mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some mortgage-related securities (such as securities issued by
GNMA) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether or not
the mortgagor actually makes the payment.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment
on underlying mortages increase in the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
The principal governmental guarantor of mortgage-related securities is
GNMA. GNMA is a wholly owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of mortgages insured by the Federal Housing
Administration (the "FHA"), or guaranteed by the Department of Veterans Affairs
(the "VA").
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the United States Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a government-
sponsored corporation formerly owned by the twelve Federal Home Loan Banks and
now owned entirely by private stockholders. FHLMC
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issues Participation Certificates ("Pcs") which represent interests in
conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Pcs are not
backed by the full faith and credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of these pools may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance and letters of credit. The insurance and guarantees are issued
by governmental entities, private insurers and the mortgage poolers. Such
insurance and guarantees and the creditworthiness of the issuers thereof will be
considered in determining whether a mortgage-related security meets the Trust's
investment quality standards. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. The Funds may buy mortgage-related securities
without insurance or guarantees if, through an examination of the loan
experience and practices of the originator/servicers and poolers, the Adviser
determines that the securities meet the Trust's quality standards. Although the
market for such securities is becoming increasingly liquid, securities issued by
certain private organizations may not be readily marketable. No Fund will
purchase mortgage-related securities or any other assets which in the Adviser's
opinion are illiquid if, as a result, more than 15% of the value of the Fund's
net assets will be illiquid (10% in the case of the PIMCO Money Market Fund.)
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Funds'
industry concentration restrictions, set forth below under "Investment
Restrictions," by virtue of the exclusion from that test available to all U.S.
Government securities. In the case of privately issued mortgage-related
securities, the Funds take the position that mortgage-related securities do not
represent interests in any particular "industry" or group of industries. The
assets underlying such securities may be represented by a portfolio of first
lien residential mortgages (including both whole mortgage loans and mortgage
participation interests) or portfolios of mortgage pass-through securities
issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a
mortgage-related security may in turn be insured or guaranteed by the FHA or the
VA. In the case of private issue mortgage-related securities whose underlying
assets are neither U.S. Government securities nor U.S. Government-insured
mortgages, to the extent that real properties securing such assets may be
located in the same geographical region, the security may be subject to a
greater risk of default than other comparable securities in the event of adverse
economic, political or business developments that may affect such region and,
ultimately, the ability of residential homeowners to make payments of principal
and interest on the underlying mortgages.
Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semi-annually. CMOs may
be collateralized by whole mortgage loans, but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs
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provide for a modified form of call protection through a de facto breakdown of
the underlying pool of mortgages according to how quickly the loans are repaid.
Monthly payment of principal received from the pool of underlying mortgages,
including prepayments, is first returned to investors holding the shortest
maturity class. Investors holding the longer maturity classes receive principal
only after the first class has been retired. An investor is partially guarded
against a sooner than desired return of principal because of the sequential
payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC Pcs, payments of principal and interest on the CMOs are made
semi-annually, as opposed to monthly. The amount of principal payable on each
semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semi-annual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC Pcs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property.
The market for commercial mortgage-backed securities developed more recently and
in terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage- or asset-backed securities.
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Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO Residuals. CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities--Stripped Mortgage-Backed Securities." In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are based. As described below with respect to stripped mortgage-
backed securities, in certain circumstances a Fund may fail to recoup fully its
initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended (the "1933 Act").
CMO residuals, whether or not registered under the 1933 Act, may be subject to
certain restrictions on transferability, and may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely
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sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Other Asset-Backed Securities. Similarly, the Adviser expects that other
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including Certificates for Automobile ReceivablesSM
("CARSSM"). CARSSM represent undivided fractional interests in a trust whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. An investor's return on CARSSM may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, the trust may be prevented from realizing the
full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.
Consistent with a Fund's investment objectives and policies, the Adviser
also may invest in other types of asset-backed securities.
Foreign Securities
All Funds (except the PIMCO Low Duration II and Total Return II Funds) may
invest in U.S. dollar- or foreign currency-denominated corporate debt securities
of foreign issuers (including preferred or preference stock), certain foreign
bank obligations (see "Bank Obligations") and U.S. dollar-or foreign currency-
denominated obligations of foreign governments or their subdivisions, agencies
and instrumentalities, international agencies and supranational entities. The
PIMCO Money Market, High Yield, Commercial Mortgage Securities and Long-Term
U.S. Government Funds may invest in securities of foreign issuers only if they
are U.S. dollar-denominated. The PIMCO Short-Term Fund will limit its
investment in securities denominated in foreign currencies to no more than 5% of
the Fund's total assets. Each of the remaining Fixed Income Funds permitted to
invest in foreign securities, except the PIMCO Foreign Bond, Global Bond, Global
Bond II and International Bond Funds, will limit its investment in securities
denominated in foreign currencies to no more than 20% of the Fund's total
assets. Each of the Funds will limit its foreign investments to securities of
issuers based in developed countries (which include Newly Industrialized
Countries ("NICs") such as Mexico, Taiwan and South Korea). The PIMCO Short-
Term, Low Duration and Low Duration III Funds limit their investments in
securities of issuers based in NICs to 5% of their assets, and the remaining
Fixed Income Funds, except the PIMCO Foreign Bond, Global Bond, Global Bond II
and International Bond Funds, limit their investments in securities of issuers
based in NICs to 10% of their assets.
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Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
include: differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country), political instability which can
affect U.S. investments in foreign countries and potential restrictions on the
flow of international capital. In addition, foreign securities and dividends
and interest payable on those securities may be subject to foreign taxes,
including taxes withheld from payments on those securities. Foreign securities
often trade with less frequency and volume than domestic securities and
therefore may exhibit greater price volatility. Changes in foreign exchange
rates will affect the value of those securities which are denominated or quoted
in currencies other than the U.S. dollar.
All Funds that may invest in foreign currency-denominated securities also
may purchase and sell foreign currency options and foreign currency futures
contracts and related options, see "Derivative Instruments," and enter into
forward foreign currency exchange contracts in order to protect against
uncertainty in the level of future foreign exchange rates in the purchase and
sale of securities. The Funds may also use foreign currency options and foreign
currency forward contracts to increase exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another.
A forward foreign currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts may be bought or sold to protect a Fund
against a possible loss resulting from an adverse change in the relationship
between foreign currencies and the U.S. dollar or to increase exposure to a
particular foreign currency. Open positions in forward contracts used for non-
hedging purposes will be covered by the segregation with the Trust's custodian
of assets determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees, and are marked to market daily. Although
forward contracts are intended to minimize the risk of loss due to a decline in
the value of the hedged currencies, at the same time, they tend to limit any
potential gain which might result should the value of such currencies
increase.
Each of the Fixed Income Funds (except the PIMCO Low Duration II and Total
Return II Funds) may invest in Brady Bonds. Brady Bonds are securities created
through the exchange of existing commercial bank loans to sovereign entities for
new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas
F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been
implemented in a number of countries, including: Argentina, Bolivia, Bulgaria,
Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Niger, Nigeria, the
Philippines, Poland, Uruguay, and Venezuela. In addition, Brazil has concluded
a Brady-like plan. It is expected that other countries will undertake a Brady
Plan in the future, including Panama and Peru.
Brady Bonds have been issued only recently, and accordingly do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the over-the-counter secondary market. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are generally collateralized in full as to principal by U.S.
Treasury zero coupon bonds having the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized on a one-year or
longer rolling-forward basis by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of interest payments or,
in the case of
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floating rate bonds, initially is equal to at least one year' s interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady Bonds
are often viewed as having three or four valuation components: (i) the
collateralized repayment of principal at final maturity; (ii) the collateralized
interest payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk").
Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments at
final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.
Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds. There can be no assurance that Brady
Bonds in which the Funds may invest will not be subject to restructuring
arrangements or to requests for new credit, which may cause the Funds to suffer
a loss of interest or principal on any of its holdings.
Foreign Currency Exchange-Related Securities
Foreign currency warrants. Foreign currency warrants such as Currency
Exchange WarrantsSM ("CEWs(SM)") are warrants which entitle the holder to
receive from their issuer an amount of cash (generally, for warrants issued in
the United States, in U.S. dollars) which is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified foreign
currency and the U.S. dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of
a specified date and time. Foreign currency warrants have been issued in
connection with U.S. dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the
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warrants may be accelerated if the warrants should be delisted from an exchange
or if their trading should be suspended permanently, which would result in the
loss of any remaining "time value" of the warrants (i.e., the difference between
the current market value and the exercise value of the warrants), and, in the
case the warrants were "out-of-the-money," in a total loss of the purchase price
of the warrants. Warrants are generally unsecured obligations of their issuers
and are not standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by OCC, the terms of
foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is
generally considerably in excess of the price that a commercial user of foreign
currencies might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to significant foreign exchange risk, including risks arising from
complex political or economic factors.
Principal exchange rate linked securities. Principal exchange rate linked
securities ("PERLs(SM)") are debt obligations the principal on which is payable
at maturity in an amount that may vary based on the exchange rate between the
U.S. dollar and a particular foreign currency at or about that time. The return
on "standard" principal exchange rate linked securities is enhanced if the
foreign currency to which the security is linked appreciates against the U.S.
dollar, and is adversely affected by increases in the foreign exchange value of
the U.S. dollar; "reverse" principal exchange rate linked securities are like
the "standard" securities, except that their return is enhanced by increases in
the value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchaser of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based on the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.
Performance indexed paper. Performance indexed paper ("PIPs(SM)") is U.S.
dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on performance
indexed paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is below,
and a potential maximum rate of return that is above, market yields on U.S.
dollar-denominated commercial paper, with both the minimum and maximum rates of
return on the investment corresponding to the minimum and maximum values of the
spot exchange rate two business days prior to maturity.
Bank Obligations
Bank obligations in which the Funds invest include certificates of deposit,
bankers' acceptances, and fixed time deposits. Certificates of deposit are
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return. Bankers' acceptances
are negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Fixed time deposits are bank obligations payable
at a stated maturity date and bearing interest at a fixed rate. Fixed time
deposits may be withdrawn on demand by the investor, but may be subject to early
withdrawal
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penalties which vary depending upon market conditions and the remaining maturity
of the obligation. There are no contractual restrictions on the right to
transfer a beneficial interest in a fixed time deposit to a third party,
although there is no market for such deposits. A Fund will not invest in fixed
time deposits which (1) are not subject to prepayment or (2) provide for
withdrawal penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more than 15% of its net assets (10% in the case of the PIMCO Money
Market Fund) would be invested in such deposits, repurchase agreements maturing
in more than seven days and other illiquid assets.
Each Fund limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. A Fund
also may invest in certificates of deposit of savings and loan associations
(federally or state chartered and federally insured) having total assets in
excess of $1 billion.
Each Fund (except the PIMCO Money Market, High Yield, Commercial Mortgage
Securities and Long-Term U.S. Government Funds) limits its investments in
foreign bank obligations to United States dollar-or foreign currency-denominated
obligations of foreign banks (including United States branches of foreign banks)
which at the time of investment (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) in terms of assets are
among the 75 largest foreign banks in the world; (iii) have branches or agencies
(limited purpose offices which do not offer all banking services) in the United
States; and (iv) in the opinion of the Adviser, are of an investment quality
comparable to obligations of United States banks in which the Funds may invest.
The PIMCO Money Market, High Yield, Commercial Mortgage Securities and Long-Term
U.S. Government Funds may invest in the same types of bank obligations as the
other Funds, but they must be U.S. dollar-denominated. Subject to the Trust's
limitation on concentration of no more than 25% of its assets in the securities
of issuers in a particular industry, there is no limitation on the amount of a
Fund's assets which may be invested in obligations of foreign banks which meet
the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not generally subject to examination by any U.S.
Government agency or instrumentality.
Loan Participations
Each Fund may purchase participations in commercial loans. Such
indebtedness may be secured or unsecured. Loan participations typically
represent direct participation in a loan to a corporate borrower, and generally
are offered by banks or other financial institutions or lending syndicates. When
purchasing loan participations, a Fund assumes the credit risk associated with
the corporate borrower and may assume the credit risk associated with an
interposed bank or other financial intermediary. The participation interests in
which a Fund intends to invest may not be rated by any nationally recognized
rating service.
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A loan is often administered by an agent bank acting as agent for all
holders. The agent bank administers the terms of the loan, as specified in the
loan agreement. In addition, the agent bank is normally responsible for the
collection of principal and interest payments from the corporate borrower and
the apportionment of these payments to the credit of all institutions which are
parties to the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the corporate borrower, the
Fund may have to rely on the agent bank or other financial intermediary to apply
appropriate credit remedies against a corporate borrower.
A financial institution's employment as agent bank might be terminated in
the event that it fails to observe a requisite standard of care or becomes
insolvent. A successor agent bank would generally be appointed to replace the
terminated agent bank, and assets held by the agent bank under the loan
agreement should remain available to holders of such indebtedness. However, if
assets held by the agent bank for the benefit of a Fund were determined to be
subject to the claims of the agent bank's general creditors, the Fund might
incur certain costs and delays in realizing payment on a loan or loan
participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance
company or governmental agency) similar risks may arise.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the corporate borrower for payment of principal and
interest. If a Fund does not receive scheduled interest or principal payments on
such indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer a Fund more protection than an unsecured loan
in the event of non-payment of scheduled interest or principal. However, there
is no assurance that the liquidation of collateral from a secured loan would
satisfy the corporate borrower's obligation, or that the collateral can be
liquidated.
The Funds may invest in loan participations with credit quality comparable
to that of issuers of its securities investments. Indebtedness of companies
whose creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Some companies may never pay off their indebtedness, or may
pay only a small fraction of the amount owed. Consequently, when investing in
indebtedness of companies with poor credit, a Fund bears a substantial risk of
losing the entire amount invested.
Each Fund limits the amount of its total assets that it will invest in any
one issuer or in issuers within the same industry (see "Investment
Restrictions"). For purposes of these limits, a Fund generally will treat the
corporate borrower as the "issuer" of indebtedness held by the Fund. In the case
of loan participations where a bank or other lending institution serves as a
financial intermediary between a Fund and the corporate borrower, if the
participation does not shift to the Fund the direct debtor-creditor relationship
with the corporate borrower, Securities and Exchange Commission ("SEC")
interpretations require the Fund to treat both the lending bank or other lending
institution and the corporate borrower as "issuers" for the purposes of
determining whether the Fund has invested more than 5% of its total assets in a
single issuer. Treating a financial intermediary as an issuer of indebtedness
may restrict a Funds' ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
Loans and other types of direct indebtedness may not be readily marketable
and may be subject to restrictions on resale. In some cases, negotiations
involved in disposing of indebtedness may require weeks to complete.
Consequently, some indebtedness may be difficult or impossible to dispose of
readily at what the Adviser believes to be a fair price. In addition, valuation
of illiquid indebtedness involves a greater degree of judgment in determining a
Fund's net asset value than if that value were based on available market
quotations, and could result in significant variations in the
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Fund's daily share price. At the same time, some loan interests are traded
among certain financial institutions and accordingly may be deemed liquid. As
the market for different types of indebtedness develops, the liquidity of these
instruments is expected to improve. In addition, the Funds currently intend to
treat indebtedness for which there is no readily available market as illiquid
for purposes of the Funds' limitation on illiquid investments.
Investments in loans through a direct assignment of the financial
institution's interests with respect to the loan may involve additional risks to
the Funds. For example, if a loan is foreclosed, a Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, a Fund could be held liable
as co-lender. It is unclear whether loans and other forms of direct indebtedness
offer securities law protections against fraud and misrepresentation. In the
absence of definitive regulatory guidance, the Funds rely on the Adviser's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the Funds.
Short Sales
Certain of the Funds, particularly the PIMCO StocksPLUS Short Strategy
Fund, may make short sales of securities as part of their overall portfolio
management strategies involving the use of derivative instruments and to offset
potential declines in long positions in similar securities. A short sale is a
transaction in which a Fund sells a security it does not own in anticipation
that the market price of that security will decline.
When a Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any accrued interest on such borrowed securities.
If the price of the security sold short increases between the time of the
short sale and the time and the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. The successful use of short selling may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
To the extent that a Fund engages in short sales, it will provide
collateral to the broker-dealer and (except in the case of short sales "against
the box") will maintain additional asset coverage in the form of assets
determined to be liquid by the Adviser in accordance with procedures established
by the Board of Trustees, in a segregated account. Each Fund, except the PIMCO
StocksPLUS Short Strategy Fund, does not intend to enter into short sales (other
than those "against the box") if immediately after such sale the aggregate of
the value of all collateral plus the amount in such segregated account exceeds
one-third of the value of the Fund's net assets. This percentage may be varied
by action of the Trustees. A short sale is "against the box" to the extent that
the Fund contemporaneously owns, or has the right to obtain at no added cost,
securities identical to those sold short. The Funds will engage in short selling
to the extent permitted by the 1940 Act and rules and interpretations
thereunder. The PIMCO Global Bond Fund II may only engage in short sales that
are "against the box."
[With respect to each Fund, except the PIMCO StocksPLUS Short Strategy
Fund, the Trust has agreed with a state securities commission that as an
operating policy, the dollar amount of short sales (other than short sales
against the box) at any time shall not exceed 25% of the net equity of a Fund,
and the value of securities of any one issuer in which a Fund is short shall not
exceed 2% of the Fund's net assets or 2% of the securities of any class of any
issuer.]
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Derivative Instruments
In pursuing their individual objectives the Funds may, as described in the
Prospectuses, purchase and sell (write) both put options and call options on
securities, securities indexes, and foreign currencies, and enter into interest
rate, foreign currency and index futures contracts and purchase and sell options
on such futures contracts ("futures options") for hedging purposes, except that
those Funds that may not invest in foreign currency-denominated securities may
not enter into transactions involving currency futures or options. The Funds
also may purchase and sell foreign currency options for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another. The Funds also may enter into swap
agreements with respect to foreign currencies, interest rates and indexes of
securities. The Funds may invest in structured notes. If other types of
financial instruments, including other types of options, futures contracts, or
futures options are traded in the future, a Fund may also use those instruments,
provided that the Trustees determine that their use is consistent with the
Fund's investment objective, and provided that their use is consistent with
restrictions applicable to options and futures contracts currently eligible for
use by the Trust (i.e., that written call or put options will be "covered" or
"secured," and that futures and futures options will be used only for hedging
purposes).
Options on Securities and Indexes. A Fund may, as specified for the Fund in
the Prospectuses, purchase and sell both put and call options on fixed income or
other securities or indexes in standardized contracts traded on foreign or
domestic securities exchanges, boards of trade, or similar entities, or quoted
on NASDAQ or on a regulated foreign over-the-counter market, and agreements,
sometimes called cash puts, which may accompany the purchase of a new issue of
bonds from a dealer.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.)
A Fund will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or other assets determined to be liquid by
the Adviser in accordance with procedures established by the Board of Trustees,
in such amount are placed in a segregated account by its custodian) upon
conversion or exchange of other securities held by the Fund. For a call option
on an index, the option is covered if the Fund maintains with its custodian
assets determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees, in an amount equal to the contract value
of the index. A call option is also covered if the Fund holds a call on the same
security or index as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written, provided the difference is
maintained by the Fund in assets determined to be liquid by the Adviser in
accordance with procedures established by the Board of Trustees, in a segregated
account with its custodian. A put option on a security or an index is "covered"
if the Fund maintains assets determined to be liquid by the Adviser in
accordance with
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procedures established by the Board of Trustees, equal to the exercise price in
a segregated account with its custodian. A put option is also covered if the
Fund holds a put on the same security or index as the put written where the
exercise price of the put held is (i) equal to or greater than the exercise
price of the put written, or (ii) less than the exercise price of the put
written, provided the difference is maintained by the Fund in assets determined
to be liquid by the Adviser in accordance with procedures established by the
Board of Trustees, in a segregated account with its custodian.
If an option written by a Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by a Fund expires unexercised, the Fund realizes a capital loss equal
to the premium paid. Prior to the earlier of exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option of the same
series (type, exchange, underlying security or index, exercise price, and
expiration). There can be no assurance, however, that a closing purchase or sale
transaction can be effected when the Fund desires.
A Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or
index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset
of the Fund. The premium received for an option written by a Fund is recorded as
a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
The Funds may write covered straddles consisting of a combination of a call
and a put written on the same underlying security. A straddle will be covered
when sufficient assets are deposited to meet the Funds' immediate obligations.
The Funds may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes, during
the option's life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the premium and the
exercise price of the call.
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If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were imposed,
the Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
Foreign Currency Options. A Fund may buy or sell put and call options on
foreign currencies either on exchanges or in the over-the-counter market. A put
option on a foreign currency gives the purchaser of the option the right to sell
a foreign currency at the exercise price until the option expires. A call
option on a foreign currency gives the purchaser of the option the right to
purchase the currency at the exercise price until the option expires. Currency
options traded on U.S. or other exchanges may be subject to position limits
which may limit the ability of a Fund to reduce foreign currency risk using such
options. Over-the-counter options differ from traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller, and generally do not have as much market liquidity as exchange-traded
options.
Futures Contracts and Options on Futures Contracts. A Fund may use interest
rate, foreign currency or index futures contracts, as specified for that Fund in
the Prospectuses. An interest rate, foreign currency or index futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument, foreign currency or the cash value
of an index at a specified price and time. A futures contract on an index is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. Although the value of an index might be a
function of the value of certain specified securities, no physical delivery of
these securities is made. A public market exists in futures contracts covering a
number of indexes as well as financial instruments and foreign currencies,
including: the S&P 500; the S&P Midcap 400; the Nikkei 225; the NYSE composite;
U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S.
Treasury bills; 90-day commercial paper; bank certificates of deposit;
Eurodollar certificates of deposit; the Australian dollar; the Canadian dollar;
the British pound; the German mark; the Japanese yen; the French franc; the
Swiss franc; the Mexican peso; and certain multinational currencies, such as the
European Currency Unit ("ECU"). It is expected that other futures contracts will
be developed and traded in the future.
A Fund may purchase and write call and put futures options. Futures options
possess many of the same characteristics as options on securities and indexes
(discussed above). A futures option gives the holder the right, in return for
the premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price at any time during the period of
the option. Upon exercise of a call option, the holder acquires a long position
in the futures contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true.
To comply with applicable rules of the Commodity Futures Trading Commission
("CFTC") under which the Trust and the Funds avoid being deemed a "commodity
pool" or a "commodity pool operator," each Fund intends generally to limit its
use of futures contracts and futures options to "bona fide hedging"
transactions, as such term is defined in applicable regulations, interpretations
and practice. For example, a Fund might use futures contracts to hedge against
anticipated changes in interest rates that might adversely affect either the
value of the Fund's securities or the price of the securities which the Fund
intends to purchase. A Fund's hedging activities may include sales of futures
contracts as an offset against the effect of expected increases in interest
rates, and purchases of futures contracts as an offset against the effect of
expected declines in interest rates. Although
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other techniques could be used to reduce that Fund's exposure to interest rate
fluctuations, the Fund may be able to hedge its exposure more effectively and
perhaps at a lower cost by using futures contracts and futures options.
A Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of assets determined to be liquid by the Adviser in accordance
with procedures established by the Board of Trustees ("initial margin"). The
margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. Margin
requirements on foreign exchanges may be different than U.S. exchanges. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. Each Fund
expects to earn interest income on its initial margin deposits. A futures
contract held by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking to market." Variation margin does not
represent a borrowing or loan by a Fund but is instead a settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract expired. In computing daily net asset value, each Fund will mark to
market its open futures positions.
A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund
realizes a capital gain, or if it is less, the Fund realizes a capital loss.
The transaction costs must also be included in these calculations.
The Funds may write covered straddles consisting of a call and a put
written on the same underlying futures contract. A straddle will be covered when
sufficient assets are deposited to meet the Funds' immediate obligations. A Fund
may use the same liquid assets to cover both the call and put options where the
exercise price of the call and put are the same, or the exercise price of the
call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
Limitations on Use of Futures and Futures Options. In general, the Funds
intend to enter into positions in futures contracts and related options only for
"bona fide hedging" purposes. With respect to positions in futures and related
options that do not constitute bona fide hedging positions, a Fund will not
enter into a futures contract or futures option contract if, immediately
thereafter, the aggregate initial margin deposits relating to such positions
plus premiums paid by it for open futures option positions, less the amount by
which any such options are "in-the-money," would exceed 5% of the Fund's net
assets. A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.
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When purchasing a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by the
Adviser in accordance with procedures established by the Board of Trustees,
that, when added to the amounts deposited with a futures commission merchant as
margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high or higher than the price of the contract
held by the Fund.
When selling a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by the
Adviser in accordance with procedures established by the Board of Trustees, that
are equal to the market value of the instruments underlying the contract.
Alternatively, the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures contract, a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based), or by holding a call option permitting the Fund
to purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by the Adviser in accordance with procedures established by the Board of
Trustees, that, when added to the amounts deposited with a futures commission
merchant as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by the Adviser in accordance with procedures established by the Board of
Trustees, that equal the purchase price of the futures contract, less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund.
As an operating policy, the Adviser will generally use cash and cash
equivalents in establishing and maintaining segregated accounts to cover each
Fund's obligations under futures contracts and related options. The Adviser
defines cash equivalents to include high grade liquid debt securities with
maturities of one year or less. To the extent that securities with maturities
greater than one year are used, such use will not eliminate the risk of a form
of leverage, which may tend to exaggerate the effect on net asset value of any
increase or decrease in the market value of a Fund's portfolio, and may require
liquidation of portfolio positions when it is not advantageous to do so.
However, any potential risk of leverage resulting from the use of securities
with maturities greater than one year may be mitigated by the overall duration
limit on a Fund's portfolio securities. Thus, the use of a longer-term security
may require a Fund to hold offsetting short-term securities to balance the
Fund's portfolio such that the Fund's duration does not exceed the maximum
permitted for the Fund in the Prospectuses.
The requirements for qualification as a regulated investment company also may
limit the extent to which a Fund may enter into futures, futures options or
forward contracts. See "Taxation."
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Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund securities being hedged. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given hedge
not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or a futures option position, and that Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Additional Risks of Options on Securities, Futures Contracts, Options on
Futures Contracts, and Forward Currency Exchange Contracts and Options Thereon.
Options on securities, futures contracts, options on futures contracts, and
options on currencies may be traded on foreign exchanges. Such transactions may
not be regulated as effectively as similar transactions in the United States;
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Trust's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lesser trading
volume.
Swap Agreements. The Funds may enter into interest rate, index and currency
exchange rate swap agreements. These transactions are entered into in a attempt
to obtain a particular return when it is considered desirable to do so, possibly
at a lower cost to the Fund than if the Fund had invested directly in an
instrument that yielded that desired return. Swap agreements are two party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments, which
may be adjusted for an interest factor. The gross returns to be exchanged or
"swapped" between the
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parties are generally calculated with respect to a "notional amount," i.e., the
return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Forms of swap agreements include
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; interest rate floors, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
fall below a specified rate, or "floor"; and interest rate collars, under which
a party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of assets determined to be liquid
by the Adviser in accordance with procedures established by the Board of
Trustees, to avoid any potential leveraging of the Fund's portfolio. Obligations
under swap agreements so covered will not be construed to be "senior securities"
for purposes of the Funds' investment restriction concerning senior securities.
A Fund will not enter into a swap agreement with any single party if the net
amount owed or to be received under existing contracts with that party would
exceed 5% of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective of total return will depend on the Adviser's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Funds will enter into swap
agreements only with counterparties that meet certain standards of
creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Funds' repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code may limit
the Funds' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the CFTC
effective February 22, 1993. To qualify for this exemption, a swap agreement
must be entered into by "eligible participants," which includes the following,
provided the participants' total assets exceed established levels: a bank or
trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or
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determining the terms of the swap agreement, including pricing, cost or credit
enhancement terms. Third, swap agreements may not be entered into and traded on
or through a multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
Structured Notes. Structured notes are derivative debt securities, the
interest rate or principal of which is determined by an unrelated indicator.
Indexed securities include structured notes as well as securities other than
debt securities, the interest rate or principal of which is determined by an
unrelated indicator. Indexed securities may include a multiplier that multiplies
the indexed element by a specified factor and, therefore, the value of such
securities may be very volatile. To the extent a Fund invests in these
securities, however, the Adviser analyzes these securities in its overall
assessment of the effective duration of the Fund's portfolio in an effort to
monitor the Fund's interest rate risk.
Warrants to Purchase Securities
The Funds may invest in or acquire warrants to purchase equity or fixed
income securities. Bonds with warrants attached to purchase equity securities
have many characteristics of convertible bonds and their prices may, to some
degree, reflect the performance of the underlying stock. Bonds also may be
issued with warrants attached to purchase additional fixed income securities at
the same coupon rate. A decline in interest rates would permit a Fund to buy
additional bonds at the favorable rate or to sell the warrants at a profit. If
interest rates rise, the warrants would generally expire with no value.
A Fund will not invest more than 5% of its net assets, valued at the lower
of cost or market, in warrants to purchase securities. Included within that
amount, but not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on the New York or American Stock Exchanges. Warrants acquired in
units or attached to securities will be deemed to be without value for purposes
of this restriction.
Illiquid Securities
The Funds may invest up to 15% of their net assets in illiquid securities
(10% in the case of the PIMCO Money Market Fund). The term "illiquid securities"
for this purpose means securities that cannot be disposed of within seven days
in the ordinary course of business at approximately the amount at which a Fund
has valued the securities. Illiquid securities are considered to include, among
other things, written over-the-counter options, securities or other liquid
assets being used as cover for such options, repurchase agreements with
maturities in excess of seven days, certain loan participation interests, fixed
time deposits which are not subject to prepayment or provide for withdrawal
penalties upon prepayment (other than overnight deposits), and other securities
whose disposition is restricted under the federal securities laws (other than
securities issued pursuant to Rule 144A under the 1933 Act and certain
commercial paper that the Adviser has determined to be liquid under procedures
approved by the Board of Trustees).
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Social Investment Policies
The PIMCO Low Duration III and Total Return III Funds will not, as a matter
of non-fundamental operating policy, invest in the securities of any issuer
determined by the Adviser to be engaged principally in the provision of
healthcare services, the manufacture of alcoholic beverages, tobacco products,
pharmaceuticals, military equipment, or the operation of gambling casinos. The
Funds will also avoid, to the extent possible on the basis of information
available to the Adviser, the purchase of securities of issuers engaged in the
production or trade of pornographic materials. An issuer will be deemed to be
principally engaged in an activity if it derives more than 10% of its gross
revenues from such activities. Evaluation of any particular issuer with respect
to these criteria may involve the exercise of subjective judgment by the
Adviser. The Adviser's determination of issuers engaged in such activities at
any given time will, however, be based upon its good faith interpretation of
available information and its continuing and reasonable best efforts to obtain
and evaluate the most current information available, and to utilize such
information, as it becomes available, promptly and expeditiously in portfolio
management for the Funds. In making its analysis, the Adviser may rely, among
other things, upon information contained in such publications as those produced
by the Investor Responsibility Research Center, Inc.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
Each Fund's investment objective, except for the PIMCO Global Bond Fund II,
as set forth in the Prospectuses under "Investment Objectives and Policies,"
together with the investment restrictions set forth below, are fundamental
policies of the Fund and may not be changed with respect to a Fund without
shareholder approval by vote of a majority of the outstanding shares of that
Fund. Under these restrictions a Fund may not:
(1)(a) invest in a security if, as a result of such investment, more than 25%
of its total assets (taken at market value at the time of such investment) would
be invested in the securities of issuers in any particular industry, except that
this restriction does not apply (a) to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities (or repurchase agreements
with respect thereto) and (b) with respect to the Money Market Fund, to
securities or obligations issued by U.S. banks;
(b) for the Global Bond Fund II, concentrate more than 25% of the value of
its total assets in any one industry (The SEC staff takes the position that
investments in government securities of a single foreign country (including
agencies and instrumentalities of such government, to the extent such
obligations are backed by the assets and revenues of such government) represent
investments in a separate industry for these purposes.);
(2) with respect to 75% of its assets, invest in a security if, as a result
of such investment, more than 5% of its total assets (taken at market value at
the time of such investment) would be invested in the securities of any one
issuer, except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities (This
investment restriction is not applicable to the Commercial Mortgage Securities
Fund, the Foreign Bond Fund, the Global Bond Fund, Global Bond Fund II or the
International Bond Fund.);
(3) with respect to 75% of its assets, invest in a security if, as a result
of such investment, it would hold more than 10% (taken at the time of such
investment) of the outstanding voting securities of any one issuer (This
restriction is not applicable to the Commercial Mortgage Securities Fund, the
Foreign Bond Fund, the Global Bond Fund, Global Bond Fund II or the
International Bond Fund);
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(4)(a) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein;
(b) for the Global Bond Fund II, purchase or sell real estate, although it
may purchase securities of issuers which deal in real estate, including
securities of real estate investment trusts, and may purchase securities which
are secured by interests in real estate;
(5) purchase or sell commodities or commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit a Fund, subject to
restrictions described in the Prospectuses and elsewhere in this Statement of
Additional Information, from purchasing, selling or entering into futures
contracts, options on futures contracts, foreign currency forward contracts,
foreign currency options, or any interest rate, securities-related or foreign
currency-related hedging instrument, including swap agreements and other
derivative instruments, subject to compliance with any applicable provisions of
the federal securities or commodities laws (This restriction is not applicable
to the Global Bond Fund II, but see non-fundamental restriction "L".);
(6) for the High Yield, Total Return III, International and StocksPLUS
Funds: purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but it
may make margin deposits in connection with transactions in options, futures,
and options on futures;
(7)(a) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that a Fund may (i) borrow from banks or enter
into reverse repurchase agreements, or employ similar investment techniques, and
pledge its assets in connection therewith, but only if immediately after each
borrowing there is asset coverage of 300% and (ii) enter into transactions in
options, futures, options on futures, and other derivative instruments as
described in the Prospectuses and in this Statement of Additional Information
(the deposit of assets in escrow in connection with the writing of covered put
and call options and the purchase of securities on a when-issued or delayed
delivery basis, collateral arrangements with respect to initial or variation
margin deposits for futures contracts and commitments entered into under swap
agreements or other derivative instruments, will not be deemed to be pledges of
a Fund's assets);
(b) for the Global Bond Fund II, borrow money in excess of 10% of the value
(taken at the lower of cost or current value) of the Fund's total assets (not
including the amount borrowed) at the time the borrowing is made, and then only
from banks as a temporary measure to facilitate the meeting of redemption
requests (not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency purposes
(Such borrowings will be repaid before any additional investments are
purchased.); or pledge, hypothecate, mortgage or otherwise encumber its assets
in excess of 10% of the Fund's total assets (taken at cost) and then only to
secure borrowings permitted above (The deposit of securities or cash or cash
equivalents in escrow in connection with the writing of covered call or put
options, respectively, is not deemed to be pledges or other encumbrances. For
the purpose of this restriction, collateral arrangements with respect to the
writing of options, futures contracts, options on futures contracts, and
collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge of assets and neither such arrangements nor the purchase
or sale of futures or related options are deemed to be the issuance of a senior
security.);
(8) lend any funds or other assets, except that a Fund may, consistent with
its investment objective and policies: (a) invest in debt obligations,
including bonds, debentures, or other debt securities, bankers' acceptances and
commercial paper, even though the purchase of such obligations may be deemed to
be the making of loans, (b) enter into repurchase agreements, and (c) lend its
portfolio securities in an amount not to exceed one-third of the value of its
total assets, provided such
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loans are made in accordance with applicable guidelines established by the
Securities and Exchange Commission and the Trustees of the Trust (This
restriction is not applicable to the Global Bond Fund II, but see non-
fundamental restriction "M".);
(9)(a) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under the federal securities laws;
(b) for the Global Bond Fund II, underwrite securities issued by other
persons except to the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter under federal
securities laws; or
(10)(a) for the High Yield, Total Return III, and StocksPLUS Funds: maintain
a short position, or purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except as set forth in the Prospectuses and in this
Statement of Additional Information for transactions in options, futures,
options on futures, and transactions arising under swap agreements or other
derivative instruments;
(b) for the Money Market, Short-Term, Low Duration, Low Duration II, Low
Duration III, Moderate Duration, Total Return, Total Return II, Commercial
Mortgage Securities, Long-Term U.S. Government, Foreign Bond, Global Bond,
International, StocksPLUS Short Strategy and Strategic Balanced Funds: maintain
a short position, or purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except on such conditions as may be set forth in the
Prospectuses and in this Statement of Additional Information.
Non-Fundamental Investment Restrictions
Each Fund is also subject to the following non-fundamental restrictions and
policies (which may be changed without shareholder approval) relating to the
investment of its assets and activities. Unless otherwise indicated, a Fund may
not:
(A)(a) invest for the purpose of exercising control or management;
(b) for the Global Bond Fund II, make investments for the purpose of
gaining control of a company's management;
(B)(a) purchase securities of other investment companies, except that a Fund
may, for temporary purposes, purchase shares of money market mutual funds,
subject to such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder, or by any State in which shares of the Fund are
registered (collateral arrangements with respect to securities on loan from a
Fund are not considered to involve the purchase of securities by the Fund and
are not subject to this restriction);
(b) for the Global Bond Fund II, invest in securities of other investment
companies, except by purchase in the open market involving only customary
brokers' commissions (For purposes of this restriction, foreign banks and
foreign insurance companies or their respective agents or subsidiaries are not
considered investment companies. Under the 1940 Act no registered investment
company may (a) invest more than 10% of its total assets (taken at current
value) in securities of other investment companies, (b) own securities of any
one investment company having a value in excess of 5% of its total assets (taken
at current value), or (c) own more than 3% of the outstanding voting stock of
any one investment company.);
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(C)(a) invest more than 15% of the net assets of a Fund (10% in the case of
the PIMCO Money Market Fund) (taken at market value at the time of the
investment) in "illiquid securities," illiquid securities being defined to
include securities subject to legal or contractual restrictions on resale (which
may include private placements), repurchase agreements maturing in more than
seven days, certain loan participation interests, fixed time deposits which are
not subject to prepayment or provide for withdrawal penalties upon prepayment
(other than overnight deposits), certain options traded over the counter that a
Fund has purchased, securities or other liquid assets being used to cover such
options a Fund has written, securities for which market quotations are not
readily available, or other securities which legally or in the Adviser's opinion
may be deemed illiquid (other than securities issued pursuant to Rule 144A under
the Securities Act of 1933 and certain commercial paper that PIMCO has
determined to be liquid under procedures approved by the Board of
Trustees);
(b) for the Global Bond Fund II, invest in (a) securities which at the
time of such investment are not readily marketable, (b) securities the
disposition of which is restricted under federal securities laws, (c) repurchase
agreements maturing in more than seven days (d) OTC options (to the extent
described above), and (e) IO/PO Strips (as defined in the Prospectuses) if, as a
result, more than 15% of the Fund's net assets, taken at current value, would
then be invested in securities described in (a), (b), (c), (d) and (e) above
(For the purpose of this restriction securities subject to a 7-day put option or
convertible into readily saleable securities or commodities are not included
with subsections (a) or (b).); or purchase securities the disposition of which
is restricted under the federal securities laws (excluding for purposes of this
restriction securities offered and sold pursuant to Rule 144A of the Securities
Act of 1933 and Section 4(2) commercial paper) if, as a result, such investments
would exceed 10% of the value of the net assets of the Fund; provided, however,
that so long as a similar restriction applies under the Ohio Administrative
Code, the Fund will invest no more than 15% of its total assets in the
securities of issuers which together with any predecessors have a record of less
than three years continuous operation or securities of issuers which are
restricted as to disposition (including Rule 144A securities and Section 4(2)
commercial paper);
(D)(a) invest in a security if, as a result of such investment, more than 5%
of its total assets (taken at market value at the time of such investment) would
be invested in securities of issuers (other than issuers of Federal agency
obligations) having a record, together with predecessors or unconditional
guarantors, of less than three years of continuous operation;
(b) for the Global Bond Fund II, invest in securities of an issuer, which,
together with any predecessors or controlling persons, has been in operation for
less than three consecutive years and in equity securities for which market
quotations are not readily available (excluding restricted securities) if, as a
result, the aggregate of such investments would exceed 5% of the value of the
Fund's net assets; provided, however, that this restriction shall not apply to
any obligation of the U.S. Government or its instrumentalities or agencies (Debt
securities having equity features are not considered "equity securities" for
purposes of this restriction.);
(E)(a) purchase or retain securities of any issuer if 5% of the securities of
such issuer are owned by those officers and directors or trustees of the Trust
or of the Adviser who each own beneficially more than one-half of 1% of its
securities;
(b) for the Global Bond Fund II, invest in securities of any issuer if, to
the knowledge of the Trust, any officers and Trustees of the Trust and officers
and directors of the Adviser who individually own beneficially more than 1/2 of
1% of the securities of that issuer, own beneficially in the aggregate more than
5% of the securities of such issuer;
(F) purchase securities for the Fund from, or sell portfolio securities to,
any of the officers and directors or trustees of the Trust or of the Adviser
(This restriction is not applicable to the Global Bond Fund II.);
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(G)(a) for the PIMCO Money Market, Short-Term, Low Duration, Low Duration II,
Low Duration III, Moderate Duration, Total Return, Total Return II, Commercial
Mortgage Securities, Long-Term U.S. Government, Foreign Bond, Global Bond,
StocksPLUS Short Strategy and Strategic Balanced Funds: purchase securities on
margin, except for use of short-term credit necessary for clearance of purchases
and sales of portfolio securities, but it may make margin deposits in connection
with covered transactions in options, futures, options on futures and short
positions;
(b) for the Global Bond Fund II, purchase securities on margin, except such
short-term credits as may be necessary for the clearance of purchases and sales
of securities (For this purpose, the deposit or payment by the Fund of initial
or variation margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin.);
(H) invest more than 5% of the assets of a Fund (taken at market value at
the time of investment) in any combination of interest only, principal only, or
inverse floating rate securities (This restriction is not applicable to the
Global Bond Fund II, but see fundamental investment restriction 7(b).);
(I) borrow money (excluding dollar rolls and reverse repurchase agreements,
which are subject to the Fund's fundamental borrowing restriction), except for
temporary administrative purposes (This restriction is not applicable to the
Global Bond Fund II, but see fundamental investment restriction 7(b).);
(J)(a) for the PIMCO Short-Term, Low Duration and Low Duration III Funds,
invest greater than 5% of its assets in the securities of issuers based in Newly
Industrialized Countries ("NICs"); and
(b) for the remaining Fixed Income Funds, except for the PIMCO Foreign
Bond, Global Bond, Global Bond II and International Bond Funds, invest greater
than 10% of its assets in the securities of issuers based in NICs.
(K) for the Global Bond Fund II, make short sales of securities or maintain
a short position for the account of the Fund unless at all times when a short
position is open the Fund owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are convertible
into or exchangeable for securities of the same issue as, and equal in amount
to, the securities sold short;
(L) for the Global Bond Fund II, purchase or sell commodities or commodity
contracts except that the Fund may purchase and sell financial futures contracts
and related options;
(M) for the Global Bond Fund II, make loans, except by purchase of debt
obligations or by entering into repurchase agreements or through the lending of
the Fund's portfolio securities with respect to not more than 25% of its total
assets;
(N) for the Global Bond Fund II, invest in warrants or rights excluding
options (other than warrants or rights acquired by the Fund as a part of a unit
or attached to securities at the time of purchase) if as a result such
investments (valued at the lower of cost or market) would exceed 5% of the value
of the Fund's net assets; provided that not more than 2% of the Fund's net
assets may be invested in warrants not listed on the New York or American Stock
Exchanges;
(O) for the Global Bond Fund II, write (sell) or purchase options except
that the Fund may (a) write covered call options or covered put options on
securities that it is eligible to purchase (and on stock indices) and enter into
closing purchase transactions with respect to such options, and (b) in
combination therewith, or separately, purchase put and call options on
securities it is eligible to
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purchase, provided that the premiums paid by the Fund on all outstanding options
it has purchased do not exceed 5% of its total assets (The Fund may enter into
closing sale transactions with respect to options it has purchased.);
(P) for the Global Bond Fund II, buy or sell oil, gas or other mineral
leases, rights or royalty contracts;
(Q) for the Global Bond Fund II, purchase or sell real estate, including
investments in limited partnerships that invest directly in real estate;
provided, however, that the Fund may invest in readily marketable interests in
real estate investment trusts or readily marketable securities of companies that
invest in real estate; or
(R) for the Global Bond Fund II, engage in short-term trading as a matter
of policy; provided, however, that in pursuing the Fund's investment objective,
the Adviser will continue to monitor all securities positions of the Fund and
will seek to dispose of any position that it believes is no longer consistent
with achieving optimum performance.
In addition, the Trust has adopted a non-fundamental policy pursuant to
which each Fund that may invest in securities denominated in foreign currencies,
except the PIMCO Global Bond Fund, will hedge at least 75% of its exposure to
foreign currency using the techniques described in the Prospectuses. There can
be no assurance that currency hedging techniques will be successful.
Under the 1940 Act, a "senior security" does not include any promissory
note or evidence of indebtedness where such loan is for temporary purposes only
and in an amount not exceeding 5% of the value of the total assets of the issuer
at the time the loan is made. A loan is presumed to be for temporary purposes if
it is repaid within sixty days and is not extended or renewed. Notwithstanding
the provisions of fundamental investment restriction (7)(a) above, a Fund may
borrow money for temporary administrative purposes. To the extent that
borrowings for temporary administrative purposes exceed 5% of the total assets
of a Fund (except the PIMCO Global Bond Fund II), such excess shall be subject
to the 300% asset coverage requirement of that restriction.
The staff of the SEC has taken the position that purchased over-the-counter
("OTC") options and the assets used as cover for written OTC options are
illiquid securities. Therefore, the Funds have adopted an investment policy
pursuant to which a Fund will not purchase or sell OTC options if, as a result
of such transactions, the sum of the market value of OTC options currently
outstanding which are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding which were sold by
the Fund and margin deposits on the Fund's existing OTC options on futures
contracts exceeds 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund which are illiquid or are otherwise
not readily marketable. However, if an OTC option is sold by the Fund to a
primary U.S. Government securities dealer recognized by the Federal Reserve Bank
of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities equal to
the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying securities minus the option's
strike price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium received for
the option, plus the amount by which the option is "in-the-money." This policy
is not a fundamental policy of the Funds and may be amended by the Trustees
without the approval of shareholders. However, the Funds will not change or
modify this policy prior to the change or modification by the SEC staff of its
position.
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[The Trust has undertaken with a state securities commission that it will
interpret the provisions of fundamental investment restriction (5) to prohibit
the Trust's investment in oil, gas or other mineral leases and that it will
interpret the provisions of investment restriction (4)(a) to prohibit the
Trust's investment in real estate limited partnerships.]
[With respect to each Fund, except the PIMCO StocksPLUS Short Strategy
Fund, the Trust has agreed with a state securities commission that as an
operating policy, the dollar amount of short sales (other than short sales
against the box) at any time shall not exceed 25% of the net equity of a Fund,
and the value of securities of any one issuer in which a Fund is short shall not
exceed 2% of the Fund's net assets or 2% of the securities of any class of any
issuer.]
[The Trust has undertaken to a state securities commission that the
aggregate premiums paid on all options held at any time by the Trust will be
limited to 20% of the Trust's total net asset value, and that the Trust will
engage in writing options on securities only if such options are issued by the
Options Clearing Corporation or are written by the Trust with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York. Furthermore, pursuant to a restriction imposed by a state securities
commission, the Adviser waives its fee on all Trust assets invested temporarily
in shares of money market mutual funds pursuant to restriction (B)(a), above.]
[The Trust has undertaken to a state securities commission that the Funds
will limit their investment in restricted securities (defined as securities in
which the Trust is restricted from selling to the public without registration
under the 1933 Act) to no more than 10% of their total assets.]
Unless otherwise indicated, all limitations applicable to Fund investments
(as stated above and elsewhere in this Statement of Additional Information)
apply only at the time a transaction is entered into. Any subsequent change in a
rating assigned by any rating service to a security (or, if unrated, deemed to
be of comparable quality), or change in the percentage of Fund assets invested
in certain securities or other instruments, or change in the average duration of
a Fund's investment portfolio, resulting from market fluctuations or other
changes in a Fund's total assets will not require a Fund to dispose of an
investment until the Adviser determines that it is practicable to sell or close
out the investment without undue market or tax consequences to the Fund. In the
event that ratings services assign different ratings to the same security, the
Adviser will determine which rating it believes best reflects the security's
quality and risk at that time, which may be the higher of the several assigned
ratings.
MANAGEMENT OF THE TRUST
Trustees and Officers
The Trustees and Executive Officers of the Trust, their business address
and principal occupations during the past five years are as follows (unless
otherwise indicated, the address of all persons below is 840 Newport Center
Drive, Suite 360, Newport Beach, California 92660):
29
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ----------------------------------------------------------------------------
<S> <C> <C>
Brent R. Harris* Chairman of the Managing Director, PIMCO; Director,
Age 37 Board and Trustee Harris Holdings; Director, Harris Oil
Company; Chairman and Director, PIMCO
Commercial Mortgage Securities Trust,
Inc. Formerly Principal, Senior Vice
President and Vice President of PIMCO.
Guilford C. Babcock Trustee Associate Professor of Finance,
School of Business University of Southern California;
Administration, Director, PIMCO Commercial Mortgage
University of Securities Trust, Inc.; Director, AMCAP
Southern California, Fund and Fundamental Investors Fund of
Los Angeles, California the Capital Group; Director, Good Hope
90089-1421 Medical Foundation.
Age 65
Vern O. Curtis Trustee Private Investor; Director of 16 Real
15213 N.W. Francesca Drive Estate Investment Trusts affiliated with
Portland, Oregon Public Storage, Inc.; Director, PIMCO
97229 Commercial Mortgage Securities Trust, Inc.
Age 62 Formerly Charitable Work, The Church of
Jesus Christ of Latter Day Saints.
Thomas P. Kemp Trustee Co-Chairman, U.S. Committee to Assist
359 San Miguel Russian Reform; Director, Union
Suite 110 Financial Corp.; Director, PIMCO
Newport Beach, California Commercial Mortgage Securities Trust, Inc.
92660 - 7807 Formerly Senior Consultant, World Cup 1994
Age 66 Organizing Committee; Chairman and CEO of
Coca Cola Bottling Company of L.A.
William J. Popejoy Trustee Chairman, Western Vinyl Manufacturing;
10036 Freeman Avenue Partner, Butler Popejoy Group; Director,
Santa Fe Springs, California PIMCO Commercial Mortgage Securities Trust,
90670 Inc. Formerly Chief Executive Officer,
Age 58 Orange County, California; Principal,
Castine Partners.
R. Wesley Burns President Executive Vice President, PIMCO. Formerly
Age 37 Vice President, PIMCO.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ----------------------------------------------------------------------------
<S> <C> <C>
William H. Gross Senior Vice President Managing Director, PIMCO.
Age 52
Margaret Isberg Senior Vice President Executive Vice President, PIMCO.
Age 39
Leland T. Scholey Senior Vice President Senior Vice President, PIMCO.
Age 44 Formerly Vice President, PIMCO.
Andrew C. Ward Senior Vice President Vice President, PIMCO.
Age 36
Michael G. Dow Vice President Account Manager, PIMCO. Formerly
Age 32 Fixed Income Specialist, Salomon
Brothers, Inc.; Vice President
Operations, Citibank NA Global
Consumer Banking Group.
U. Teri Frisch Vice President Account Manager, PIMCO.
Age 43
Raymond C. Hayes Vice President Account Manager, PIMCO. Formerly
Age 51 Marketing Director, Pacific Financial
Asset Management Corporation.
Dean S. Meiling Vice President Managing Director, PIMCO.
Age 48
James F. Muzzy Vice President Managing Director, PIMCO.
Age 57
Douglas J. Ongaro Vice President Account Manager, PIMCO. Formerly
Age 35 Regional Marketing Manager, Charles
Schwab & Co., Inc.
Jeffrey M. Sargent Vice President Vice President and Manager of Fund
Age 33 Shareholder Servicing, PIMCO. Formerly
Project Specialist, PIMCO.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ----------------------------------------------------------------------------
<S> <C> <C>
William S. Thompson, Jr. Vice President Chief Executive Officer and Managing
Age 51 Director, PIMCO. Formerly Managing
Director, Salomon Brothers, Inc.
Teresa A. Wagner
Age 34 Vice President Vice President and Manager of Fund
Administration, PIMCO. Formerly Vice
President, PIMCO Advisors Institutional
Services; Finance Director, Pacific
Financial Asset Management Corporation.
Kristen M. Wilsey Vice President Vice President, PIMCO. Formerly Account
Age 36 Manager, PIMCO; Vice President, Pacific
Financial Asset Management Corporation.
John P. Hardaway Treasurer Vice President and Manager of Fund
Age 39 Operations, PIMCO.
Garlin G. Flynn Secretary Senior Fund Administrator, PIMCO. Formerly
Age 50 Senior Mutual Fund Analyst, PIMCO Advisors
Institutional Services; Senior Mutual Fund
Analyst, Pacific Financial Asset Management
Corporation.
Joseph D. Hattesohl Assistant Treasurer Manager of Fund Taxation, PIMCO. Formerly
Age 32 Director of Financial Reporting, Carl I. Brown
& Co.; Tax Manager, Price Waterhouse LLP.
Michael J. Willemsen Assistant Secretary Project Lead, PIMCO. Formerly Shareholder
Age 36 Services Specialist, PIMCO.
____________________
*Mr. Harris is an "interested person" of the Trust (as that term is defined in
the 1940 Act) because of his affiliations with PIMCO.
</TABLE>
32
<PAGE>
Compensation Table
The following table sets forth information regarding compensation received
by the Trustees for the year ended March 31, 1996.
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Trust and Fund Complex
Name and Position from Trust/1/ Paid to Trustees/2/
----------------- ---------- ----------------
<S> <C> <C>
Guilford C. Babcock $22,500 $32,500
Trustee
Vern O. Curtis $22,500 $32,500
Trustee
Thomas P. Kemp $22,500 $32,500
Trustee
William J. Popejoy $18,167/3/ $25,167/3/
Trustee
</TABLE>
____________________
/1/Effective October 1, 1995, Trustees, other than those affiliated with
the Adviser or its affiliates, receive an annual retainer of $20,000 plus $2,500
for each Board of Trustees meeting attended, plus reimbursement of related
expenses. For the fiscal year ended March 31, 1996, the unaffiliated Trustees as
a group received reimbursement of such fees and expenses aggregating $85,667.
/2/Each Trustee also serves as a Director of PIMCO Commercial Mortgage
Securities Trust, Inc., a registered closed-end management investment company.
For their services, the Directors who are unaffiliated with the Adviser or its
affiliates receive an annual retainer of $6,000 plus $1,000 for each Board of
Directors meeting attended, plus reimbursement of related expenses. For the
fiscal year ended December 31, 1995, the unaffiliated Trustees as a group
received reimbursement of such fees and expenses aggregating $32,000.
/3/Mr. Popejoy resigned as a Trustee in February 1995, and rejoined the
Boards of both the Trust and PIMCO Commercial Mortgage Securities Trust, Inc. in
August, 1995, and thus received a pro rata portion of his annual retainers.
Investment Adviser
PIMCO serves as investment adviser to the Funds pursuant to an investment
advisory contract ("Advisory Contract") between PIMCO and the Trust. PIMCO is a
subsidiary partnership of PIMCO Advisors. A majority interest of PIMCO Advisors
is held by PIMCO Partners, G.P., a general partnership between Pacific
Investment Management Company, a California corporation and indirect wholly
owned subsidiary of Pacific Mutual Life Insurance Company ("Pacific Mutual"),
and PIMCO Partners, LLC ("PIMCO Partners"), a limited liability company
controlled by the PIMCO Managing Directors.
33
<PAGE>
PIMCO is responsible for making investment decisions and placing orders for
the purchase and sale of the Trust's investments directly with the issuers or
with brokers or dealers selected by it in its discretion. See "Portfolio
Transactions." PIMCO also furnishes to the Board of Trustees, which has overall
responsibility for the business and affairs of the Trust, periodic reports on
the investment performance of each Fund.
Under the terms of the Advisory Contract, PIMCO is obligated to manage the
Funds in accordance with applicable laws and regulations. The investment
advisory services of PIMCO to the Trust are not exclusive under the terms of the
Advisory Contract. PIMCO is free to, and does, render investment advisory
services to others. The current Advisory Contract was approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Advisory Contract or interested persons of such parties ("Independent
Trustees"), at a meeting held on May 31, 1994, as supplemented at a meeting held
on May 23, 1995, and was last approved by the Trustees on August 27, 1996 and by
shareholders of all then-operational Funds on October 17, 1994.
The Advisory Contract will continue in effect on a yearly basis provided
such continuance is approved annually (i) by the holders of a majority of the
outstanding voting securities of the Trust or by the Board of Trustees and (ii)
by a majority of the Independent Trustees. The Advisory Contract may be
terminated without penalty by vote of the Trustees or the shareholders of the
Trust, or by the Adviser, on 60 days' written notice by either party to the
contract and will terminate automatically if assigned.
The current Advisory Contract was executed in connection with the
consolidation of PIMCO, Pacific Investment Administrative Services Company
("PIASCo"), Thomson Advisory Group L.P. and certain other affiliated entities
(the "Consolidation"). Prior to the Consolidation, and since the inception of
each of the Funds, PIMCO had served as investment adviser to the Funds, pursuant
to an advisory contract, last approved by the Trustees April 14, 1993, and by
shareholders of the then-operational Funds on August 21, 1992 (the "Prior
Advisory Contract"). The terms and conditions of the Advisory Contract are
identical in all material respects to the Prior Advisory Contract, with the
exception of the identity of the service provider, its effective date and
termination date, and the amendment recently effected in connection with the
adoption of a new service and fee arrangement for the Funds.
The Adviser currently receives a monthly investment advisory fee from each
Fund at an annual rate based on average daily net assets of the Funds as
follows:
Advisory
Fund Fee Rate
- ---- --------
Money Market Fund................................................... 0.15%
Commercial Mortgage Securities, StocksPLUS, StocksPLUS Short
Strategy, and Strategic Balanced Funds............................ 0.40%
All other Funds..................................................... 0.25%
34
<PAGE>
For the fiscal years ended March 31, 1996, 1995, and 1994, the aggregate amount
of the advisory fees paid by each operational Fund was as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/96 3/31/95 3/31/94
- ---- ------- ------- -------
<S> <C>
Money Market Fund* $ 10,118 $ N/A $ N/A
Short-Term Fund 249,319 383,063 158,599
Low Duration Fund 6,267,607 5,756,981 4,844,060
Low Duration Fund II 575,730 461,261 379,106
High Yield Fund 1,186,819 830,832 320,749
Total Return Fund 22,775,075 15,223,950 10,647,574
Total Return Fund II* 486,935 N/A N/A
Total Return Fund III 327,029 258,080 229,699
Long-Term U.S. Government Fund 101,042 91,533 72,884
Foreign Bond Fund 640,157 921,902 977,658
Global Bond Fund 264,783 177,065 28,608
Global Bond Fund II** N/A N/A N/A
International Bond Fund 4,937,820 1,142,716 6,831,045
StocksPLUS Fund 324,388 109,177 30,476
- --------------------
</TABLE>
*The PIMCO Money Market Fund, for the fiscal years ended October 31, 1995
and 1994, paid aggregate advisory fees in the amount of $14,500 and $9,903,
respectively. The PIMCO Total Return Fund II, for the fiscal years ended October
31, 1995 and 1994, paid aggregate advisory fees in the amount of $1,009,081 and
$907,044, respectively. See "The Reorganization of the PIMCO Money Market and
Total Return II Funds" for additional information.
**The PIMCO Global Bond Fund II, for the fiscal years ended September 30,
1996, 1995 and 1994, paid aggregate management fees in the amount of _______,
_______, and _______, respectively, pursuant to a management contract between
PIMCO Advisors Funds and PIMCO Advisors, under which PIMCO Advisors provided or
procured investment advisory services for the Fund. See "The Reorganization of
the PIMCO Global Bond Fund II" for additional information.
In connection with the former expense limitation provision, which was
terminated October 1, 1995, the Adviser reimbursed advisory fees for the fiscal
years ended March 31, 1996, 1995, and 1994, in the following amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/96 3/31/95 3/31/94
- ---- ------- ------- -------
<S> <C> <C> <C>
Short-Term Fund $ 10,244 $ 8,045 $ 24,770
Low Duration Fund 0 0 0
High Yield Fund 0 (42,986) 27,055
Low Duration Fund II 0 (16,480) (20,008)
Total Return Fund 0 0 0
Total Return Fund III 1,775 (633) 11,945
Long-Term U.S. Government Fund 13,554 23,964 29,521
Foreign Bond Fund 0 0 0
Global Bond Fund (17,114) (34,409) 40,281
International Bond Fund 0 0 0
StocksPLUS Fund 26,176 53,148 43,574
</TABLE>
35
<PAGE>
Fund Administrator
PIMCO also serves as Administrator to the Funds pursuant to an
administration agreement dated November 15, 1994, as amended (the
"Administration Agreement"). PIMCO provides the Funds with certain
administrative and shareholder services necessary for Fund operations and is
responsible for the supervision of other Fund service providers. PIMCO may in
turn use the facilities or assistance of its affiliates to provide certain
services under the Administration Agreement, on terms agreed between PIMCO and
such affiliates. The administrative services provided by PIMCO include but are
not limited to: (1) shareholder servicing functions, including preparation of
shareholder reports and communications, (2) regulatory compliance, such as
reports and filings with the SEC and state securities commissions, and (3)
general supervision of the operations of the Funds, including coordination of
the services performed by the Funds' transfer agent, custodian, legal counsel,
independent accountants, and others. PIMCO (or an affiliate of PIMCO) also
furnishes the Funds with office space facilities required for conducting the
business of the Funds, and pays the compensation of those officers, employees
and Trustees of the Trust affiliated with PIMCO. In addition, PIMCO, at its own
expense, arranges for the provision of legal, audit, custody, transfer agency
and other services for the Funds, and is responsible for the costs of
registration of the Trust's shares and the printing of prospectuses and
shareholder reports for current shareholders. PIMCO has contractually agreed to
provide these services, and to bear these expenses, at the following rates for
each Fund (each expressed as a percentage of the Fund's average daily net assets
attributable to its classes of shares on an annual basis):
<TABLE>
<CAPTION>
Administrative Fee Rate
-----------------------
Institutional and Class A,
Fund Administrative Class B and C
- ---- -------------------- --------
<S> <C> <C>
Money Market Fund and
Short Term Fund 0.20% 0.35%
Low Duration Fund and
Total Return Fund 0.18% 0.40%
Global Bond Fund and
Global Bond Fund II 0.30% 0.45%
Foreign Bond Fund and
International Bond Fund 0.25% 0.45%
All other Funds 0.25% 0.40%
</TABLE>
Except for the expenses paid by PIMCO, the Trust bears all costs of its
operations. The Funds are responsible for: (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) 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; (vii) expenses, such as organizational
expenses, which are capitalized in accordance with generally accepted accounting
principles; and (viii) any expenses allocated or allocable to a specific class
of shares ("Class-specific expenses").
Class-specific expenses include distribution and service fees payable with
respect to different classes of shares and may include certain other expenses
as permitted by the Trust's Amended and Restated Multi-Class Plan adopted
pursuant to Rule 18f-3 under the 1940 Act and subject to review and approval by
the Trustees.
36
<PAGE>
With respect to the Institutional and Administrative Class shares of each
Fund, except the PIMCO Global Bond Fund II, the Administration Agreement may be
terminated by the Trustees, or by a vote of the outstanding voting securities of
the Trust, or Class as applicable, at any time on 60 days' written notice.
Following the expiration of the two-year period commencing with the
effectiveness of the agreement, it may be terminated by PIMCO, also on 60 days'
written notice. Following its initial two-year term, the agreement will continue
from year to year if approved by the Trustees.
With respect to the Class A, Class B and Class C shares of the PIMCO High
Yield, Total Return, Low Duration and Money Market Funds, or with respect to any
class of shares of the PIMCO Global Bond Fund II, the Administration Agreement
may be terminated by the Trustees, or by a vote of the outstanding voting
securities of the Trust, Fund, or Class as applicable, at any time on 60 days'
written notice. Following the expiration of the one year period commencing with
the effectiveness of the amendment making the Administration Agreement effective
with respect to such Funds or Classes, the Agreement may be terminated by PIMCO
on 60 days' written notice. With respect to the Class A, Class B and Class C
shares of each Fund other than those listed above, the Administration Agreement
may be terminated by the Trustees, or by a vote of the outstanding securities of
the Trust, or Class as applicable, at any time on 60 days' written notice, or by
PIMCO on 60 days' written notice.
The Administration Agreement is subject to annual approval by the Board,
including a majority of the Trust's Independent Trustees (as that term is
defined in the 1940 Act). The current Administration Agreement was approved by
the Board of Trustees, including all of the Independent Trustees at a meeting
held on August 22, 1995. In approving the Administration Agreement, the
Trustees determined that: (1) the Administration Agreement is in the best
interests of the Funds and their shareholders; (2) the services to be performed
under the Agreement are services required for the operation of the Funds; (3)
PIMCO is able to provide, or to procure, services for the Funds which are at
least equal in nature and quality to services that could be provided by others;
and (4) the fees to be charged pursuant to the Agreement are fair and reasonable
in light of the usual and customary charges made by others for services of the
same nature and quality. The preceding Administrative Services Contract between
the Trust and PIMCO was approved by the Trustees at their meeting held on May
31, 1994, and was approved by shareholders of all then-operational Funds on
October 17, 1994.
A previous Administrative Services Contract ("Prior Contact") between the
Trust and PIASCo was initially approved by the Trustees at a meeting held on
April 29, 1987 (and by the then-sole shareholder of the Trust at a meeting held
on April 30, 1987). The Prior Contract was last approved by the Board of
Trustees on February 23, 1993. PIASCo was a wholly owned subsidiary of the
predecessor of PIMCO. In connection with the Consolidation, PIMCO assumed the
duties of PIASCo as Administrator to the Funds. The terms and conditions of the
Administrative Services Contract are substantially identical in all material
respects to those of the Prior Contract, with the primary exception of the
identity of the service provider, its effective date and termination date, and
the amendment recently effected in connection with the adoption of a new service
and fee arrangement for the Funds.
For the fiscal years ended March 31, 1996, 1995, and 1994, the aggregate
amount of the administration fees paid by each operational Fund was as follows:
37
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/96 3/31/95 3/31/94
- ---- ------- ------- -------
<S> <C> <C> <C>
Money Market Fund* $ 13,462 $ N/A $ N/A
Short-Term Fund 137,477 129,554 52,866
Low Duration Fund 3,520,078 2,272,874 1,907,377
Low Duration Fund II 391,248 154,668 126,369
High Yield Fund 842,032 302,332 109,187
Total Return Fund 13,084,413 6,059,785 4,228,783
Total Return Fund II* 486,935 N/A N/A
Total Return Fund III 217,584 86,027 76,566
Long-Term U.S. Government Fund 65,155 30,511 24,295
Foreign Bond Fund 428,175 324,043 361,063
Global Bond Fund 208,234 57,732 9,536
Global Bond Fund II** N/A N/A N/A
International Bond Fund 3,800,674 440,899 2,702,418
StocksPLUS Fund 149,888 24,261 6,772
</TABLE>
____________________
*The PIMCO Money Market Fund, for the fiscal years ended October 31, 1995
and 1994, paid aggregate administration fees in the amount of $24,166 and
$16,506, respectively. The PIMCO Total Return Fund II, for the fiscal years
ended October 31, 1995 and 1994, paid aggregate administration fees in the
amount of $1,009,081 and $907,044, respectively. See "The Reorganization of the
PIMCO Money Market and Total Return II Funds" for additional information.
**The PIMCO Global Bond Fund II, for the fiscal years ended September 30,
1996, 1995 and 1994, paid aggregate management fees in the amount of _______,
_______, and _______, respectively, pursuant to a management contract between
PIMCO Advisors Funds and PIMCO Advisors, under which PIMCO Advisors provided or
procured administrative services for the Fund. See "The Reorganization of the
PIMCO Global Bond Fund II" for additional information.
In connection with the former expense limitation provision which was
terminated October 1, 1995, the Administrator reimbursed administration fees for
the fiscal years ended March 31, 1996, 1995, and 1994, in the following amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/96 3/31/95 3/31/94
- ---- ------- ------- -------
<S> <C> <C> <C>
Short-Term Fund $ 2,923 $ 2,295 $ 7,068
Low Duration Fund 0 0 0
Low Duration Fund II 0 (4,703) (5,709)
High Yield Fund 0 (12,266) 7,720
Total Return Fund 0 0 0
Total Return Fund III 507 (181) 3,408
Long-Term U.S. Government Fund 3,867 6,838 8,424
Foreign Bond Fund 0 0 0
Global Bond Fund (4,884) (9,818) 11,494
International Bond Fund 0 0 0
StocksPLUS Fund 7,469 15,165 12,574
</TABLE>
38
<PAGE>
Expense Limitations
Certain of the states in which the shares of the Trust are qualified for
sale impose limitations on the expenses of the Trust. If, in any fiscal year,
the total expenses of the Trust (excluding taxes, interest, brokerage
commissions and other portfolio transaction expenses, other expenditures which
are capitalized in accordance with generally accepted accounting principles and
extraordinary expenses, but including the advisory and administrative fees)
exceed the expense limitations applicable to the Trust imposed by the securities
regulations of any state, PIMCO will reimburse the Trust for the excess.
Fees foregone or payments made by PIMCO with respect to a Fund pursuant to
the expense limitation are contingent liabilities of the Fund which are subject
to potential reimbursement by that Fund to PIMCO, provided the assets of the
Fund reach a sufficient size to permit such reimbursement to be made without
causing the covered expenses of the Fund to exceed the amount as may be imposed
by any state expense limit to which the Trust is subject, and provided such
reimbursement is made within four years of the recognition of the contingent
liability by the Fund. If a reimbursement appears probable, it will be accounted
for as an expense of the Fund regardless of the time period over which the
reimbursement may actually be paid by the Fund.
DISTRIBUTION OF TRUST SHARES
Distributor and Multi-Class Plan
PIMCO Funds Distribution Company (the "Distributor") serves as the Trust's
Distributor pursuant to a distribution contract ("Distribution Contract") dated
December __, 1996, which is subject to annual approval by the Board. The
Distributor is a wholly owned subsidiary of PIMCO Advisors. The Distribution
Contract is terminable with respect to a Fund or class without penalty, at any
time, by the Fund or class by not more than 60 days' nor less than 30 days
written notice to the Distributor, or by the Distributor upon not more than 60
days' nor less than 30 days written notice to the Trust. The Distributor is not
obligated to sell any specific amount of Trust shares.
The Distribution Contract will continue in effect with respect to each Fund
and each class of shares thereof for successive one-year periods, provided that
each such continuance is specifically approved (i) by the vote of a majority of
the Independent Trustees and (ii) by the vote of a majority of the entire Board
of Trustees cast in person at a meeting called for that purpose. If the
Distribution Contract is terminated (or not renewed) with respect to one or more
Funds, it may continue in effect with respect to any class of any Fund as to
which it has not been terminated (or has been renewed).
Prior to the Consolidation, Pacific Equities Network ("PEN"), an indirect
subsidiary of Pacific Mutual, served as the Trust's Distributor, pursuant to a
contract approved by the Board of Trustees, including a majority of the
Independent Trustees, at its meeting held on April 29, 1987 (and by the then-
sole shareholder of the Trust at a meeting held on April 30, 1987) (the "Prior
Distribution Contract"). The Prior Distribution Contract was last approved by
the Board of Trustees on February 23, 1993 and by shareholders of the Trust on
November 1, 1988.
The Trust offers five classes of shares: Class A, Class B, Class C, the
Institutional Class and the Administrative Class. Class A, Class B and Class C
shares of the Trust are offered through firms ("participating brokers") which
are members of the National Association of Securities Dealers, Inc. ("NASD"),
and which have dealer agreements with the Distributor, or which have agreed to
act as
39
<PAGE>
introducing brokers for the Distributor ("introducing brokers"). Shares of the
Institutional Class are offered primarily for direct investment by investors
such as pension and profit sharing plans, employee benefit trusts, endowments,
foundations, corporations and other institutions. They also are offered through
certain financial intermediaries that charge their customers transaction or
other fees with respect to the customer's investment in the Funds. Shares of the
Administrative Class are offered primarily through employee benefit plans
alliances.
The Trust has adopted an Amended and Restated Multi-Class Plan ("Multi-
Class Plan") pursuant to Rule 18f-3 under the 1940 Act. Under the Multi-Class
Plan, shares of each class of a Fund represent an equal pro rata interest in
such Fund and, generally, have identical voting, dividend, liquidation, and
other rights, preferences, powers, restrictions, limitations, qualifications and
terms and conditions, except that: (a) each class has a different designation;
(b) each class of shares bears any class-specific expenses allocated to it; and
(c) each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its distribution or service arrangements,
and each class has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class. In addition, each class may have a differing sales charge
structure, and differing exchange and conversion features.
Contingent Deferred Sales Charge and Initial Sales Charge
As described in the Retail Prospectus under the caption "How to Redeem," a
contingent deferred sales charge is imposed upon certain redemptions of the
Class A, Class B and Class C shares. No contingent deferred sales charge is
imposed upon Institutional Class or Administrative Class shares. Because
contingent deferred sales charges are calculated on a Fund-by-Fund basis,
shareholders should consider whether to exchange shares of one Fund for shares
of another Fund prior to redeeming an investment if such an exchange would
reduce the contingent deferred sales charge applicable to such redemptions.
In certain cases described in the Retail Prospectus, the contingent
deferred sales charge is waived on redemptions of Class A, Class B or Class C
shares for certain classes of individuals or entities on account of (i) the fact
that the Trust's sales-related expenses are lower for certain of such classes
than for classes for which the contingent deferred sales charge is not waived,
(ii) waiver of the contingent deferred sales charge with respect to certain of
such classes is consistent with certain Internal Revenue Code policies
concerning the favored tax treatment of accumulations, and (iii) with respect to
certain of such classes, considerations of fairness, and competitive and
administrative factors.
As described in the Retail Prospectus under the caption "Alternative
Purchase Arrangements--Initial Sales Charge Alternative - Class A Shares,"
Class A shares of the Trust (except with respect to the Money Market Fund) are
sold pursuant to an initial sales charge, which declines as the amount of
purchase reaches certain defined levels.
Distribution and Servicing Plans for Class A, Class B and Class C Shares
Pursuant to the Distribution and Servicing Plans described in the Retail
Prospectus, in connection with the distribution of Class B and Class C shares of
the Trust, the Distributor receives certain distribution fees from the Trust,
and in connection with personal services rendered to Class A, Class B and Class
C shareholders of the Trust and the maintenance of shareholder accounts, the
Distributor receives certain servicing fees from the Trust. Subject to the
percentage limitations on these distribution and servicing fees set forth in the
Retail Prospectus, the distribution and servicing fees may be paid with respect
to services rendered and expenses borne in the past with respect to each such
class as to which no distribution and servicing fees were paid on account of
such
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limitations. As described in the Retail Prospectus, the Distributor pays (i) all
or a portion of the distribution fees it receives from the Trust to
participating and introducing brokers, and (ii) all or a portion of the
servicing fees it receives from the Trust to participating and introducing
brokers, certain banks and other financial intermediaries.
Each Distribution and Servicing Plan may be terminated with respect to the
class of shares of any Fund to which the Plan relates by vote of a majority of
the Trustees who are not interested persons of the Trust (as defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
the Plan or the Distribution Contract ("Independent Trustees"), or by vote of a
majority of the outstanding voting securities of that class. Any change in any
Plan that would materially increase the cost to the class of shares of any Fund
to which the Plan relates requires approval by the affected class of
shareholders of that Fund. The Trustees review quarterly a written report of
such costs and the purposes for which such costs have been incurred. Each Plan
may be amended by vote of the Trustees, including a majority of the Independent
Trustees, cast in person at a meeting called for the purpose. For so long as the
Plans are in effect, selection and nomination of those Trustees who are not
interested persons of the Trust shall be committed to the discretion of such
disinterested persons.
The Distribution and Servicing Plans will continue in effect with respect
to each Fund and each class of shares thereof for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees and (ii) by the vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that
purpose.
If the Distribution and Servicing Plans are terminated (or not renewed)
with respect to one or more Funds, they may continue in effect with respect to
any class of any Fund as to which they have not been terminated (or have been
renewed).
The Trustees believe that the Distribution and Servicing Plans will provide
benefits to the Trust. The Trustees believe that the Class A, Class B and
Class C Plans will result in greater sales and/or fewer redemptions of Trust
shares, although it is impossible to know for certain the level of sales and
redemptions of Trust shares that would occur in the absence of the Plans or
under alternative distribution schemes. The Trustees believe that the effect on
sales and/or redemptions will benefit the Trust by reducing Fund expense ratios
and/or by affording greater flexibility to Fund managers.
Distribution and Administrative Services Plans for Administrative Class
Shares
The Trust has adopted an Administrative Services Plan and a Distribution
Plan with respect to the Administrative Class shares of each Fund. Under the
terms of each Plan, the Trust is permitted to reimburse, out of the
Administrative Class assets of each Fund, in an amount up to 0.25% on an annual
basis of the average daily net assets of that class, financial intermediaries
that provide services in connection with the distribution of shares or
administration of plans or programs that use Fund shares as their funding
medium, and to reimburse certain other distribution related expenses. Under the
terms of the Distribution Plan, these services may include, but are not limited
to, the following functions: providing facilities to answer questions from
prospective investors about the Fund; receiving and answering correspondence,
including requests for prospectuses and statements of additional information;
preparing, printing and delivering prospectuses and shareholder reports to
prospective shareholders; complying with federal and state securities laws
pertaining to the sale of Administrative Class shares; and assisting investors
in completing application forms and selecting dividend and other account
options.
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Under the terms of the Administrative Services Plan, the services may
include, but are not limited to, the following functions: receiving, aggregating
and processing shareholder orders; furnishing shareholder sub-accounting;
providing and maintaining elective shareholder services such as check writing
and wire transfer services; providing and maintaining pre-authorized investment
plans; communicating periodically with shareholders; acting as the sole
shareholder of record and nominee for shareholders; maintaining accounting
records for shareholders; answering questions and handling correspondence from
shareholders about their accounts; and performing similar account administrative
services.
The same entity may be the recipient of fees under both the Distribution
Plan and the Administrative Services Plan, but may not receive fees under both
plans with respect to the same assets.
Each Plan provides that it may not be amended to materially increase the
costs which Administrative Class shareholders may bear under the Plan without
the approval of a majority of the outstanding voting securities of the class,
and by vote of a majority of both (i) the Trustees of the Trust and (ii) those
Trustees who are not "interested persons" of the Trust (as defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Plan Trustees"), cast in person
at a meeting called for the purpose of voting on the Plan and any related
amendments.
Each Plan provides that it may not take effect until approved by vote of a
majority of both (i) the Trustees of the Trust and (ii) the Plan Trustees. The
Distribution Plan further provides that it may not take effect unless approved
by the vote of a majority of the outstanding voting securities of the class. The
Plans were approved by the Trustees, including the Plan Trustees, at a meeting
held on May 31, 1994.
Each Plan provides that it shall continue in effect so long as such
continuance is specifically approved at least annually by the Trustees and the
Plan Trustees. Each Plan provides that any person authorized to direct the
disposition of monies paid or payable by a class pursuant to the Plan or any
related agreement shall provide to the Trustees, and the Board shall review at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Each Plan provides that expenses payable under the Plan may be carried
forward for reimbursement for up to twelve months beyond the date in which the
expense is incurred, subject to the limit that not more that 0.25% of the
average daily net assets of each class may be used in any month to pay expenses
under the Plan. Each Plan requires that Administrative Class shares will incur
no interest or carrying charges.
Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to the Plan will qualify as "service fees" and
therefore will not be limited by NASD rules.
For the fiscal year ended March 31, 1996, the Administrative Class shares
of the PIMCO Money Market, Short-Term, Low Duration, High Yield, Total Return
and Total Return II Funds paid aggregate fees under the Distribution Plan to
qualified service providers in the amount of $11, $1,003, $3,442, $701,
$141,529, and $3,408, respectively. All of these amounts constituted "service
fees" under applicable NASD rules.
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Purchases, Exchanges and Redemptions
Purchases, exchanges and redemptions of Class A, Class B and Class C shares
are discussed in the Retail Prospectus under the headings "How to Buy Shares,"
"Exchange Privilege," and "How to Redeem," and that information is incorporated
herein by reference. Purchases, exchanges and redemptions of Institutional and
Administrative Class shares are discussed in the Institutional Prospectus under
the headings "Purchase of Shares," "Redemption of Shares," and "Net Asset
Value," and that information is incorporated herein by reference.
Certain managed account clients of the Adviser may purchase shares of the
Trust. To avoid the imposition of duplicative fees, the Adviser may be required
to make adjustments in the management fees charged separately by the Adviser to
these clients to offset the generally higher level of management fees and
expenses resulting from a client's investment in the Trust.
Certain clients of the Adviser whose assets would be eligible for purchase
by one or more of the Funds may purchase shares of the Trust with such assets.
Assets so purchased by a Fund will be valued in accordance with procedures
adopted by the Board of Trustees.
Shares of the Funds are not qualified or registered for sale in all states.
Prospective investors should inquire as to whether shares of a particular Fund
or class are available for offer and sale in their state of domicile or
residence. Shares of a Fund may not be offered or sold in any state unless
registered or qualified in that jurisdiction, unless an exemption from
registration or qualification is available.
Independent financial intermediaries unaffiliated with PIMCO may perform
shareholder servicing functions with respect to certain of their clients whose
assets may be invested in the Funds. These services, normally provided by PIMCO
directly to Trust shareholders, may include the provision of ongoing information
concerning the Funds and their investment performance, responding to shareholder
inquiries, assisting with purchases, redemptions and exchanges of Trust shares,
and other services. PIMCO may pay fees to such entities for the provision of
these services which PIMCO normally would perform, out of PIMCO's own resources.
As described in the Retail Prospectus under the caption "Exchange
Privilege," and in the Institutional Prospectus under the caption "Redemption of
Shares," a shareholder may exchange shares of any Fund for shares of any other
Fund of the Trust or any series (except the Opportunity Fund) of PIMCO Funds:
Multi-Manager Series, within the same class on the basis of their respective net
asset values. The original purchase date(s) of shares exchanged for purposes of
calculating any contingent deferred sales charge will carry over to the
investment in the new Fund. For example, if a shareholder invests in the Class C
shares of one Fund and 6 months later (when the contingent deferred sales charge
upon redemption would be 1%) exchanges his shares for Class C shares of another
Fund, no sales charge would be imposed upon the exchange but the investment in
the other Fund would be subject to the 1% contingent deferred sales charge until
one year after the date of the shareholder's investment in the first Fund as
described in the Retail Prospectus under "Alternative Purchase Arrangements."
With respect to Class B or Class C shares, or Class A shares subject to a
contingent deferred sales charge only, if less than all of an investment is
exchanged out of a Fund, any portion of the investment attributable to capital
appreciation and/or reinvested dividends or capital gains distributions will be
exchanged first, and thereafter any portions exchanged will be from the earliest
investment made in the Fund from which the exchange was made.
Orders for exchanges accepted prior to the close of regular trading on the
New York Stock Exchange on any day the Trust is open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after the close of
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regular trading on the Exchange on any business day will be executed at the
respective net asset values determined at the close of the next business
day.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to adopt a policy of terminating the exchange privilege of any
shareholder who makes more than a specified number of exchanges in a 12-month
period or in any calendar quarter; provided, that if such a limitation on
exchanges is adopted, exchanges into the PIMCO Money Market Fund from any other
Fund would not be counted. The Trust reserves the right to modify or
discontinue the exchange privilege at any time.
The Trust reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed for other than customary
weekend and holiday closings; (b) the SEC has by order permitted such
suspension; or (c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
The Trust is committed to paying in cash all requests for redemptions by
any shareholder of record of the Funds, limited in amount with respect to each
shareholder during any 90-day period to the lesser of (i) $250,000, or (ii) 1%
of the net asset value of the Trust at the beginning of such period. Although
the Trust will normally redeem all shares for cash, it may, in unusual
circumstances, redeem amounts in excess of the lesser of (i) or (ii) above by
payment in kind of securities held in the Funds' portfolios.
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time, due to shareholder
redemption, the shares in the account do not have a value of at least a
specified amount, currently set at $250 for Class A, Class B and Class C shares,
and $100,000 for Institutional Class and Administrative Class shares ($10,000
with respect to Institutional Class and Administrative Class accounts opened
before January 1, 1995). An investor will be notified that the value of his
account is less than the minimum and allowed at least 30 days to bring the value
of the account up to at least the specified amount before the redemption is
processed. The Declaration of Trust also authorizes the Trust to redeem shares
under certain other circumstances as may be specified by the Board of
Trustees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions
Investment decisions for the Trust and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved (including the
Trust). Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that two
or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as possible,
averaged as to price and allocated between such clients in a manner which in the
Adviser's opinion is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients.
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Brokerage and Research Services
There is generally no stated commission in the case of fixed income
securities, which are traded in the over-the-counter markets, but the price paid
by the Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Trust of negotiated brokerage commissions. Such commissions vary among different
brokers. Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of the transaction. Transactions in
foreign securities generally involve the payment of fixed brokerage commissions,
which are generally higher than those in the United States.
The Adviser places all orders for the purchase and sale of portfolio
securities, options and futures contracts for the Trust and buys and sells such
securities, options and futures for the Trust through a substantial number of
brokers and dealers. In so doing, the Adviser uses its best efforts to obtain
for the Trust the most favorable price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, the Adviser, having in
mind the Trust's best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealer involved and the quality
of service rendered by the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Adviser receives research services from many broker-dealers with which the
Adviser places the Trust's portfolio transactions. These services, which in some
cases may also be purchased for cash, include such matters as general economic
and security market reviews, industry and company reviews, evaluations of
securities and recommendations as to the purchase and sale of securities. Some
of these services are of value to the Adviser in advising various of its clients
(including the Trust), although not all of these services are necessarily useful
and of value in managing the Trust. The management fee paid by the Trust is not
reduced because the Adviser and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Adviser may cause the Trust to pay a broker-dealer which provides "brokerage and
research services" (as defined in the Act) to the Adviser an amount of disclosed
commission for effecting a securities transaction for the Trust in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
Consistent with the Rules of Fair Practice of the NASD and subject to
seeking the most favorable price and execution available and such other policies
as the Trustees may determine, the Adviser may also consider sales of shares of
the Trust as a factor in the selection of broker-dealers to execute portfolio
transactions for the Trust.
Portfolio Turnover
The Adviser manages the Funds without regard generally to restrictions on
portfolio turnover, except those imposed on its ability to engage in short-term
trading by provisions of the federal tax laws, see "Taxation." The use of
futures contracts and other derivative instruments with relatively
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short maturities may tend to exaggerate the portfolio turnover rate for some of
the Funds. Trading in fixed income securities does not generally involve the
payment of brokerage commissions, but does involve indirect transaction costs.
The use of futures contracts may involve the payment of commissions to futures
commission merchants. The higher the rate of portfolio turnover of a Fund, the
higher these transaction costs borne by the Fund generally will be.
The portfolio turnover rate of a Fund is calculated by dividing (a) the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by (b) the monthly average of the value of the portfolio securities owned
by the Fund during the particular fiscal year. In calculating the rate of
portfolio turnover, there is excluded from both (a) and (b) all securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less. Proceeds from short sales and assets used to
cover short positions undertaken are included in the amounts of securities sold
and purchased, respectively, during the year.
NET ASSET VALUE
As indicated under "Net Asset Value" in the Institutional Prospectus and
"How Net Asset Value is Determined" in the Retail Prospectus, the Trust's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined at 4:00 p.m. (Eastern time) on each day the New York Stock
Exchange is open for trading. Net asset value will not be determined on the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The PIMCO Money Market Fund's securities are valued using the amortized
cost method of valuation. This involves valuing a security at cost on the date
of acquisition and thereafter assuming a constant accretion of a discount or
amortization of a premium to maturity, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During such periods the yield to investors in
the Fund may differ somewhat from that obtained in a similar investment company
which uses available market quotations to value all of its portfolio securities.
The SEC's regulations require the PIMCO Money Market Fund to adhere to
certain conditions. The Trustees, as part of their responsibility within the
overall duty of care owed to the shareholders, are required to establish
procedures reasonably designed, taking into account current market conditions
and the Fund's investment objective, to stabilize the net asset value per share
as computed for the purpose of distribution and redemption at $1.00 per share.
The Trustees' procedures include a requirement to periodically monitor, as
appropriate and at such intervals as are reasonable in light of current market
conditions, the relationship between the amortized cost value per share and the
net asset value per share based upon available indications of market value. The
Trustees will consider what steps should be taken, if any, in the event of a
difference of more than 1/2 of 1% between the two. The Trustees will take such
steps as they consider appropriate, (e.g., selling securities to shorten the
average portfolio maturity) to minimize any material dilution or other unfair
results which might arise from differences between the two. The Fund also is
required to maintain a dollar-weighted average portfolio maturity of 90 days or
less, to limit its investments to instruments having remaining maturities of 397
days or less (except securities held subject to repurchase agreements having 397
days or less maturity) and to invest only in securities determined by the
Adviser under procedures established by the Board of Trustees to be of high
quality with minimal credit risks.
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TAXATION
While the Adviser anticipates that many Institutional Class shareholders of
the Trust will be tax-exempt institutions, the following discussion may be of
general interest to these shareholders, as well as for those shareholders of the
Trust who do not have tax-exempt status. The following discussion is general in
nature and should not be regarded as an exhaustive presentation of all possible
tax ramifications. All shareholders should consult a qualified tax adviser
regarding their investment in a Fund.
Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, each Fund generally
must, among other things, (a) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities or currencies ("Qualifying Income Test");
(b) derive in each taxable year less than 30% of its gross income from the sale
or other disposition of certain assets held less than three months, namely (1)
stocks or securities, (2) options, futures, or forward contracts (other than
those on foreign currencies), and (3) foreign currencies (or options, futures,
and forward contracts on foreign currencies) not directly related to the Fund's
principal business of investing in stock or securities; (c) diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash, U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies); and (d) distribute at
least 90% of its investment company taxable income (which includes dividends,
interest and net short-term capital gains in excess of any net long-term capital
losses) each taxable year. The Treasury Department is authorized to promulgate
regulations under which gains from foreign currencies (and options, futures, and
forward contracts on foreign currency) would constitute qualifying income for
purposes of the Qualifying Income Test only if such gains are directly relating
to investing in securities. To date, such regulations have not been issued.
As a regulated investment company, a Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers from prior years) designated by the
Fund as capital gain dividends, if any, that it distributes to shareholders on a
timely basis. Each Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable income and any net
capital gains. In addition, amounts not distributed by a Fund on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid the tax, a Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (and adjusted for certain ordinary losses) for the twelve month period
ending on October 31 of the calendar year, and (3) all ordinary income and
capital gains for previous years that were not distributed during such years. A
distribution will be treated as paid on December 31 of the calendar year if it
is declared by a Fund in October, November, or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be taxable to
shareholders (other than those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the
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calendar year in which the distributions are received. To avoid application of
the excise tax, each Fund intends to make its distributions in accordance with
the calendar year distribution requirement.
Distributions
Dividends paid out of a Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions received by tax-
exempt shareholders will not be subject to federal income tax to the extent
permitted under the applicable tax exemption.
A portion of the dividends paid by the PIMCO StocksPLUS Fund may qualify
for the deduction for dividends received by corporations. Dividends paid by the
other Funds generally are not expected to qualify for the deduction for
dividends received by corporations, although certain distributions from the
PIMCO High Yield Fund may qualify. Distributions of net capital gains, if any,
designated as capital gain dividends, are taxable as long-term capital gains,
regardless of how long the shareholder has held a Fund's shares and are not
eligible for the dividends received deduction. Any distributions that are not
from a Fund's investment company taxable income or net realized capital gains
may be characterized as a return of capital to shareholders or, in some cases,
as capital gain. The tax treatment of dividends and distributions will be the
same whether a shareholder reinvests them in additional shares or elects to
receive them in cash.
Sales of Shares
Upon the disposition of shares of a Fund (whether by redemption, sale or
exchange), a shareholder will realize a gain or loss. Such gain or loss will be
capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Any loss realized on a disposition
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
a disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.
Backup Withholding
A Fund may be required to withhold 31% of all taxable distributions payable
to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code generally are exempt from such backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal tax liability.
Options, Futures and Forward Contracts, and Swap Agreements
Some of the options, futures contracts, forward contracts, and swap
agreements used by the Funds may be "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally considered 60% long-term and 40%
short-term capital gains or losses ("60/40") although certain foreign currency
gains and losses from such contracts may be treated as ordinary in character.
Also, section 1256 contracts held by a Fund at the end of each taxable year
(and, for purposes of the 4% excise tax, on certain other dates as prescribed
under the Code) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as ordinary or 60/40 gain or loss.
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Generally, the hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by a Fund, may result in
"straddles" for U.S. federal income tax purposes. In some cases, the straddle
rules also could apply in connection with swap agreements. The straddle rules
may affect the character of gains (or losses) realized by a Fund. In addition,
losses realized by a Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures,
forward contracts, and swap agreements to a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
Rules governing the tax aspects of swap agreements are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Funds intend to account for such transactions in a manner they deem to be
appropriate, the Internal Revenue Service might not accept such treatment. If it
did not, the status of a Fund as a regulated investment company might be
affected. The Funds intend to monitor developments in this area. Certain
requirements that must be met under the Code in order for a Fund to qualify as a
regulated investment company may limit the extent to which a Fund will be able
to engage in swap agreements.
The 30% limit on gains from the disposition of certain options, futures,
forward contracts, and swap agreements held less than three months and the
qualifying income and diversification requirements applicable to a Fund's assets
may limit the extent to which a Fund will be able to engage in transactions in
options, futures contracts, forward contracts, and swap agreements.
Short Sales
Certain Funds may make short sales of securities. Short sales may increase
the amount of short-term capital gain realized by a Fund, which is taxed as
ordinary income when distributed to shareholders. Moreover, the 30% limit on
gains from the disposition of securities held less than three months may limit
the extent to which a Fund will be able to engage in short sales.
Passive Foreign Investment Companies
Certain Funds may invest in the stock of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC for a taxable year if at
least one-half of its assets constitute investment-type assets or 75% or more of
its gross income is investment-type income. If a Fund receives a so-called
"excess distribution" with respect to PFIC stock, the Fund itself may be subject
to tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to stockholders. In general, under the PFIC
rules, an excess distribution is treated as having been
49
<PAGE>
realized ratably over the period during which the Fund held the PFIC stock. A
Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior taxable years and an interest factor
will be added to the tax, as if the tax had been payable in such prior taxable
years. Certain distributions from a PFIC as well as gain from the sale of PFIC
stock are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently is available in some circumstances,
a Fund generally would be required to include in its gross income its share of
the earnings of a PFIC on a current basis, regardless of whether distributions
are received from the PFIC in a given year. If this election were made, the
special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election may be available
that would involve marking to market a Fund's PFIC shares at the end of each
taxable year (and on certain other dates prescribed in the Code), with the
result that unrealized gains are treated as though they were realized. If this
election were made, tax at the Fund level under the PFIC rules would generally
be eliminated, but the Fund could, in limited circumstances, incur nondeductible
interest charges. A Fund's intention to qualify annually as a regulated
investment company may limit its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject a Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
Foreign Currency Transactions
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on disposition of certain
other instruments, gains or losses attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security or contract
and the date of disposition also are treated as ordinary gain or loss. These
gains and losses, referred to under the Code as "section 988" gains or losses,
may increase or decrease the amount of a Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
Foreign Taxation
Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Adviser intends to manage the Funds with the intention
of minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of the PIMCO Foreign Bond, Global Bond, Global Bond
II or International Bond Funds' total assets at the close of their taxable year
consists of securities of foreign corporations, such Fund will be eligible to
elect to "pass-through" to the Fund's shareholders the amount of foreign income
and similar taxes paid by the Fund. If this election is made, a shareholder
generally subject to tax will be required to include in gross income (in
addition to taxable dividends actually received) his pro rata share of the
foreign taxes paid by the Fund, and may be entitled either to deduct (as an
itemized deduction) his or her pro rata share of foreign taxes in
50
<PAGE>
computing his taxable income or to use it (subject to limitations) as a foreign
tax credit against his or her U.S. federal income tax liability. No deduction
for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Each shareholder will be notified within 60 days after the close of
the Fund's taxable year whether the foreign taxes paid by the Fund will "pass-
through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the pass-through election is
made, the source of the PIMCO Foreign Bond, Global Bond, Global Bond II, or
International Bond Funds' income will flow through to shareholders of the Trust.
With respect to such Funds, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency fluctuation gains, including
fluctuation gains from foreign currency-denominated debt securities, receivables
and payables will be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income, and to certain other types of income. Shareholders may be unable
to claim a credit for the full amount of their proportionate share of the
foreign taxes paid by the Fund. The foreign tax credit can be used to offset
only 90% of the revised alternative minimum tax imposed on corporations and
individuals and foreign taxes generally are not deductible in computing
alternative minimum taxable income.
Original Issue Discount
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain high-
yield corporate debt securities may be treated as a dividend for Federal income
tax purposes.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. A Fund
may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
A Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.
51
<PAGE>
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Under the laws of
various states, distributions of investment company taxable income generally are
taxable to shareholders even though all or a substantial portion of such
distributions may be derived from interest on certain federal obligations which,
if the interest were received directly by a resident of such state, would be
exempt from such state's income tax ("qualifying federal obligations"). However,
some states may exempt all or a portion of such distributions from income tax to
the extent the shareholder is able to establish that the distribution is derived
from qualifying federal obligations. Moreover, for state income tax purposes,
interest on some federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on FNMA Certificates
and GNMA Certificates). Each Fund will provide information annually to
shareholders indicating the amount and percentage of a Fund's dividend
distribution which is attributable to interest on federal obligations, and will
indicate to the extent possible from what types of federal obligations such
dividends are derived. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under a Declaration
of Trust dated February 19, 1987. The capitalization of the Trust consists
solely of an unlimited number of shares of beneficial interest with a par value
of $0.0001 each. The Board of Trustees may establish additional series (with
different investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional series will not alter the
rights of the Trust's shareholders. When issued, shares are fully paid, non-
assessable, redeemable and freely transferable. Shares do not have preemptive
rights or subscription rights. In liquidation of a Fund, each shareholder is
entitled to receive his pro rata share of the net assets of that Fund.
Expenses incurred by the Trust in connection with its organization and the
public offering of its shares aggregated approximately $75,971. These costs
have been deferred and amortized on a straight line basis over a period not less
than five years. Expenses incurred in the organization of subsequently offered
Funds are charged to those Funds and are being amortized on a straight line
basis over a period not less than five years.
Performance Information
The Trust may, from time to time, include the yield and effective yield of
the PIMCO Money Market Fund, and the yield and total return for each class of
shares of all of the Funds, computed in accordance with SEC-prescribed formulas,
in advertisements or reports to shareholders or prospective investors. The Funds
also may compute current distribution rates and use this information in their
prospectuses and statement of additional information, in reports to current
shareholders, or in certain types of sales literature provided to prospective
investors.
Current yield for the PIMCO Money Market Fund will be based on the change
in the value of hypothetical investment (exclusive of capital changes) over a
particular 7-day period less a pro-rata share of Fund expenses accrued over that
period (the "base period"), and stated as a percentage of the investment at the
start of the base period (the "base period return"). The base period return is
then annualized by multiplying by 365/7, with the resulting yield figure carried
to at least the nearest
52
<PAGE>
hundredth of one percent. "Effective yield" for the PIMCO Money Market Fund
assumes that all dividends received during an annual period have been
reinvested. Calculation of "effective yield" begins with the same "base period
return" used in the calculation of yield, which is then annualized to reflect
weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return +1)/365/7/] - 1
The yield of the PIMCO Money Market Fund for the seven day period ended
September 30, 1996 was 5.39% and 5.13% for the Institutional Class and
Administrative Class, respectively. The effective yield of the PIMCO Money
Market Fund for the seven day period ended September 30, 1996 was 5.54% and
5.26% for the Institutional Class and Administrative Class, respectively. Class
A, B and C shares of the PIMCO Money Market Fund have not previously been
offered.
Quotations of yield for the remaining Funds will be based on all investment
income per share (as defined by the SEC) during a particular 30-day (or one
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and are computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2[(a-b + 1)/6/-1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
For the one month period ended September 30, 1996, the yield of the Funds
was as follows (all numbers are annualized):
<TABLE>
<CAPTION>
Yield for Period
Ended September 30, 1996
------------------------
Fund Institutional Class Administrative Class
---- ------------------- --------------------
<S> <C> <C>
Money Market Fund 5.15% 4.91%
Short-Term Fund 6.09% 5.82%
Low Duration Fund 6.20% 5.95%
Low Duration Fund II 6.16% N/A
High Yield Fund 8.54% 8.23%
Total Return Fund 6.57% 6.32%
Total Return Fund II 6.19% 5.93%
Total Return Fund III 6.12% N/A
Long-Term U.S. Government Fund 6.90% N/A
Foreign Bond Fund 5.70% N/A
Global Bond Fund 5.69% 5.62%
International Bond Fund 5.80% N/A
StocksPLUS Fund 5.77% N/A
Strategic Balanced Fund 6.30% N/A
</TABLE>
Class A, Class B and Class C shares of the Funds have not previously been
offered.
53
<PAGE>
Quotations of average annual total return for a Fund or class will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, five and ten
years (up to the life of the Fund), calculated pursuant to the following
formula: P(1 + T)/n/ = ERV (where P = a hypothetical initial payment of $1,000,
T = the average annual total return, n = the number of years, and ERV = the
ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the period). All total return figures reflect the deduction of a proportional
share of Fund or class expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid. The Funds also may, with
respect to certain periods of less than one year, provide total return
information for that period that is unannualized. Any such information would be
accomplished by standardized total return information.
For the period ended September 30, 1996, the total return of the Funds
(Institutional Class, unless otherwise noted) was as follows:
<TABLE>
<CAPTION>
Total Return for Period
Ended Setepmber 30, 1996
------------------------
1 Year 5 Years Since
Ended Ended Inception Inception
Fund 9/30/96 9/30/96 (annualized) Date
- ---- ------- ------- ------------ ---------
<S> <C> <C> <C> <C>
Money Market Fund 5.76% 4.30% 4.46% 03/01/91
Money Market Fund (Administrative Class) 5.50% N/A 5.51% 01/25/95
Short-Term Fund 7.44% 5.26% 6.54% 10/07/87
Short-Term Fund (Administrative Class) N/A N/A 5.97% 02/01/96
Low Duration Fund 6.76% 7.00% 8.28% 05/11/87
Low Duration Fund (Administrative Class) 6.50% N/A 8.51% 01/03/95
Low Duration Fund II 5.88% N/A 6.19% 11/01/91
High Yield Fund 11.91% N/A 12.74% 12/15/92
High Yield Fund (Administrative Class) 11.63% N/A 15.68% 01/16/95
Total Return Fund 6.48% 8.69% 9.72% 05/11/87
Total Return Fund (Administrative Class) 6.32% N/A 8.77% 09/08/94
Total Return Fund II 5.40% N/A 7.62% 12/30/91
Total Return Fund II (Administrative Class) 5.03% N/A 10.28% 11/30/94
Total Return Fund III 6.17% 8.69% 9.39% 05/01/91
Long-Term U.S. Government Fund 2.61% 10.83% 12.08% 07/01/91
Foreign Bond Fund 20.84% N/A 11.10% 12/02/92
Global Bond Fund 12.76% N/A 10.30% 11/23/93
International Bond Fund 17.94% 8.78% 8.95% 12/13/89
StocksPLUS Fund 21.00% N/A 18.68% 05/13/93
Strategic Balanced Fund N/A N/A 14.62% 06/28/96
</TABLE>
Class A, Class B and Class C shares of the Funds have not previously been
offered.
Current distribution information for a Fund will be based on distributions
for a specified period (i.e., total dividends from net investment income),
divided by Fund net asset value per share on the last day of the period and
annualized according to the following formula:
DIVIDEND YIELD = (((a/b) x 365)/c)
where a = actual dividends distributed for the calendar month in question,
b = number of days of dividend declaration in the month in question,
and
c = net asset value (NAV) calculated on the last business day of
the month in question.
54
<PAGE>
The rate of current distributions does not reflect deductions for
unrealized losses from transactions in derivative instruments such as options
and futures, which may reduce total return. Current distribution rates differ
from standardized yield rates in that they represent what a Fund has declared
and paid to shareholders as of the end of a specified period rather than the
Fund's actual net investment income for that same period. Distribution rates
will exclude net realized short-term capital gains. The rate of current
distributions for a Fund should be evaluated in light of these differences and
in light of the Fund's total return figures, which will always accompany any
calculation of the rate of current distributions.
For the month ended September 30, 1996, the current distribution rates
(annualized) for the Funds were as follows:
<TABLE>
<CAPTION>
Distribution Rate
-----------------
Fund Institutional Class Administrative Class
---- ------------------- --------------------
<S> <C> <C>
Money Market Fund 5.17% 4.93%
Short-Term Fund 6.27% 6.01%
Low Duration Fund 6.51% 6.26%
Low Duration Fund II 6.65% N/A
High Yield Fund 8.71% 8.42%
Total Return Fund 6.60% 6.35%
Total Return Fund II 6.45% 6.20%
Total Return Fund III 6.15% N/A
Long-Term U.S. Government Fund 7.43% N/A
Foreign Bond Fund 3.60% N/A
Global Bond Fund 4.76% 4.75%
International Bond Fund N/A N/A
StocksPLUS Fund N/A N/A
</TABLE>
Class A, B and C shares of the Funds have not previously been offered.
Performance information for a Fund may also be compared to various
unmanaged indexes, such as the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Lehman Brothers Aggregate Bond
Index, the Merrill Lynch 1 to 3 Year Treasury Index, the Lehman Intermediate and
20+ Year Treasury Blend Index, the Lehman BB Intermediate Corporate Index,
indexes prepared by Lipper Analytical Services, the J.P. Morgan Global Index,
the Salomon Brothers World Government Bond Index-10 Non U.S.-Dollar Hedged and
the J.P. Morgan Government Bond Index Non U.S.-Dollar Hedged. Unmanaged indexes
(i.e., other than Lipper) generally do not reflect deductions for administrative
and management costs and expenses. PIMCO may report to shareholders or to the
public in advertisements concerning the performance of PIMCO as adviser to
clients other than the Trust, or on the comparative performance or standing of
PIMCO in relation to other money managers. PIMCO also may provide current or
prospective private account clients, in connection with standardized performance
information for the Funds, performance information for the Funds gross of fees
and expenses for the purpose of assisting such clients in evaluating similar
performance information provided by other investment managers or institutions.
Comparative information may be compiled or provided by independent ratings
services or by news organizations. Any performance information, whether related
to the Funds or to the Adviser, should be considered in light of the Funds'
investment objectives and policies, characteristics and quality of the Funds,
and the market conditions during the time period indicated, and should not be
considered to be representative of what may be achieved in the future.
55
<PAGE>
Advertisements and information relating to the PIMCO Global Bond Fund II
may use data comparing the total returns of the top foreign bond market as
compared to the total return of the U.S. bond market for a particular year. For
instance, the following table sets forth the total return of the top foreign
bond market compared to the total return for the U.S. bond market for the years
1986 through 1995. Performance is shown in U.S. dollar terms, hedged for
currency rate changes and is no way indicative of the performance of the PIMCO
Global Bond Fund II.
<TABLE>
<CAPTION>
Top Foreign
Year Performer U.S.
---- ----------- ----
<S> <C> <C>
1986 +13.1% Japan +15.7%
1987 +12.8 UK +1.9
1988 +15.0 France +7.0
1989 +10.0 Canada +14.4
1990 +11.0 Australia +8.6
1991 +20.0 Australia +15.3
1992 +10.5 UK +7.2
1993 +20.0 Italy +11.0
1994 -0.9 Japan -3.4
1995 +21.0 Netherlands +18.3
</TABLE>
Source: Salomon Brothers World Government Bond Index 1985-1995 [to be
updated].
The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
1993/1994 costs of college and an assumed rate of increase for such costs. For
example, the table below sets forth the projected cost of four years of college
at a public college and a private college assuming a steady increase in both
cases of 7% per year. In presenting this information, the Trust is making no
prediction regarding what will be the actual growth rate in the cost of a
college education, which may be greater or less than 7% per year and may vary
significantly from year to year. The Trust makes no representation that an
investment in any of the Funds will grow at or above the rate of growth of the
cost of a college education. (Information based on 1994/1995 costs was not
available on the date of this Statement of Additional Information) [to be
updated].
<TABLE>
<CAPTION>
Potential College Cost Table
Start Public Private Start Public Private
Year College College Year College College
- ----- ------- ------- ---- ------- -------
<S> <C> <C> <C> <C> <C>
1996 $33,761 $ 86,035 2004 $58,007 $147,817
1997 $36,124 $ 92,057 2005 $62,067 $158,165
1998 $38,653 $ 98,501 2006 $66,412 $169,237
1999 $41,358 $105,396 2007 $71,061 $181,084
2000 $44,253 $112,774 2008 $76,035 $193,761
2001 $47,351 $120,668 2009 $81,357 $207,325
2002 $50,665 $129,115 2010 $87,051 $221,838
2003 $54,212 $138,146 2011 $93,143 $237,367
</TABLE>
Costs assume a steady increase in the annual cost of college of 7% per year from
a 1993-94 base year amount. Actual rates of increase may be more or less than 7%
and may vary.
In its advertisements and other materials, the Trust may compare the
returns over periods of time of investments in stocks, bonds and treasury bills
to each other and to the general rate of inflation. For example, the average
annual return of each during the 25 years from 1971 to 1995 was:
56
<PAGE>
*Stocks: 12.2%
Bonds: 9.6%
T-Bills: 7.2%
Inflation: 5.6%
*Returns of unmanaged indices do not reflect past or future performance of
any of the Funds of PIMCO Funds: Pacific Investment Management Series. Stocks
are represented by Ibbotson's Common Stock Total Return Index. Bonds are
represented by Ibbotson's Long-term Corporate Bond Index. T-bills are
represented by Ibbotson's Treasury Bill Index and Inflation is represented by
the Cost of Living Index. These are all unmanaged indices, which can not be
invested in directly. While Treasury bills are insured and offer a fixed rate of
return, both the principal and yield of investment securities will fluctuate
with changes in market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989, updated in Stocks,
Bonds, Bills and Inflation 1996 Yearbook, Ibbotson Associates, Chicago. All
rights reserved [to be updated].
The Trust may also compare the relative historic returns and range of
returns for an investment in each of common stocks, bonds and treasury bills to
a portfolio that blends all three investments. For example, over the 25 years
from 1971-1995, the average annual return of stocks comprising the Ibbotson's
Common Stock Total Return Index ranged from -26.5% to 37.4% while the annual
return of a hypothetical portfolio comprised 40% of such common stocks, 40% of
bonds comprising the Ibbotson's Long-term Corporate bond Index and 20% of
Treasury bills comprising the Ibbottson's Treasury Bill Index (a "mixed
portfolio") would have ranged from -10.2% to 28.2% over the same period. The
average annual returns of each investment for each of the years from 1971
through 1995 is set forth in the following table.
<TABLE>
<CAPTION>
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- ---- ------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1971 14.31% 11.01% 4.39% 3.36% 11.01%
1972 18.98% 7.26% 3.84% 3.41% 11.26%
1973 -14.66% 1.14% 6.93% 8.80% -4.02%
1974 -26.47% -3.06% 8.00% 12.26% -10.21%
1975 37.20% 14.64% 5.80% 7.01% 21.90%
1976 23.84% 18.65% 5.08% 4.81% 18.01%
1977 -7.18% 1.71% 5.12% 6.77% -1.17%
1978 6.56% -0.07% 7.18% 9.03% 4.03%
1979 18.44% -4.18% 10.38% 13.31% 7.78%
1980 32.42% 2.61% 11.24% 12.40% 14.17%
1981 -4.91% -0.96% 14.71% 8.94% 0.59%
1982 21.41% 43.79% 10.54% .387% 28.19%
1983 22.51% 4.70% 8.80% 3.80% 12.64%
1984 6.27% 16.39% 9.85% 3.95% 11.03%
1985 32.16% 30.90% 7.72% 3.77% 26.77%
1986 18.47% 19.85% 6.16% 1.13% 16.56%
1987 5.23% -0.27% 5.46% 4.41% 3.08%
1988 16.81% 10.70% 6.35% 4.42% 12.28%
1989 31.49% 16.23% 8.37% 4.65% 20.76%
1990 -3.17% 6.87% 7.52% 6.11% 2.98%
1991 30.55% 19.79% 5.88% 3.06% 21.31%
1992 7.67% 9.39% 3.51% 2.90% 7.53%
1993 10.06% 13.17% 2.89% 2.75% 9.84%
1994 1.31% -5.76% 3.90% 2.67% -1.00%
1995 37.40% 27.20% 5.60% 2.70% 26.90%
</TABLE>
57
<PAGE>
*Returns of unmanaged indices do not reflect past or future performance of
any of the Funds of PIMCO Funds: Pacific Investment Managaement Series.
Stocks are represented by Ibbotson's Common Stock Total Return Index. Bonds
are represented by Ibbotson's Long-term Corporate Bond Index. T'bills are
represented by Ibbotson's Treasury Bill Index and Inflation is represented
by the Cost of Living Index. These are all unmanaged indices, which can not
be invested in directly. While Treasury bills are insured and offer a fixed
rate of return, both the principal and yield of investment securities will
fluctuate with changes in market conditions. Source: Ibbotson, Roger G.,
and Rex A. Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989,
updated in Stocks, Bonds, Bills and Inflation 1996 Yearbook, Ibbotson
Associates, Chicago. All rights reserved [to be updated] .
The Trust may use in its advertisement and other materials examples
designed to demonstrate the effect of compounding when an investment is
maintained over several or many years. For example, the following table shows
the annual and total contributions necessary to accumulate $200,000 of savings
(assuming a fixed rate of return) over various periods of time:
<TABLE>
<CAPTION>
Investment Annual Total Total
Period Contribution Contribution Saved
------ ------------ ------------ -----
<S> <C> <C> <C>
30 Years $1,979 $59,370 $200,000
25 Years $2,955 $73,875 $200,000
20 Years $4,559 $91,180 $200,000
15 Years $7,438 $111,570 $200,000
10 Years $13,529 $135,290 $200,000
</TABLE>
This hypothetical example assumes a fixed 7% return compounded annually and
a guaranteed return of principal. The example is intended to show the
benefits of a long-term, regular investment program, and is in no way
representative of any past or future performance of a PIMCO Fund. There can
be no guarantee that you will be able to find an investment that would
provide such a return at the times you invest and an investor in any of the
PIMCO Funds should be aware that certain of the PIMCO Funds have
experienced periods of negative growth in the past and may again in the
future.
The Trust may set forth in its advertisements and other materials
information regarding the relative reliance in recent years on personal savings
for retirement income versus reliance on Social Security benefits and company
sponsored retirement plans. For example, the following table offers such
information for 1990:
% of Income for Individuals
Aged 65 Years and Older in 1990*
--------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
1990 38% 62%
*For individuals with an annual income of at least $51,000. Other includes
personal savings, earnings and other undisclosed sources of income. Source:
Social Security Administration [to be updated].
58
<PAGE>
Articles or reports which include information relating to performance,
rankings and other characteristics of the Funds may appear in various national
publications and services including, but not limited to: The Wall Street
Journal, Barron's, Pensions and Investments, Forbes, Smart Money, Mutual Fund
Magazine, The New York Times, Kiplinger's Personal Finance, Fortune, Money
Magazine, Morningstar's Mutual Fund Values, CDA Investment Technologies and The
Donoghue Organization. Some or all of these publications or reports may publish
their own rankings or performance reviews of mutual funds, including the Funds,
and may provide information relating to the Adviser, including descriptions of
assets under management and client base, and opinions of the author(s) regarding
the skills of personnel and employees of the Adviser who have portfolio
management responsibility. From time to time, the Trust may include references
to or reprints of such publications or reports in its advertisements and other
information relating to the Funds.
From time to time, the Trust may set forth in its advertisements and other
materials information about the growth of a certain dollar-amount invested in
one or more of the Funds over a specified period of time and may use charts and
graphs to display that growth.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold annual
meetings of Trust shareholders to elect Trustees or for other purposes. It is
not anticipated that the Trust will hold shareholders' meetings unless required
by law or the Declaration of Trust. In this regard, the Trust will be required
to hold a meeting to elect Trustees to fill any existing vacancies on the Board
if, at any time, fewer than a majority of the Trustees have been elected by the
shareholders of the Trust. In addition, the Declaration of Trust provides that
the holders of not less than two-thirds of the outstanding shares of the Trust
may remove a person serving as Trustee either by declaration in writing or at a
meeting called for such purpose. The Trustees are required to call a meeting
for the purpose of considering the removal of a person serving as Trustee if
requested in writing to do so by the holders of not less than ten percent of the
outstanding shares of the Trust. In the event that such a request was made, the
Trust has represented that it would assist with any necessary shareholder
communications. Shareholders of a class of shares have different voting rights
with respect to matters that affect only that class.
The Trust's shares do not have cumulative voting rights, so that the holder
of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Certain Owneship of Trust Shares
As of December __, 1996, the following persons owned of record or
beneficially 5% or more of the shares of the following Funds [to be
updated]:
59
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
Money Market Fund
St. Johns Hospital 14,421,447.92 53.71*
1328 22nd Street
Santa Monica, CA 90404
California Community Foundation 4,501,565.71 16.76
606 South Olive Street, Suite 2400
Los Angeles, CA 90014
PIMCO Advisors L.P. 4,338,133.45 16.16
800 Newport Center Drive
Newport Beach, CA 92660
Short-Term Fund
TelePad Corporation 1,131,139.30 10.58
380 Herndon Parkway, Suite 1900
Herndon, VA 22070
Charles Schwab & Co., Inc.** 1,093,944.79 10.23
101 Montgomery Street
San Francisco, CA 94104
NBD, FBO 712,411.73 6.66
Indianapolis Symphony Orchestra
Post Office Box 771072
Detroit, MI 48277-1072
Denison University 668,161.37 6.25
P.O. Box F
Granville, OH 43023
Hawaii Carpenters Health & Welfare 650,684.10 6.09
615 Pilkoi Street
Honolulu, HI 96814
Sandra Smith Dompier 596,160.01 5.58
1900 West Loop South, Suite 1050
Houston, TX 77027
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
Low Duration Fund
Charles Schwab & Co., Inc.** 25,505,146.44 9.65
101 Montgomery Street
San Francisco, CA 94104
Low Duration Fund II
Sprint 4,934,855.39 18.63
c/o FMTC
82 Devonshire Street
Boston, MA 02109
Health Cleveland 2,389,316.63 9.02
18101 Lorain Avenue
Cleveland, OH 44111
Salt River Project 2,024,149.13 7.64
P.O. Box 52025
Phoenix, AZ 85072
A.M. Castle 2,022,597.54 7.64
3400 North Wolf Road
Franklin Park, IL 60131
Moses H. Cone Memorial Hospital 1,774,659.92 6.70
1200 North Elm Street
Greensboro, NC 27401
University of Illinois 1,737,147.85 6.56
1305 West Green Street
Urbana, IL 61801
Houston Carpenters 1,546,492.76 5.84
4600 Gulf Freeway
Houston, TX 77023
High Yield Fund
Charles Schwab & Co., Inc. ** 7,430,287.58 13.45
101 Montgomery Street
San Francisco, CA 94104
Hewlett Packard Company 2,952,853.63 5.34
3000 Hanover Street
Palo Alto, CA 94304
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
Northern California Retail Clerks 2,940,017.13 5.32
190 North Wiget Lane
Post Office Box 9000
Walnut Creek, CA 94598-0990
3M Company 2,885,074.82 5.22
3M Center, Building 224-5S-21
St. Paul, MN 55144
Total Return Fund
Charles Schwab & Co., Inc.** 61,917,877.38 5.98
101 Montgomery Street
San Francisco, CA 94104
Total Return Fund II
Pacific Mutual Life Insurance Company 29,975,186.94 61.41*
700 Newport Center Drive
Newport Beach, CA 92660
Arco 2,713,524.78 5.56
c/o State Street Bank
One Enterprise Drive
North Quincy, MA 02171
Total Return Fund III
Archdiocese of Los Angeles 7,133,189.50 44.40*
1531 West 9th Street
Los Angeles, CA 90015
Holy Cross 2,640,045.86 16.43
St. Mary's Lourdes Hall
Notre Dame, IN 46556
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
Catholic Diocese of Wilmington 1,512,365.42 9.41
P.O. Box 2030
Wilmington, DE 19899
Society of Mount Carmel 1,289,591.40 8.03
1317 Frontage Road
Darien, IL 60561
Long-Term U.S. Government Fund
Firemans Fund Insurance 905,544.87 27.34*
One Wall Street, 8th Floor
New York, NY 10286
Orchestral Association 728,189.18 21.99
220 South Michigan Avenue
Chicago, IL 60604
Charles Schwab & Co. Inc. ** 445,236.65 13.44
101 Montgomery Street
San Francisco, CA 94104
The J. Paul Getty Trust 219,672.76 6.63
401 Wilshire Blvd., Suite 900
Santa Monica, CA 90401
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
Foreign Bond Fund
Southern California Edison 6,393,620.66 32.56*
2244 Walnut Grove Avenue
Rosemead, CA 91770
Charles Schwab & Co., Inc.** 6,320,284.07 32.19*
101 Montgomery Street
San Francisco, CA 94104
Donaldson, Lufkin & Jennrette** 3,196,793.85 16.28
1 Pershing Plaza
Post Office Box 2052
Jersey City, NJ 07399
Wachovia Bank & Trust Co., FBO 1,038,715.77 5.29
Mead Corporation
Post Office Box 3075
Winston-Salem, NC 27150
Global Bond Fund
Walker Art Center 2,689,368.69 18.91
Vineland Place
Minneapolis, MN 55403
Georgetown University 2,462,329.26 17.31
3600 M Street, N.W.
Washington, DC 20007
Charles Schwab & Co., Inc. ** 1,575,406.18 11.08
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
Pittsburgh Theological Seminary 943,379.69 6.63
616 North Highland Avenue
Pittsburgh, PA 15206-2596
Sisters of Mercy 810,424.95 5.70
2039 North Greyer Road
St. Louis, MO 63131
Worchester Polytechnic 803,665.66 5.65
100 Institute Road
Worchester, MA 01609
StocksPLUS Fund
Sisters of St. Benedict 1,881,022.46 13.21
c/o Norwest Bank
Sixth & Marquette Avenue
Minneapolis, MN 55479
Iowa Methodist 1,645,209.73 11.56
1200 Pleasant Street
Des Moines, IA 50309
Ziff Communications 1,008,472.34 7.08
c/o Bank of New York
One Wall Street, 7th Floor
New York, NY 10286
Northern Trust Company, FBO 829,813.76 5.83
Sprint Foundation
Post Office Box 92956
Chicago, IL 60675-2956
Boatmens Trust Company, FBO 791,914.72 5.56
Lutheran Charitable Foundation
Post Office Box 14737
St. Louis, MO 63178
First Trust N.A., FBO 743,392.45 5.22
Robinson Companies
Post Office Box 64010
St. Paul, MN 55164-0100
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- ------------
<S> <C> <C>
Northern Trust Company, FBO 739,092.28 5.19
Sprint-Carolina Telephone &
Telegraph Company
Post Office Box 92956
Chicago, IL 60675
Ziff Davis Publishing 733,092.56 5.15
c/o Bank of New York
One Wall Street
New York, NY 10286
</TABLE>
- --------------------
*Entity owned 25% or more of the outstanding shares of beneficial interest
of the Fund, and therefore may be presumed to "control" the Fund, as that term
is defined in the 1940 Act.
**Shares are held only as nominee.
As of December __, 1996, the Trustees and Officers of the Trust, as a
group, owned .005%, .017%, .111%, .089%, .071% and 1.298% of the outstanding
shares of the PIMCO Low Duration, High Yield, StocksPLUS, Total Return, Foreign
Bond, and Global Bond Funds, respectively. [to be updated]
The Reorganization of the PIMCO Money Market and Total Return II Funds
On November 1, 1995, the Money Market Fund and the PIMCO Managed Bond and
Income Fund, two former series of PIMCO Funds: Equity Advisors Series, were
reorganized as series of the Trust, and were renamed PIMCO Money Market Fund and
PIMCO Total Return Fund II, respectively. All information presented for these
Funds prior to this date represents their operational history as series of PIMCO
Funds: Equity Advisors Series. In connection with the Reorganization, the Funds
changed their fiscal year end from October 31 to March 31.
The Reorganization of the PIMCO Global Bond Fund II
On January __, 1997, the Global Income Fund, a former series of PIMCO
Advisors Funds, was reorganized as a series of the Trust, and was renamed the
PIMCO Global Bond Fund II. All information presented for this Fund prior to this
date represents its operational history as a series of PIMCO Advisors Funds. In
connection with the Reorganization, the Fund charged its fiscal year end from
September 30 to March 31.
Code of Ethics
The Trust and PIMCO have each adopted a Code of Ethics governing personal
trading activities of all Trustees and officers of the Trust, and Directors,
officers and employees of PIMCO who, in connection with their regular functions,
play a role in the recommendation of any purchase or sale of a security by the
Trust or obtain information pertaining to such purchase or sale or who have the
power to influence the management or policies of the Trust or PIMCO. Such
persons are required to preclear certain security transactions with PIMCO's
Compliance Officer or his designee
66
<PAGE>
and to report certain transactions on a regular basis. PIMCO has developed
procedures for administration of the Codes.
Custodian, Transfer Agent and Dividend Disbursing Agent
Investors Fiduciary Trust Company ("IFTC") serves as custodian, transfer
agent and dividend disbursing agent for assets of all Funds.
Pursuant to rules adopted under the 1940 Act, the Trust may maintain
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board of Trustees following a consideration of a number of factors,
including (but not limited to) the reliability and financial stability of the
institution; the ability of the institution to perform capably custodial
services for the Trust; the reputation of the institution in its national
market; the political and economic stability of the country in which the
institution is located; and further risks of potential nationalization or
expropriation of Trust assets. The Board of Trustees reviews annually the
continuance of foreign custodial arrangements for the Trust. No assurance can be
given that the Trustees' appraisal of the risks in connection with foreign
custodial arrangements will always be correct or that expropriation,
nationalization, freezes, or confiscation of assets that would impact assets of
the Funds will not occur, and shareholders bear the risk of losses arising from
these or other events.
Independent Accountants
Price Waterhouse LLP, 1055 Broadway, Kansas City, MO 64105, serves as
independent public accountants for all Funds. Price Waterhouse LLP provides
audit services, tax return preparation and assistance and consultation in
connection with review of SEC filings. Prior to November 1, 1995, Deloitte &
Touche LLP served as independent accountants for the PIMCO Money Market and
Total Return II Funds. See "The Reorganization of the PIMCO Money Market and
Total Return II Funds" for additional information. Prior to January __, 1997
Coopers & Lybrand LLP served as independent accountants for the PIMCO Global
Bond Fund II. See "The Reorganization of the PIMCO Global Bond Fund II" for
additional information.
Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, passes
upon certain legal matters in connection with the shares offered by the Trust,
and also act as counsel to the Trust.
Registration Statement
This Statement of Additional Information and the Prospectus do not contain
all of the information included in the Trust's registration statement filed with
the SEC under the 1933 Act with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statement, including the exhibits filed
therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
67
<PAGE>
Financial Statements
Financial statements for the Trust, for all series except the PIMCO Global
Bond Fund II, as of March 31, 1996 for its fiscal year then ended, including
notes thereto, and the reports of Price Waterhouse LLP thereon dated May 10,
1996, are incorporated by reference from the Trust's 1996 Annual Report.
Financial statements for the Trust as of September 30, 1996, including notes
thereto, are incorporated by reference from the Trust's 1996 Semi-Annual Report,
which is unaudited. Financial Statements for the PIMCO Global Bond Fund II
(prior to January __, 1997, the Global Income Fund) as of September 30, 1996,
for its fiscal year then ended, including the related notes thereto, and the
report of Coopers & Lybrand LLP on the financial statements of PIMCO Advisors
Funds, as of and for its fiscal year then ended, dated December __, 1996, is
incorporated by reference from the 1996 Annual Report of PIMCO Advisors Funds. A
copy of the Annual Reports and Semi-Annual Report delivered with this Statement
of Additional Information should be retained for future reference.
68
<PAGE>
. TOTAL RETURN .
STRATEGIC BALANCED . FOREIGN . SHORT-TERM
. LOW DURATION .
GLOBAL . LONG-TERM U.S. GOVERNMENT .
HIGH YIELD . StocksPLUS .
P I M C O
PIMCO FUNDS
SEMI-ANNUAL REPORT . SEPTEMBER 30, 1996
<PAGE>
CONTENTS
Chairman's Message 1
Management Discussion and Analysis 2
Investment Performance 5
Statement of Assets and Liabilities 18
Statement of Operations 20
Statement of Changes in Net Assets 22
Financial Highlights 26
Schedules of Investments
Total Return Fund 32
Total Return Fund II 44
Total Return Fund III 47
Low Duration Fund 49
Low Duration Fund II 56
Short-Term Fund 58
Long-Term U.S. Government Fund 61
Foreign Fund 63
Global Fund 66
High Yield Fund 69
Money Market Fund 72
StocksPLUS Fund 73
Strategic Balanced Fund 76
Notes to Financial Statements 78
<PAGE>
CHAIRMAN'S MESSAGE
Dear PIMCO Funds Shareholder:
We are pleased to present this Semi-Annual Report for the PIMCO Funds: Pacific
Investment Management Series for the six months ended September 30, 1996. The
past two quarters have been an exciting time for the PIMCO Funds, and ultimately
rewarding for shareholders.
The period commenced on a down note for U.S. fixed income markets, as signs of
robust economic growth fueled bond investors' fears of monetary tightening by
the Federal Reserve Bank. Employment registered solid gains, consumer spending
continued despite high debt levels, and key commodity prices rose, igniting
concerns that inflation would accelerate. By the end of April, bond yields on
all maturities greater than one year had spiked upward between 23 and 35 basis
points. Then in May, an uneven pattern of rising and falling interest rates
commenced in response to mixed economic signals from closely watched data
releases. After the dust had settled, September 30th found Treasury yields of
all maturities within just eight basis points of their April levels.
This hectic economic market environment seemed custom-designed to test the
mettle of both fixed income investors and portfolio managers. Those who took the
year's early setbacks in stride and stayed the course are now being rewarded
with positive returns, as investment strategies undertaken in the Spring have
begun to pay dividends this Fall. On an absolute basis, equity, high yield and
foreign bond investors have enjoyed the strongest returns. As noted on the
following pages, the PIMCO Foreign Fund posted the highest return of any
portfolio in the Trust during the six-month period, rising 10.59%, and all of
the Funds managed to beat their comparative market indices.
We are pleased to report that shareholders have continued to express confidence
in the PIMCO Funds by investing more than $461 million during the reporting
period, which has helped to push total assets to exceed $16.5 billion. Moreover,
we look forward to the planned consolidation in mid-January of our affiliated
fund family, the PIMCO Advisors Funds, with the PIMCO Funds. The combined funds,
at $25 billion strong, will offer shareholders a wider range of investment
opportunities under the PIMCO Funds banner.
As always, we thank you for your continued investment in the PIMCO Funds. Please
call us at (800) 927-4648 should you have any questions or if we can be of any
assistance.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
November 5, 1996
1
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
Despite an economic climate where many fixed income investments have been
battered by rising interest rates, we are pleased to report positive performance
for each of the PIMCO Funds. Each Fund's performance compares favorably to its
respective benchmark. Not only for the recently completed six-month period, but
also over the trailing one, three and five years. And, as the following table
illustrates, most of the PIMCO Funds have also outperformed their respective
Lipper mutual fund peer averages for the twelve-month period ended September 30,
1996, and are highly rated by Morningstar.
<TABLE>
<CAPTION>
Total Return Investment Performance
(periods ended 09/30/96)
-------------------------------------------
Six Months Twelve Months
PIMCO PIMCO Competitive Morningstar
Category & Fund* Funds Funds Fund Average Difference Rating**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Intermediate Investment Grade Debt Funds (175 Funds)
Total Return Fund 3.41% 6.48% 4.30% 2.18% *****
---------------------------------------------------------------------------------------------------------------------------------
Total Return Fund II 2.86 5.40 4.30 1.10 ***
---------------------------------------------------------------------------------------------------------------------------------
Total Return Fund III 3.63 6.17 4.30 1.87 *****
---------------------------------------------------------------------------------------------------------------------------------
Short Investment Grade Debt Funds (100 Funds)
Low Duration Fund 3.46 6.76 5.16 1.60 *****
---------------------------------------------------------------------------------------------------------------------------------
Low Duration Fund II 3.09 5.88 5.16 0.72 ****
---------------------------------------------------------------------------------------------------------------------------------
Ultra Short Obligations Funds (28 Funds)
Short-Term Fund 3.63 7.44 5.41 2.03 *****
---------------------------------------------------------------------------------------------------------------------------------
Institutional Money Market Funds (155 Funds)
Money Market Fund 2.61 5.76 5.27 0.49 n.a.
---------------------------------------------------------------------------------------------------------------------------------
General U.S. Government Funds (173 Funds)
Long-Term U.S. Government Fund 1.61 2.61 3.24 -0.63 ***
---------------------------------------------------------------------------------------------------------------------------------
International Income Funds (42 Funds)
Foreign Fund 10.59 20.84 9.27 11.57 *****
---------------------------------------------------------------------------------------------------------------------------------
Global Income Funds (124 Funds)
Global Fund 6.91 12.76 11.12 1.64 n.a.
---------------------------------------------------------------------------------------------------------------------------------
High Current Yield Funds (143 Funds)
High Yield Fund 6.17 11.91 12.92 -1.01 ****
---------------------------------------------------------------------------------------------------------------------------------
Growth and Income Funds (503 Funds)
StocksPLUS Fund 7.78 21.00 17.24 3.76 *****
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* as categorized by Lipper Analytical Services, Inc.
** Performance and rankings are historical and do not represent future results.
Morningstar proprietary ratings reflect risk-adjusted performance and are
subject to change every month. Overall ratings are calculated from a fund's
3-, 5- and 10-year (not 1-year) average annual returns in excess of 90-day
Treasury bill returns with appropriate fee adjustments and a risk factor that
reflects fund performance below 90-day Treasury bill returns. Ten percent of
the funds in an investment category receive 5 stars, the next 22.5% receive 4
stars, and the next 35% receive 3 stars. Funds with fewer than 3 years of
performance history are not rated.
2
<PAGE>
Market Recap and Strategy
Yields on U.S. Treasury bonds followed a rambling path during the six-months
ended September 30, 1996, as market fears of tightening by the Federal Reserve
waxed and waned. Economic data initially indicated strong economic growth and
potentially higher inflation, and domestic interest rates surged. But, as the
period progressed, key indices offered mixed indications of growth, while
signals from the Fed via public testimony, Federal Open Market Committee (FOMC)
meeting debriefings, and, not least, leaks to the media, alternately depressed
and boosted bond market sentiment. At the end of the period, Treasury yields
from one to thirty years moved from 25 to 38 basis points higher. And since
3-month rates were nearly unchanged, the front portion of the yield curve
steepened significantly. Since the end of September, the economy has continued
to exhibit signs of slowing. With another month under its belt, the bond market
has (as depicted below) seen Treasury yields move very close to where they
started seven months ago, marking the end of a hectic but circular journey.
Movements of U.S. Treasury Yields from 3/31/96 through 10/31/96
<TABLE>
<CAPTION>
1-Year 5-Year 30-Year
<S> <C> <C> <C>
3/29/96 5.38 6.09 6.67
4/26/96 5.54 6.28 6.79
5/31/96 5.75 6.63 6.99
6/28/96 5.68 6.46 6.87
7/26/96 5.86 6.62 7.01
8/30/96 5.90 6.72 7.12
9/27/96 5.65 6.43 6.91
10/31/96 5.41 6.07 6.64
</TABLE>
If there was any consistent theme behind the Funds' investment success during
this past six-month period, it was the value of sector strategies and investment
discretion. PIMCO's total return investment process seeks to add incremental
returns through a multi-faceted, active management process which includes
duration, yield curve positioning, sector rotation, issue selection, credit
quality selection and, for certain Funds, country and currency allocations. For
all of 1996, our outlook has called for a bond market-friendly combination of
moderate economic growth and low inflation. Consistent with this forecast, the
Funds have been managed with durations higher than their respective benchmark
indices and in many cases at the upper end of their allowable ranges.
As interest rates moved higher in the U.S., the Funds' above-index
durations were a drag on investment performance. The fact that favorable returns
were achieved during the reporting period, despite the negative impact of
duration, illustrates the importance of other stategies besides interest rate
risk management. Strategies that yielded positive results included overweighting
both fixed and adjustable rate mortgage-backed securities, underweighting
long-term, high quality corporates, the selective use of lower-quality issues,
and writing options on short-term interest rates. The employment of
currency-hedged, European and dollar bloc bonds, and the continued investment in
dollar-denominated Argentine and Mexican debt securities, also added value to
those PIMCO Funds which permit foreign investments.
Investment Process and Outlook
Each spring, PIMCO's entire group of investment professionals meets for several
days to discuss and review the firm's long-term outlook for the economy and
inflation. This past May, the consensus view of this group was bullish on
interest rates. This long-term outlook, which lies at the heart of PIMCO's
investment process, remains bullish for bonds. Some prominent themes which drive
our outlook include:
. Competitive forces unleashed by the globalization of trade and production,
generate low-cost goods and limit firms' pricing power;
. Integration of world capital markets and the growing power of investors to
demand sound, market-friendly fiscal and monetary policies; and
. Aging populations across the developed world, shifting the age mix from the
high consumption years toward the savings-oriented phase of the life cycle.
3
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS (Cont.)
Interest Rate Forecast
Our forecast is for a 5-7% range for the yield of the 30-year Treasury bond over
the next three to five years. More important than the numbers themselves,
however, is the direction of rates implied by our Secular Outlook: with the Long
Bond's yield currently near the top of the 5-7% range, we expect the
disinflationary forces cited above to broadly pull interest rates lower over the
course of the next several years.
<TABLE>
<CAPTION>
30 YEAR TREASURY YIELDS
<S> <C>
1/1/78 8.18
1/1/79 8.94
1/1/80 10.60
1/1/81 12.28
1/1/82 13.91
1/1/83 10.99
1/1/84 11.75
1/1/85 11.21
1/1/86 9.32
1/1/87 7.47
1/1/88 8.42
1/1/89 8.82
1/1/90 8.45
1/1/91 8.20
1/1/92 7.76
1/1/93 7.20
1/1/94 6.24
1/1/95 7.70
1/1/96 6.03
10/1/96 6.64
</TABLE>
Favorable business cycle conditions are likely to prevail into next year as
well, setting the stage for a bond market rally. We expect steady,
non-inflationary growth over the next several quarters, with both economic
growth and consumer inflation running comfortably around the mid-2% level. We
believe that fears held by a sizable contingent of bond investors, that the
economy will overheat, are unfounded. Our view on growth over the next several
quarters follows:
. Consumption will moderate (and in fact already has) after the spending binge
earlier this year. The consumer will return to a more sustainable rate of
expenditure, in line with the moderate pace of increase in personal income;
. Business investment will slow as rapidly-expanding manufacturing capacity
outstrips final demand;
. Housing demand will begin to slow by early 1997 as the delayed effects of
this year's jump in mortgage rates take hold;
. Fiscal policy will remain restrictive near-term;
. Exports will not drive growth in this country, as it is the U.S. which serves
as the economic locomotive in the current global growth cycle.
Perhaps most notable at present is a lack of structural imbalances, and the
evenly distributed growth profile across the U.S., all of which supports our
outlook for a continued, smooth expansion. The one potential area of excess
which bears watching is the stock market, as a sharp correction could hurt
confidence and, ultimately, economic growth.
Investment Strategy Going Forward
Against this backdrop we will continue to emphasize many of the themes that were
featured over the past six months. Fund durations will be targeted above their
respective benchmarks to position for anticipated price gains in a declining
interest rate environment. Another benefit of our above-index duration strategy
is the yield benefit it provides a portfolio given the current positive slope of
the U.S. and most foreign yield curves. Indeed, looking farther into the future,
if the long-run evolution of the bond market toward a more stable-rate
environment that we foresee comes to pass, yield enhancement strategies will
take center stage in place of the price-change-oriented interest rate strategies
which dominated during the bull bond market of the 1980s and early 1990s.
Our domestic sector strategies will emphasize market segments that offer a
yield premium over Treasuries. While we feel that the mortgage-backed sector as
a whole is fairly valued relative to market expectations, our bullish view on
rates suggests value in discount (low coupon) fixed rate issues due to their
call-protected characteristics. In addition, adjustable rate mortgages remain
attractive as higher-yielding, relatively low risk, short-maturity holdings. On
the corporate front, we will continue to favor lower quality, non-cyclical,
short-term issues that offer a substantial yield cushion over Treasuries. These
larger yield premiums offer a buffer against the effects of spread widening as
the economy slows.
Looking beyond the borders of the U.S., while most foreign markets have
experienced interest rate declines in recent months, several opportunities
remain in dollar bloc countries (Canada, Australia, New Zealand) and the higher
yielding nations of Europe. The same holds even truer for selected
dollar-denominated Latin American bonds, where wide spreads over U.S. Treasuries
and improving economic fundamentals offer excellent value.
If the world's bond markets unfold as we expect over the next six months,
multiple sector strategies will once again form the genesis of favorable
investment results.
4
<PAGE>
TOTAL RETURN FUND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
-----------------------------------------------
TOTAL RETURN FUND Through September 30, 1996
-----------------------------------------------
MONTH TOTAL RETURN LBAG
========== ============== ==============
<S> <C> <C>
05/31/87 1,000,000.00 1,000,000.00
12/31/87 1,030,745.18 1,043,430.28
12/31/88 1,127,426.29 1,125,714.10
12/31/89 1,288,016.57 1,289,275.51
12/31/90 1,391,670.78 1,404,797.46
12/31/91 1,663,829.39 1,629,609.19
12/31/92 1,825,855.68 1,750,227.21
12/31/93 2,054,300.21 1,920,864.71
12/31/94 1,980,883.43 1,864,840.30
12/31/95 2,372,627.60 2,209,361.20
09/30/96 2,394,638.59 2,222,896.65
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- -------------------------------------------------------------------------
Since
6 Mos 1 Yr./*/ 3 Yr./*/ 5 Yr./*/ Inception/*/
----- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Total Return Fund
Inst'l Class (%) 3.41 6.48 5.47 8.69 9.80
Lehman
Aggregate
Bond Index (%) 2.43 4.90 5.01 7.46 8.93
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Since
6 Mos 1 Yr./*/ 2 Yr./*/ Inception/*/
----- -------- -------- ------------
<S> <C> <C> <C> <C>
Admin. Class (%) 3.28 6.32 9.67 9.65
Lehman
Aggregate
Bond Index (%) 2.43 4.90 9.38 9.37
- -------------------------------------------------------------------------
</TABLE>
/*/Annualized
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in May 1987 and held through September 1996, compared
to the Lehman Brothers Aggregate Bond Index, an unmanaged market index. The
performance of the Administrative Class from inception in September 1994 (shown
at left) reflects the payment of a service fee in an amount not to exceed 0.25%
on an annualized basis. Past performance is not an indication of future results.
. Successful sector strategies were the leading determinant of favorable
performance of 0.98% relative to the Lehman Aggregate Bond Index during the
six-month reporting period, as non-index sectors outperformed.
. Holdings of below investment-grade bonds (mostly BB-rated issues), which
averaged about 7% of the Fund's assets, boosted returns via their higher
yields and spread tightening in response to strong corporate earnings and a
favorable outlook for continued growth.
. Mortgage-backed holdings were overweighted relative to the Index, and both
fixed and adjustable rate issues benefited from a combination of higher
yields and spread tightening early in the period when rising rates reduced
the probability of prepayment.
. The opportunistic use of core European and dollar-bloc bonds, and small
holdings of dollar-denominated debt from Argentina and Mexico, both
contributed to performance as interest rates fell abroad in contrast to
rising domestic rates.
. The Fund's above-index duration limited returns in the second quarter when
yields on all but the shortest Treasury issues surged 20-40 basis points
higher. Duration was neutral for returns in the third quarter, however, when
Treasury yields were nearly unchanged.
. A yield curve strategy that favored intermediate-maturity issues was also
negative for returns early in the period and was only partially offset later
by the higher portfolio yield generated by intermediate-maturity bonds
relative to a blend of shorter- and longer-term issues.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Mortgage-Backed Securities 54.1%
Short-Term Instruments 5.6%
Other 6.7%
Corporate Bonds and Notes 16.0%
U.S. Treasury Obligations 17.6%
<CAPTION>
<S> <C>
AAA 75%
A1 4%
BB 6%
BBB 7%
A 6%
AA 2%
</TABLE>
5
<PAGE>
TOTAL RETURN FUND II
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
-------------------------------------------------
TOTAL RETURN FUND II Through September 30,1996
-------------------------------------------------
MONTH TOTAL RETURN II LBAG
============== ================ ================
<S> <C> <C>
12/31/91 1,000,000.00 1,000,000.00
12/31/92 1,094,320.03 1,074,016.53
12/31/93 1,213,560.32 1,178,727.22
12/31/94 1,186,684.24 1,144,348.17
12/31/95 1,411,856.80 1,355,761.38
09/30/96 1,415,967.33 1,364,067.32
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- ------------------------------------------------------------------------------
Since
6 Mos 1 Yr/*/ 3Yr/*/ Inception/*/
------- ------- ------ ------------
<S> <C> <C> <C> <C>
Total Return Fund II
Inst'l Class (%) 2.86 5.40 5.13 7.59
Lehman Aggregate
Bond Index (%) 2.43 4.90 5.01 6.75
- ------------------------------------------------------------------------------
Admin. Class (%) 2.73 5.03 10.34
Lehman Aggregate
Bond Index (%) 2.43 4.90 10.55
- ------------------------------------------------------------------------------
</TABLE>
/*/Annualized
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in December 1991 and held through September 1996,
compared to the Lehman Brothers Aggregate Bond Index, an unmanaged market index.
The performance of the Administrative Class from inception in November 1994
(shown at left) reflects the payment of a service fee in an amount not to exceed
0.25% on an annualized basis. Past performance is not an indication of future
results.
. A successful blend of sector strategies led to favorable relative performance
for the six-month period as the Fund led the Lehman Aggregate Bond Index by
0.43%.
. Holdings of BBB-rated corporate bonds boosted returns via their higher yields
and some spread tightening in response to strong corporate earnings and a
favorable outlook for continued growth.
. Mortgage-backed holdings were significantly overweighted relative to the
Index, and both fixed and adjustable rate issues benefited from a combination
of higher yields and spread tightening early in the period when rising rates
reduced the probability of prepayment.
. A limited strategy of writing options on short-term interest rates, designed
to benefit the Fund if rates did not rise as quickly as the market expected,
aided performance as the Federal Reserve stood pat and left the Fed funds
rate unchanged.
. The Fund's above-index duration limited returns in the second quarter when
yields on all but the shortest Treasury issues surged 20-40 basis points
higher. Duration was neutral for returns in the third quarter, however, when
yields were nearly unchanged.
. A yield curve strategy that favored intermediate-maturity issues was also
negative for returns early in the period and was only partially offset later
by the higher portfolio yield generated by intermediate-maturity bonds
relative to a blend of shorter- and longer-term issues.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
U.S. Treasury Notes 20.0%
Corporate Bonds
and Notes 15.0%
Short-Term
Instruments 7.0%
Other 2.0%
Mortgage-Backed
Securities 56.0%
<CAPTION>
<S> <C>
AAA 79%
A 2%
BBB 11%
BB 2%
A1 6%
</TABLE>
6
<PAGE>
TOTAL RETURN FUND III
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
------------------------------------------------
TOTAL RETURN FUND III Through September 30, 1996
------------------------------------------------
MONTH TOTAL RETURN III LBAG
=========== ================ ================
<S> <C> <C>
04/30/91 1,000,000.00 1,000,000.00
12/31/91 1,137,502.41 1,116,311.65
12/31/92 1,240,189.38 1,198,937.16
12/31/93 1,396,936.94 1,315,826.92
12/31/94 1,349,037.54 1,277,449.19
12/31/95 1,608,546.95 1,513,452.22
09/30/96 1,626,853.31 1,522,724.24
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- -------------------------------------------------------------------------
Since
6 Mos 1 Yr./*/ 3 Yr./*/ 5 Yr./*/ Inception/*/
----- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Total Return
Fund III (%) 3.63 6.17 5.67 8.69 9.39
- -------------------------------------------------------------------------
Lehman
Aggregate
Bond Index (%) 2.43 4.90 5.01 7.46 7.96
- -------------------------------------------------------------------------
</TABLE>
/*/Annualized
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in May 1991 and held through September 1996, compared
to the Lehman Brothers Aggregate Bond Index, an unmanaged market index. Past
performance is not an indication of future results.
. Successful sector strategies were the leading determinant of favorable
performance of 1.20% relative to the Lehman Aggregate Bond Index during the
six-month reporting period, as non-index sectors outperformed.
. Holdings of below investment-grade bonds (mostly BB-rated issues), which
averaged about 7% of the Fund's assets, boosted returns via their higher
yields and spread tightening in response to strong corporate earnings and a
favorable outlook for continued growth.
. Mortgage-backed holdings were overweighted relative to the Index, and both
fixed and adjustable rate issues benefited from a combination of higher
yields and spread tightening early in the period when rising rates reduced
the probability of prepayment.
. The opportunistic use of core European and dollar-bloc bonds, and small
holdings of dollar-denominated debt from Argentina and Mexico, both
contributed to performance as interest rates fell abroad in contrast to
rising domestic rates.
. The Fund's above-index duration limited returns in the second quarter when
yields on all but the shortest Treasury issues surged 20-40 basis points
higher. Duration was neutral for returns in the third quarter, however, when
Treasury yields were nearly unchanged.
. A yield curve strategy that favored intermediate-maturity issues was also
negative for returns early in the period and was only partially offset later
by the higher portfolio yield generated by intermediate-maturity bonds
relative to a blend of shorter- and longer-term issues.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Mortgage-Backed Securities 44.1%
Short-Term Instruments 13.7%
Other 6.1%
Corporate Bonds and Notes 10.0%
U.S. Treasury Notes 26.1%
<CAPTION>
<S> <C>
AAA 70%
B 1%
BB 7%
BBB 6%
A 1%
AA 4%
A1 11%
</TABLE>
7
<PAGE>
LOW DURATION FUND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
-----------------------------------------------
LOW DURATION FUND Through September 30, 1996
-----------------------------------------------
MONTH LOW DURATION MERRILL 1-3
=========== ================ ================
<S> <C> <C>
05/31/87 1,000,000.00 1,000,000.00
12/31/87 1,044,478.09 1,047,984.76
12/31/88 1,130,408.56 1,113,174.49
12/31/89 1,261,510.71 1,234,771.63
12/31/90 1,375,736.40 1,354,820.12
12/31/91 1,560,925.88 1,513,055.27
12/31/92 1,680,926.86 1,608,398.67
12/31/93 1,811,369.22 1,695,419.33
12/31/94 1,822,760.28 1,705,049.92
12/31/95 2,040,217.87 1,892,602.79
09/30/96 2,111,800.64 1,949,777.53
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- -------------------------------------------------------------------------
Since
6 Mos 1 Yr./*/ 3 Yr./*/ 5 Yr./*/ Inception/*/
----- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Low Duration Fund
Inst'l Class (%) 3.46 6.76 5.77 7.00 8.33
Merrill Lynch
1-3 Yr. Tsy. Index (%) 2.68 5.61 4.98 5.97 7.41
- -------------------------------------------------------------------------
Admin Class (%) 3.33 6.50 8.47
Merrill Lynch
1-3 Yr. Tsy. Index (%) 2.68 5.61 7.96
- -------------------------------------------------------------------------
</TABLE>
/*/Annualized
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in May 1987 and held through September 1996, compared
to the Merrill Lynch 1-3 Year Treasury Index, an unmanaged market index. The
performance of the Administrative Class from inception in January 1995 (shown at
left) reflects the payment of a service fee in an amount not to exceed 0.25% on
an annualized basis. Past performance is not an indication of future results.
. Investment discretion and multi-sector strategies proved to be the key
determinants of relative performance as non-index sectors enjoyed the best
returns, enabling the Fund to outperform its all-Treasury benchmark by 0.78%
during the six-month period.
. The yield advantage of both fixed and adjustable rate mortgage-backed
securities, and the Fund's over-50% weighting of the sector, benefited
performance. This was further aided by spread tightening early in the period
as prepayment activity declined in response to higher mortgage rates.
. Both BBB-and BB-rated corporate issues performed well, boosting returns
through a combination of higher initial yields and spread tightening relative
to similar maturity Treasuries as the result of strong corporate earnings and
a favorable economic outlook.
. Small, dollar-denominated holdings of Argentine and Mexican debt benefited
performance when prices rallied in response to heightened investor interest
born of these nations' high yields as well as credible growth and inflation
policies.
. The Fund's above-index duration limited returns in the second quarter when
expectations of a Fed tightening pushed interest rates higher. Duration had
little impact in the third quarter, however, when yields initially surged
upward, but later declined on signs of low inflation and economic slowing.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- -----------------------------------------------------------------------------
<S> <C>
Mortgage-Backed Securities 56.1%
Other 6.2%
Short-Term Instruments 15.3%
Corporate Bonds and Notes 22.4%
<CAPTION>
<S> <C>
AAA 56%
BB 7%
BBB 12%
A 8%
AA 2%
A1 15%
</TABLE>
8
<PAGE>
LOW DURATION FUND II
<TABLE>
<CAPTION>
[LINE GRAPH APPEARS HERE]
-----------------------------------------------
LOW DURATION FUND II Through September 30, 1996
-----------------------------------------------
MONTH LOW DURATION II MERRILL 1-3
============= ================ ================
<S> <C> <C>
10/31/91 1,000,000.00 1,000,000.00
12/31/91 1,030,157.63 1,025,788.25
12/31/92 1,094,356.61 1,090,427.09
12/31/93 1,166,344.05 1,149,423.47
12/31/94 1,170,070.79 1,155,952.61
12/31/95 1,307,960.85 1,283,105.62
09/30/96 1,343,828.98 1,321,867.70
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- --------------------------------------------------------------------------------
Since
6 Mos 1 Yr/*/ 3 Yr/*/ Inception/*/
----- ------- ------- ------------
<S> <C> <C> <C> <C>
Low Duration
Fund II(%) 3.09 5.88 5.06 6.19
- --------------------------------------------------------------------------------
Merrill Lynch
1-3 Yr. Tsy. Index(%) 2.68 5.61 4.98 5.83
- --------------------------------------------------------------------------------
</TABLE>
/*/Annualized
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in November 1991 and held through September 1996,
compared to the Merrill Lynch 1-3 Year Treasury Index, an unmanaged market
index. Past performance is not an indication of future results.
. Sector strategies proved to be the key determinants of relative performance
as non-index sectors enjoyed the best returns, enabling the Fund to
outperform its all-Treasury benchmark by 0.41% during the six-month period.
. The yield advantage of both fixed and adjustable rate mortgage-backed
securities, and the Fund's over-50% weighting of the sector, benefited
performance. This was further aided by spread tightening early in the period
as prepayment activity declined in response to higher mortgage rates.
. Broader-than-index maturity exposure aided returns as rates below one year
and above ten years rose less than 1-to 3-year rates.
. The Fund's above-index duration limited returns in the second quarter when
expectations of a Fed tightening pushed interest rates higher. Duration had
little impact in the third quarter, however, when yields initially surged
upward but later declined on signs of low inflation and economic slowing.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
U.S. Government Agencies 0.1%
U.S. Treasury Notes 10.1%
Corporate Bonds and Notes 6.8%
Short-Term Instruments 13.6%
Mortgage-Backed Securities 69.4%
<CAPTION>
<S> <C>
AAA 77%
AA 2%
A 7%
A1 13%
BBB 1%
</TABLE>
9
<PAGE>
SHORT-TERM FUND
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
---------------------------------------------
SHORT-TERM FUND Through September 30, 1996
---------------------------------------------
LIPPER
MONTH SHORT-TERM MONEY MARKET
=========== ================ ================
<S> <C> <C>
10/31/87 1,000,000.00 1,000,000.00
12/31/87 1,012,023.74 1,011,433.29
12/31/88 1,088,755.81 1,084,223.92
12/31/89 1,191,539.60 1,181,464.97
12/31/90 1,292,428.29 1,275,590.70
12/31/91 1,378,445.50 1,350,092.71
12/31/92 1,428,417.71 1,396,855.75
12/31/93 1,494,453.55 1,434,611.69
12/31/94 1,537,715.13 1,488,152.66
12/31/95 1,679,255.85 1,568,186.66
09/30/96 1,758,516.49 1,623,124.91
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- --------------------------------------------------------------------------------
Since
6 Mos 1 Yr./*/ 3 Yr./*/ 5 Yr./*/ Inception/*/
----- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Short Term Fund
Inst'l Class(%) 3.63 7.44 6.02 5.26 6.53
- --------------------------------------------------------------------------------
Lipper Money
Market Index(%) 2.25 4.72 4.43 4.01 5.58
- --------------------------------------------------------------------------------
</TABLE>
* Annualized
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Since
6 Mos Inception
----- ---------
<S> <C> <C>
Short-Term Fund
Admin Class(%) 3.50 3.92
- --------------------------------------------------------------------------------
Lipper Money
Market Index(%) 2.25 3.06
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in October 1987 and held through September 1996,
compared to the Lipper Money Market Index, an index consisting of the 30 largest
equal weighted Money Market Funds. Whereas money market funds attempt to
maintain a stable share price, the Short-Term Fund's share price will fluctuate
in response to market conditions. The performance of the Administrative class,
from inception in February 1996 (shown at left) reflects the payment of a
service fee in an amount not to exceed 0.25% on an annualized basis. Past
performance is not an indication of future results.
. Sector strategies drove returns during the period with corporate, mortgage,
and foreign securities all contributing to strong performance. The Fund's
investment return led the average money market fund by 1.38% during the
six-month period.
. Fund performance received a boost from short-term, mortgage-backed issues,
which benefited from an initial yield advantage and spread tightening in
response to declining prepayments driven by higher mortgage rates.
. Both BBB-and BB-rated corporate issues performed well, boosting returns
through a combination of higher initial yields and spread tightening relative
to similar maturity Treasuries.
. The opportunistic use of currency-hedged European and Canadian bonds and
small holdings of dollar-denominated debt from Argentina and Mexico
contributed to performance, as interest rates fell abroad in contrast to
rising domestic rates.
. The steep front portion of the yield curve (3 months to 2 years) allowed the
yield advantage of the Fund's above-index duration to mostly offset principal
losses on its investment portfolio as rates moved higher on expectations of
Fed tightening.
[PIE CHARTS APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Mortgage-Backed Securities 37.1%
Short-Term Instruments 17.6%
Other 7.3%
Corporate Bonds and Notes 38.0%
<CAPTION>
<S> <C>
B 1%
BB 8%
BBB 17%
AAA 38%
A1 18%
A 16%
AA 2%
</TABLE>
10
<PAGE>
LONG-TERM U.S. GOVERNMENT FUND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
-------------------------------------------------------------------
LONG-TERM U.S. GOVERNMENT FUND Through September 30,1996
-------------------------------------------------------------------
LEHMAN INT
&
MONTH LONG-TERM U.S. GOV'T 20+ YR TREAS LBAG
=========== ======================= ================ ================
<S> <C> <C> <C>
06/30/91 1,000,000.00 1,000,000.00 1,000,000.00
12/31/91 1,181,839.72 1,154,987.78 1,110,386.16
12/31/92 1,322,838.26 1,244,270.52 1,192,573.10
12/31/93 1,568,556.86 1,450,540.54 1,308,842.39
12/31/94 1,452,653.13 1,341,134.05 1,270,668.38
12/31/95 1,911,315.03 1,736,411.78 1,505,418.68
09/30/96 1,820,593.54 1,650,530.30 1,514,641.48
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- -------------------------------------------------------------------------------
Since
6 Mos. 1 Yr.* 3 Yr.* 5 Yr.* Inception*
<S> <C> <C> <C> <C> <C>
Long Term U.S.
Gov't Fund (%) 1.61 2.61 4.54 10.83 12.07
- -------------------------------------------------------------------------------
LB Int. & 20+
Treasury Index (%) 1.44 2.34 3.93 8.79 10.00
- -------------------------------------------------------------------------------
Lehman Aggregate
Bond Index (%) 2.43 4.90 5.01 7.46 8.22
- -------------------------------------------------------------------------------
</TABLE>
*Annualized
- -------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in July 1991 and held through September 1996,
compared to the Lehman Brothers Aggregate Bond Index, and a 10 year duration
blend of the Lehman Brothers Intermediate and 20+Yr. Treasury Indices, each an
unmanaged market index. Past performance is not an indication of future results.
. Following a negative second quarter return, favorable results from the
mortgage-backed sector keyed better performance in the third quarter, and the
Fund posted positive performance for the six-month period, outpacing its
all-Treasury benchmark by 0.17%.
. The yield advantage of both fixed and adjustable rate mortgage-backed
securities, and the Fund's over-45% weighting of the sector, benefited
performance. This was further aided as prepayment activity declined and some
spread tightening occurred in the aftermath of higher mortgage rates.
. A limited strategy of writing options on short-term interest rates, designed
to benefit the Fund if rates did not rise as quickly as the market expected,
aided performance as the Federal Reserve stood pat and left the Fed funds
rate unchanged.
. The Fund's above-index duration limited returns in the second quarter, when
yields on all but the shortest Treasury issues surged 20-40 basis points
higher and was neutral for returns in the third quarter when Treasury yields
were nearly unchanged.
[PIE CHARTS APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Mortgage-Backed Securities 56.0%
Short-Term Instruments 4.2%
U.S. Treasury Bonds 39.8%
<CAPTION>
<S> <C>
A1 4%
AA 6%
AAA 90%
</TABLE>
11
<PAGE>
FOREIGN FUND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
---------------------------------------------
FOREIGN FUND Through September 30, 1996
---------------------------------------------
J.P. MORGAN
MONTH FOREIGN NON-U.S.
=========== ================ ================
<S> <C> <C>
12/31/92 1,000,000.00 1,000,000.00
12/31/93 1,164,013.44 1,139,019.60
12/31/94 1,079,026.38 1,081,273.43
12/31/95 1,308,003.45 1,278,457.48
09/30/96 1,474,040.32 1,381,002.05
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- ------------------------------------------------------------------
Since
6 Mos. 1 Yr./*/ 3 Yr./*/ Inception/*/
------ ------- -------- ------------
<S> <C> <C> <C> <C>
Foreign Fund (%) 10.59 20.84 9.72 10.90
- -----------------------------------------------------------------
J.P. Morgan
Non-U.S. Index (%) 7.11 12.66 8.09 8.99
- -----------------------------------------------------------------
</TABLE>
/*/Annualized
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in December 1992 and held through September 1996,
compared to the J.P. Morgan Non-U.S. Government Bond Index (Hedged), an
unmanaged market index. Past performance is not an indication of future results.
. Fund performance outpaced the currency-hedged return of the J.P. Morgan Non-
U.S. Government Bond Index by 3.48% during the six-month period, with
duration, country, and currency strategies contributing significantly to
returns.
. Japan was heavily underweighted in favor of European and dollar bloc country
(Australia, Canada, New Zealand) bonds, which aided performance as economic
growth remained stagnant in both regions and interest rates declined.
. The Fund's most significant holdings relative to the Index were in Canada and
the Netherlands. Both positions benefited performance as interest rates in
these countries migrated toward those of their larger neighbors (the U.S. and
Germany, respectively) in response to slow economic growth, low inflation,
and unusually high real yields relative to the U.S and Germany.
. Small, dollar-denominated holdings of Argentine and Mexican debt benefited
performance, when prices rallied in response to heightened investor interest
born of these nations' high yields as well as credible growth and inflation
policies.
. European currency strategies added value when the higher-yielding European
monies (Italian lira, Swedish krona, and Czech koruna) were overweighted at
the expense of German marks and Swiss francs, which declined in value
relative to these peripheral currencies.
. As bond yields declined in nearly all foreign markets during the second and,
particularly, the third quarters, the Fund's above-index duration further
boosted returns.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Short-Term Instruments 12.0%
Other 13.6%
Canada 10.6%
Germany 2.3%
Italy 2.1%
Japan 11.9%
Mexico 4.1%
Netherlands 19.5%
New Zealand 2.5%
Sweden 3.5%
United Kingdom 7.3%
United States 10.6%
<CAPTION>
<S> <C>
AAA 42%
BB 8%
BBB 3%
A 12%
A1 12%
AA 23%
</TABLE>
12
<PAGE>
GLOBAL FUND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
---------------------------------------------
GLOBAL FUND Though September 30, 1996
---------------------------------------------
JP MORGAN
MONTH GLOBAL GLOBAL
=========== ================ ================
<S> <C> <C>
11/30/93 1,000,000.00 1,000,000.00
12/31/93 1,031,870.81 1,010,200.20
12/31/94 1,014,310.85 1,022,933.14
12/31/95 1,247,201.85 1,220,457.41
09/30/96 1,316,951.71 1,240,380.76
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- ---------------------------------------------------------------
Since
6 Mos 1 Yr./*/ 2 Yr./*/ Inception/*/
----- -------- -------- ------------
<S> <C> <C> <C> <C>
Global Fund
Inst'l Class (%) 6.91 12.76 14.24 10.20
- ---------------------------------------------------------------
J.P. Morgan
Global Index (%) 3.44 5.06 10.37 7.89
- ---------------------------------------------------------------
</TABLE>
/*/Annualized
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Since
Inception
------------
<S> <C>
Global Fund Admin. Class (%) 3.22
- ---------------------------------------------------------------
J.P. Morgan Global Index (%) 0.97
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in November 1993 and held through September 1996,
compared to the J.P. Morgan Global Index, an unmanaged market index. The
performance of the Administrative Class from inception in August 1996 (shown at
left) reflects the payment of a service fee in an amount not to exceed 0.25% on
an annualized basis. Past performance is not an indication of future results.
. A combination of effective country, currency, and duration strategies allowed
the Fund to outperform its benchmark J.P. Morgan Global Index by 3.47% during
the six months ended September 30, 1996.
. The Japanese and U.S. markets were underweighted in favor of European and
dollar bloc country (Australia, Canada, New Zealand) bonds, which aided
performance as economic growth remained stagnant in both regions and interest
rates declined.
. The Fund's most significant holdings relative to the Index were in Canada and
the Netherlands. Both positions benefited performance as interest rates in
these countries migrated toward those of their larger neighbors (the U.S. and
Germany, respectively) in response to slow economic growth, low inflation,
and unusually high real yields relative to the U.S and Germany.
. Currency strategy produced large gains versus the Index as the Fund's
overweighted Canadian and New Zealand dollar holdings soared relative to the
Japanese yen, which declined against all major currencies. The Fund also
gained by underweighting German marks and Swiss francs in favor of Europe's
higher yielding peripheral currencies.
. Small, dollar-denominated holdings of Argentine and Mexican debt benefited
performance when prices rallied in response to heightened investor interest
born of these nations' high yields as well as credible growth and inflation
policies.
. As bond yields declined in nearly all markets (except the U.S.) during the
second and third quarters, the Fund's above-index duration further boosted
returns.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Short-Term Instruments 19.6%
Other 13.5%
Canada 11.7%
Czechoslovakia 2.0%
Germany 2.2%
Japan 7.2%
Netherlands 19.9%
New Zealand 2.9%
Sweden 2.9%
United Kingdom 5.5%
United States 12.6%
<CAPTION>
<S> <C>
AA 17%
A 17%
AAA 41%
BB 4%
BBB 2%
A1 19%
</TABLE>
13
<PAGE>
HIGH YIELD FUND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
---------------------------------------------
HIGH YIELD FUND Through September 30, 1996
---------------------------------------------
LEHMAN BB
MONTH HIGH YIELD INT CORP
=========== ================ ================
<S> <C> <C>
12/31/92 1,000,000.00 1,000,000.00
12/31/93 1,187,025.82 1,146,545.45
12/31/94 1,215,478.79 1,156,314.50
12/31/95 1,466,840.41 1,376,719.76
09/30/96 1,571,753.07 1,451,393.55
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- -----------------------------------------------------------------
Since
6 Mos. 1 Yr./*/ 3 Yr./*/ Inception/*/
----- -------- -------- ------------
<S> <C> <C> <C> <C>
High Yield Fund
Inst'l Class (%) 6.17 11.91 11.39 12.81
Lehman BB
Int. Corp. Index (%) 4.66 9.30 9.06 10.44
- -----------------------------------------------------------------
Admin. Class (%) 6.04 11.63 15.79
Lehman BB
Int. Corp. Index (%) 4.66 9.30 13.53
- -----------------------------------------------------------------
</TABLE>
/*/Annualized
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in December 1992 and held through September 1996,
compared to the Lehman Brothers BB Intermediate Corporate Index, an unmanaged
market index. The performance of the Administrative Class from inception in
January 1995 (shown at left) reflects the payment of a service fee in an amount
not to exceed 0.25% on an annualized basis. Past performance is not an
indication of future results.
. High yield bonds were the best-performing domestic market sector during the
six-month period, allowing the Fund to post strong absolute and relative
performance. The Fund led the Lehman BB Intermediate Corporate Bond Index by
1.51%.
. Lower-rated junk bonds significantly outperformed BB-rated issues as the
economy picked up steam in the second quarter. However, as economic growth
subsided in the third quarter, the upper-tier of below-investment grade
issues rebounded.
. Lower quality, cyclical issues, including companies in the specialty
retailing and mining sectors, led returns in the second quarter, limiting the
relative performance of the Fund's investment portfolio, which was
concentrated in non-cyclical issues.
. In the third quarter, the economy slowed and higher quality, non-cyclical
issues dominated returns, allowing the Fund's portfolio emphasis in the
utility and energy sectors to significantly boost relative performance.
. Dollar-denominated holdings of Argentine and Mexican debt benefited
performance when prices rallied in response to heightened investor interest
born of these nations' high yields as well as credible growth and inflation
policies.
. Duration and maturity mix were held neutral to the index and had little
impact on relative performance.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Corporate Bonds and Notes 82.5%
Other 8.7%
Mortgage-Backed Securities 6.1%
U.S. Treasury Notes 2.7%
<S> <C>
BB 53%
B 37%
BBB 5%
A1 2%
AAA 3%
</TABLE>
14
<PAGE>
MONEY MARKET FUND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
---------------------------------------------
MONEY MARKET FUND Through September 30, 1996
---------------------------------------------
LIPPER
MONTH MONEY MARKET MONEY MARKET
=========== ================ ================
<S> <C> <C>
02/28/91 1,000,000.00 1,000,000.00
12/31/91 1,047,059.10 1,046,651.18
12/31/92 1,083,083.32 1,082,903.94
12/31/93 1,113,416.25 1,112,174.01
12/31/94 1,157,083.08 1,153,681.32
12/31/95 1,227,235.03 1,215,727.19
09/30/96 1,275,955.92 1,258,317.73
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- --------------------------------------------------------------------------------
Since
6 Mos 1 Yr/*/ 3 Yr/*/ 5 Yr/*/ Inception/*/
----- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Money Market Fund
Inst'l Class(%) 2.61 5.76 4.89 4.30 4.45
Lipper Money
Market Index(%) 2.25 4.72 4.43 4.01 4.19
- --------------------------------------------------------------------------------
Admin. Class(%) 2.49 5.50 5.51
Lipper Money
Market Index(%) 2.25 4.72 5.06
- --------------------------------------------------------------------------------
</TABLE>
/*/Annualized
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in March 1991 and held through September 1996,
compared to the Lipper Money Market Index, an index consisting of the 30 largest
equal weighted Money Market Funds. The performance of the Administrative Class,
from inception in January 1995 (shown at left) reflects the payment of a service
fee in an amount not to exceed 0.25% on an annualized basis. Past performance is
not an indication of future results.
. The Fund invested primarily in high-grade commercial paper issued by finance
and utility companies, which traded at a consistent yield premium to
comparable maturity Treasury bills throughout the six-month period.
. Small investments in short-term, adjustable rate mortgage securities offered
an attractive yield premium and principal stability.
. Maturity was held between two and three months for most of the period to take
advantage of a slight yield premium over longer-maturity paper arising from
investors' fears of Fed tightening.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Short-Term Instruments 98.4%
U.S. Government Agencies 1.6%
<CAPTION>
<S> <C>
A1 99%
AAA 1%
</TABLE>
15
<PAGE>
StocksPLUS FUND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
---------------------------------------------
STOCKSPLUS FUND Through September 30, 1996
---------------------------------------------
MONTH STOCKSPLUS S&P 500
=========== ================ ================
<S> <C> <C>
05/31/93 1,000,000.00 1,000,000.00
12/31/93 1,061,284.22 1,052,698.39
12/31/94 1,092,245.04 1,066,604.35
12/31/95 1,534,744.62 1,467,411.83
09/30/96 1,740,848.35 1,665,493.43
</TABLE>
<TABLE>
<CAPTION>
Returns Ended 9/30/96
- -----------------------------------------------------------------
Since
6 Mos 1 Yr./*/ 3 Yr./*/ Inception/*/
----- -------- -------- ------------
<S> <C> <C> <C> <C>
StocksPLUS
Fund (%) 7.78 21.00 19.06 18.07
- -----------------------------------------------------------------
S & P 500 Index (%) 7.72 20.33 17.42 16.52
- -----------------------------------------------------------------
</TABLE>
/*/Annualized
- --------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in May 1993 and held through September 1996, compared
to the Standard and Poor's 500 Index, an unmanaged market index. Past
performance is not an indication of future results.
. A fully-invested equity position led to solid performance as the S&P 500
Index rallied throughout the period behind strong investor interest in
equities, robust corporate earnings, and modest inflation.
. Fund performance received a boost from short-term, mortgage-backed issues,
which benefited from an initial yield advantage and spread tightening in
response to declining prepayments resulting from reduced refinancing
activity.
. Both BBB-and BB-rated corporate issues performed well through a combination
of higher initial yields and spread tightening relative to similar maturity
Treasuries, driven by the same factors that buoyed equities: strong corporate
earnings, a favorable economic outlook, and continued low inflation.
. The opportunistic use of currency-hedged Belgian and Canadian bonds, and
small holdings of dollar-denominated debt from Argentina and Mexico,
contributed to performance as interest rates fell abroad in contrast to
rising domestic rates.
. The steep front portion of the yield curve (3 months to 2 years) allowed the
yield advantage of the Fund's above-index duration to mostly offset principal
losses on its investment portfolio as rates moved higher on expectations of
Fed tightening.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Mortgage-Backed Securities 39.0%
Short-Term Instruments 20.8%
Other 5.2%
Corporate Bonds and Notes 35.0%
<CAPTION>
<S> <C>
BB 9%
AAA 35%
BBB 21%
A1 19%
A 12%
AA 4%
</TABLE>
16
<PAGE>
STRATEGIC BALANCED FUND
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
---------------------------------------------------
STRATEGIC BALANCED FUND Through September 30, 1996
---------------------------------------------------
60% S&P 500 &
MONTH STRATEGIC BALANCED 40% LBAG
=========== ======================== ================
<S> <C> <C>
06/30/96 1,000,000.00 1,000,000.00
09/30/96 1,035,000.00 1,026,444.48
</TABLE>
<TABLE>
Cumulative Returns Ended 9/30/96
- ----------------------------------------------------
Since
Inception
-----------
<S> <C>
Strategic Balanced Fund (%) 3.50
- ----------------------------------------------------
60% S&P 500 Index and
40% Lehman Aggregate Bond Index (%) 2.64
- ----------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in June 1996 and held through September 1996,
compared to a static 60/40 blend of the Standard and Poor's 500 Index and the
Lehman Brothers Aggregate Bond Index, each an unmanaged market index. Past
performance is not an indication of future results.
. An above-index weighting of stocks in the Fund's asset allocation mix
benefited relative performance in its first three months of operations as
stock returns led bond returns by 1.24% during the period. This helped to
push Fund performance 0.86% above its static benchmark in the third quarter.
. Fund performance received a boost from both fixed and adjustable rate
mortgage-backed issues, which benefited from an initial yield advantage and
spread tightening in response to declining prepayments as the result of
reduced refinancing activity.
. Both BBB-and BB-rated corporate issues performed well through a combination
of higher initial yields and spread tightening relative to similar maturity
Treasuries, driven by the same factors that buoyed equities: strong corporate
earnings, a favorable economic outlook, and continued low inflation.
. The opportunistic use of currency-hedged Canadian bonds and small holdings of
dollar-denominated Argentine debt, contributed to performance as interest
rates fell abroad in contrast to rising domestic rates.
. The Fund's above-index duration was neutral for returns as Treasury yields
were nearly unchanged, but its focus on intermediate maturities boosted
performance by adding yield to the portfolio.
[PIE CHARTS APPEAR HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION % of Total Investments as of September 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Corporate Bonds and Notes 39.3%
U.S. Treasury Notes 9.4%
Short-Term Instruments 8.6%
Other 3.9%
Mortgage-Backed Securities 38.8%
<CAPTION>
<S> <C>
A 11%
A1 7%
AAA 50%
BBB 22%
BB 10%
</TABLE>
17
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996 (unaudited)
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Total Total Total Low Low
Return Return Return Duration Duration
Fund Fund II Fund III Fund Fund II
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments, at value $ 12,659,993 $ 552,429 $ 169,903 $ 3,254,779 $ 297,713
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Cash and foreign currency 367 546 0 9 1
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Receivable for investments and
foreign currency sold 46,016 7,974 520 47,001 9,916
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Receivable for Fund shares sold 15,231 48 0 770 0
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Variation margin receivable 0 0 0 0 0
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Interest and dividends receivable 126,825 5,283 2,226 29,149 1,934
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Other assets 0 0 0 0 0
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
12,848,432 566,280 172,649 3,331,708 309,564
============================================ ============== =========== =========== ============= ===========
Liabilities:
Payable for investments and foreign
currency purchased $ 1,293,534 $ 117,401 $ 13,596 $ 633,617 $ 52,416
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Written options outstanding 9,081 743 287 1,777 170
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Payable for Fund shares redeemed 13,707 345 11 3,936 40
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Dividends payable 11,145 87 22 1,744 76
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Accrued investment advisor's fee 2,235 87 31 528 49
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Accrued administrator's fee 1,610 87 31 380 49
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Accrued distribution fee 25 1 0 1 0
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Variation margin payable 8,133 230 157 78 36
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Other accrued expenses and liabilities 23 0 9 30 8
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
1,339,493 118,981 14,144 642,091 52,844
============================================ ============== =========== =========== ============= ===========
Net Assets $ 11,508,939 $ 447,299 $ 158,505 $ 2,689,617 $ 256,720
============================================ ============== =========== =========== ============= ===========
Net Assets Consist of:
Paid in capital $ 11,589,573 $ 453,942 $ 160,834 $ 2,718,100 $ 261,571
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Undistributed (overdistributed) net
investment income (18,844) (329) (380) (5,121) (1,363)
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Accumulated undistributed net realized
gain (loss) (219,051) (10,518) (3,785) (31,972) (3,572)
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Net unrealized appreciation 157,261 4,204 1,836 8,610 84
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
$ 11,508,939 $ 447,299 $ 158,505 $ 2,689,617 $ 256,720
============================================ ============== =========== =========== ============= ===========
Shares Issued and Outstanding
Institutional Class 1,104,903 44,943 17,286 269,729 26,207
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Administrative Class 13,167 453 0 395 0
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Net Asset Value, Offering and Redemption Price Per Share
(Net Assets Per Share Outstanding)
Institutional Class $ 10.29 $ 9.85 $ 9.17 $ 9.96 $ 9.80
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Administrative Class 10.29 9.85 0 9.96 0
- -------------------------------------------- -------------- ----------- ----------- ------------- -----------
Cost of Investments Owned 12,591,994 550,483 169,598 3,250,948 297,893
============================================ ============== =========== =========== ============= ===========
Cost of Foreign Currency Held 2 0 0 0 0
============================================ ============== =========== =========== ============= ===========
</TABLE>
See Notes to Financial Statements
18
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996 (unaudited)
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
--------------------------------------------------------------
Long-Term
Short-Term U.S. Gov't Foreign Global
Fund Fund Fund Fund
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value $ 134,434 $ 34,883 $ 622,154 $ 378,630
- ----------------------------------------------- ----------- ---------- ----------- -----------
Cash and foreign currency 0 1 725 404
- ----------------------------------------------- ----------- ---------- ----------- -----------
Receivable for investments and
foreign currency sold 248 245 34,344 25,528
- ----------------------------------------------- ----------- ---------- ----------- -----------
Receivable for Fund shares sold 249 0 74 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Variation margin receivable 0 0 33 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Interest and dividends receivable 1,105 314 11,140 5,839
- ----------------------------------------------- ----------- ---------- ----------- -----------
Other assets 0 0 0 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
136,036 35,443 668,470 410,401
=============================================== =========== ========== =========== ===========
Liabilities:
Payable for investments and foreign
currency purchased $ 5,064 $ 13,537 $ 452,989 $ 249,209
- ----------------------------------------------- ----------- ---------- ----------- -----------
Written options outstanding 9 19 0 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Payable for Fund shares redeemed 247 5 55 83
- ----------------------------------------------- ----------- ---------- ----------- -----------
Dividends payable 93 9 150 124
- ----------------------------------------------- ----------- ---------- ----------- -----------
Accrued investment advisor's fee 26 4 42 32
- ----------------------------------------------- ----------- ---------- ----------- -----------
Accrued administrator's fee 21 4 42 38
- ----------------------------------------------- ----------- ---------- ----------- -----------
Accrued distribution fee 1 0 0 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Variation margin payable 1 0 19 65
- ----------------------------------------------- ----------- ---------- ----------- -----------
Other accrued expenses and liabilities 15 5 262 4
- ----------------------------------------------- ----------- ---------- ----------- -----------
5,477 13,583 453,559 249,555
=============================================== =========== ========== =========== ===========
Net Assets $ 130,559 $ 21,860 $ 214,911 $ 160,846
=============================================== =========== ========== =========== ===========
Net Assets Consist of:
Paid in capital $ 130,772 $ 23,065 $ 189,839 $ 153,500
- ----------------------------------------------- ----------- ---------- ----------- -----------
Undistributed (overdistributed) net
investment income (161) 236 3,281 (16)
- ----------------------------------------------- ----------- ---------- ----------- -----------
Accumulated undistributed net realized
gain (loss) (116) (1,624) 10,348 3,362
- ----------------------------------------------- ----------- ---------- ----------- -----------
Net unrealized appreciation 64 183 11,443 4,000
- ----------------------------------------------- ----------- ---------- ----------- -----------
$ 130,559 $ 21,860 $ 214,911 $ 160,846
=============================================== =========== ========== =========== ===========
Shares Issued and Outstanding
Institutional Class 12,860 2,241 18,879 15,343
- ----------------------------------------------- ----------- ---------- ----------- -----------
Administrative Class 237 0 0 2
- ----------------------------------------------- ----------- ---------- ----------- -----------
Net Asset Value, Offering and Redemption Price Per Share
(Net Assets Per Share Outstanding)
Institutional Class $ 9.97 $ 9.76 $ 11.38 $ 10.48
- ----------------------------------------------- ----------- ---------- ----------- -----------
Administrative Class 9.97 0 0 10.48
- ----------------------------------------------- ----------- ---------- ----------- -----------
Cost of Investments Owned 134,627 34,764 617,898 377,119
=============================================== =========== ========== =========== ===========
Cost of Foreign Currency Held 0 0 727 404
=============================================== =========== ========== =========== ===========
</TABLE>
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
--------------------------------------------------------------
Money Strategic
High Yield Market StocksPLUS Balanced
Fund Fund Fund Fund
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value $ 730,590 $ 28,883 $ 179,477 $ 10,607
- ----------------------------------------------- ----------- ---------- ----------- -----------
Cash and foreign currency 1 1 1 1
- ----------------------------------------------- ----------- ---------- ----------- -----------
Receivable for investments and
foreign currency sold 8,088 0 4,468 265
- ----------------------------------------------- ----------- ---------- ----------- -----------
Receivable for Fund shares sold 10,155 51 6 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Variation margin receivable 0 0 0 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Interest and dividends receivable 15,418 3 1,537 118
- ----------------------------------------------- ----------- ---------- ----------- -----------
Other assets 2 0 4 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
764,254 28,938 185,493 10,991
=============================================== =========== ========== =========== ===========
Liabilities:
Payable for investments and foreign
currency purchased $ 6,325 $ 0 $ 3,808 $ 603
- ----------------------------------------------- ----------- ---------- ----------- -----------
Written options outstanding 0 0 13 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Payable for Fund shares redeemed 190 592 27 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Dividends payable 202 25 248 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Accrued investment advisor's fee 147 4 56 3
- ----------------------------------------------- ----------- ---------- ----------- -----------
Accrued administrator's fee 147 5 35 2
- ----------------------------------------------- ----------- ---------- ----------- -----------
Accrued distribution fee 1 0 0 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Variation margin payable 0 0 0 5
- ----------------------------------------------- ----------- ---------- ----------- -----------
Other accrued expenses and liabilities 21 0 6 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
7,033 626 4,193 613
=============================================== =========== ========== =========== ===========
Net Assets $ 757,221 $ 28,312 $ 181,300 $ 10,378
=============================================== =========== ========== =========== ===========
Net Assets Consist of:
Paid in capital $ 732,838 $ 28,312 $ 170,569 $ 10,029
- ----------------------------------------------- ----------- ---------- ----------- -----------
Undistributed (overdistributed) net
investment income 3,597 0 3,709 199
- ----------------------------------------------- ----------- ---------- ----------- -----------
Accumulated undistributed net realized
gain (loss) 4,661 0 2,821 (101)
- ----------------------------------------------- ----------- ---------- ----------- -----------
Net unrealized appreciation 16,125 0 4,201 251
- ----------------------------------------------- ----------- ---------- ----------- -----------
$ 757,221 $ 28,312 $ 181,300 $ 10,378
=============================================== =========== ========== =========== ===========
Shares Issued and Outstanding
Institutional Class 67,899 28,300 15,625 1,003
- ----------------------------------------------- ----------- ---------- ----------- -----------
Administrative Class 273 12 0 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Net Asset Value, Offering and Redemption Price Per Share
(Net Assets Per Share Outstanding)
Institutional Class $ 11.11 $ 1.00 $ 11.60 $ 10.35
- ----------------------------------------------- ----------- ---------- ----------- -----------
Administrative Class 11.11 1.00 0 0
- ----------------------------------------------- ----------- ---------- ----------- -----------
Cost of Investments Owned 714,540 28,883 178,943 10,543
=============================================== =========== ========== =========== ===========
Cost of Foreign Currency Held 0 0 0 0
=============================================== =========== ========== =========== ===========
</TABLE>
See Notes to Financial Statements
19
<PAGE>
STATEMENT OF OPERATIONS
For the six months or period ended September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
$ in thousands
-------------------------------------------------------------------------------
Total Total Total Low Low
Return Return Return Duration Duration
Fund Fund II Fund III Fund Fund II
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest $ 386,345 $ 16,146 $ 5,114 $ 92,495 $ 8,763
- ------------------------------------------ -------------- ------------- ---------------- --------------- -------------
Dividends 898 0 0 931 0
- ------------------------------------------ -------------- ------------- ---------------- --------------- -------------
Total income 387,243 16,146 5,114 93,426 8,763
========================================== ============== ============= ================ =============== =============
Expenses:
Investment advisory fees 13,578 581 190 3,325 317
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Administration fees 9,776 581 190 2,393 316
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Distribution fees - Administrative Class 154 4 0 4 0
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Trustees' fees 19 1 0 5 0
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Amortization of organization costs 0 0 0 0 1
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Total expenses 23,527 1,167 380 5,727 634
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Net Investment Income 363,716 14,979 4,734 87,699 8,129
========================================== =============== ============ ================ =============== =============
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investments (100,392) (3,393) (794) (23,813) (2,101)
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Net realized gain (loss) on futures
contracts and written options (106,634) (5,145) (2,166) (760) (572)
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Net realized gain (loss) on foreign
currency transactions (27,046) 0 (608) 97 0
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Net change in unrealized appreciation
(depreciation) on investments 98,488 1,634 1,672 23,916 1,586
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 122,199 4,295 2,673 2,318 472
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Net change in unrealized appreciation
(depreciation) on translation of
assets and liabilities denominated
in foreign currencies 28,278 0 124 1,060 0
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Net gain (loss) 14,893 (2,609) 901 2,818 (615)
- ------------------------------------------ --------------- ------------ ---------------- --------------- -------------
Net Increase in Assets Resulting
from Operations $ 378,609 $ 12,370 $ 5,635 $ 90,517 $ 7,514
========================================== =============== ============= =============== =============== ===============
</TABLE>
See Notes to Financial Statements
20
<PAGE>
STATEMENT OF OPERATIONS
For the six months or period ended September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
$ in thousands
-------------------------------------------------------------------
Short Long-Term
Term U.S. Gov't Foreign Global
Fund Fund Fund Fund
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest $ 3,799 $ 1,153 $ 5,133 $ 4,112
- -------------------------------------------- -------------- -------------- -------------- -------------
Dividends 0 0 0 0
- -------------------------------------------- -------------- -------------- -------------- -------------
Total income 3,799 1,153 5,133 4,112
============================================ ============== ============== ============== =============
Expenses:
Investment advisory fees 144 38 276 186
- -------------------------------------------- -------------- -------------- -------------- -------------
Administration fees 115 37 275 223
- -------------------------------------------- -------------- -------------- -------------- -------------
Distribution fees - Administrative Class 4 0 0 0
- -------------------------------------------- -------------- -------------- -------------- -------------
Trustees' fees 0 0 0 0
- -------------------------------------------- -------------- -------------- -------------- -------------
Amortization of organization costs 0 1 0 0
- -------------------------------------------- -------------- -------------- -------------- -------------
Total expenses 263 76 551 409
- -------------------------------------------- -------------- -------------- -------------- -------------
Net Investment Income 3,536 1,077 4,582 3,703
============================================ ============== ============== ============== =============
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investments (25) (443) 11,540 4,605
- -------------------------------------------- -------------- -------------- -------------- -------------
Net realized gain (loss) on futures
contracts and written options 0 (305) 1,903 (426)
- -------------------------------------------- -------------- -------------- -------------- -------------
Net realized gain (loss) on foreign
currency transactions 32 0 (285) (372)
- -------------------------------------------- -------------- -------------- -------------- -------------
Net change in unrealized appreciation
(depreciation) on investments 453 (248) 3,627 2,265
- -------------------------------------------- -------------- -------------- -------------- -------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 22 237 (441) 688
- -------------------------------------------- -------------- -------------- -------------- -------------
Net change in unrealized appreciation
(depreciation) on translation of
assets and liabilities denominated
in foreign currencies 102 0 1,742 (225)
- -------------------------------------------- -------------- -------------- -------------- -------------
Net gain (loss) 584 (759) 18,086 6,535
- -------------------------------------------- -------------- -------------- -------------- -------------
Net Increase in Assets Resulting
from Operations $ 4,120 $ 318 $ 22,668 $ 10,238
============================================ ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
$ in thousands
-------------------------------------------------------------------
High Money Stocks Strategic
Yield Market PLUS Balanced
Fund Fund Fund Fund
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest $ 31,499 $ 827 $ 8,732 $ 215
- -------------------------------------------- -------------- -------------- -------------- -------------
Dividends 27 0 13 0
- -------------------------------------------- -------------- -------------- -------------- -------------
Total income 31,526 827 8,745 215
============================================ ============== ============== ============== =============
Expenses:
Investment advisory fees 836 23 335 10
- -------------------------------------------- -------------- -------------- -------------- -------------
Administration fees 836 30 209 6
- -------------------------------------------- -------------- -------------- -------------- -------------
Distribution fees - Administrative Class 3 0 0 0
- -------------------------------------------- -------------- -------------- -------------- -------------
Trustees' fees 1 0 0 0
- -------------------------------------------- -------------- -------------- -------------- --------------
Amortization of organization costs 1 0 1 0
- -------------------------------------------- -------------- -------------- -------------- -------------
Total expenses 1,677 53 545 16
- -------------------------------------------- -------------- -------------- -------------- -------------
Net Investment Income 29,849 774 8,200 199
============================================ ============== ============== ============== =============
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investments 3,979 0 (96) 13
- -------------------------------------------- -------------- -------------- -------------- -------------
Net realized gain (loss) on futures
contracts and written options 0 0 736 (114)
- -------------------------------------------- -------------- -------------- -------------- -------------
Net realized gain (loss) on foreign
currency transactions 0 0 67 0
- -------------------------------------------- -------------- -------------- -------------- -------------
Net change in unrealized appreciation
(depreciation) on investments 7,810 0 566 79
- -------------------------------------------- -------------- -------------- -------------- -------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 0 0 3,484 172
- -------------------------------------------- -------------- -------------- -------------- -------------
Net change in unrealized appreciation
(depreciation) on translation of
assets and liabilities denominated
in foreign currencies 0 0 (51) 0
- -------------------------------------------- -------------- -------------- -------------- -------------
Net gain (loss) 11,789 0 4,706 150
- -------------------------------------------- -------------- -------------- -------------- -------------
Net Increase in Assets Resulting
from Operations $ 41,638 $ 774 $ 12,906 $ 349
============================================ ============== ============== ============== =============
</TABLE>
See Notes to Financial Statements
21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
$ in thousands
-----------------------------------------------------------------------------
Total Return Fund Total Return Fund II
-----------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Five months Ended
September 30, 1996 March 31, 1996 September 30, 1996 March 31, 1996
(unaudited) (unaudited)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Net investment income $ 363,716 $ 621,582 $ 14,979 $ 12,231
- ------------------------------------------------ ------------------------------- ----------------------------------
Realized gain (loss) (234,072) 254,693 (8,538) 2,375
- ------------------------------------------------ ------------------------------- ----------------------------------
Net change in unrealized appreciation
(depreciation) on investments 98,488 113,338 1,634 (4,612)
- ------------------------------------------------ ------------------------------- ----------------------------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 122,199 (107,079) 4,295 (6,715)
- ------------------------------------------------ ------------------------------- ----------------------------------
Net change in unrealized appreciation
(depreciation) on translation of assets
and liabilities denominated in foreign
currencies 28,278 5,084 0 0
- ------------------------------------------------ ------------------------------- ----------------------------------
Net increase resulting from operations 378,609 887,618 12,370 3,279
================================================ =============================== ==================================
Distributions to Shareholders
From net investment income
Institutional Class (341,142) (533,126) (14,528) (12,145)
- ------------------------------------------------ ------------------------------- ----------------------------------
Administrative Class (3,782) (3,203) (122) (82)
- ------------------------------------------------ ------------------------------- ----------------------------------
In excess of net investment income
Institutional Class (18,637) (84,779) (326) (11)
- ------------------------------------------------ ------------------------------- ----------------------------------
Administrative Class (207) (510) (3) 0
- ------------------------------------------------ ------------------------------- ----------------------------------
From net realized capital gains
Institutional Class 0 (110,361) 0 (4,011)
- ------------------------------------------------ ------------------------------- ----------------------------------
Administrative Class 0 (772) 0 (28)
- ------------------------------------------------ ------------------------------- ----------------------------------
In excess of net realized capital gains
Institutional Class 0 0 0 (2,282)
- ------------------------------------------------ ------------------------------- ----------------------------------
Administrative Class 0 0 0 (15)
- ------------------------------------------------ ------------------------------- ----------------------------------
Tax basis return of capital
Institutional Class 0 0 0 0
- ------------------------------------------------ ------------------------------- ----------------------------------
Administrative Class 0 0 0 0
- ------------------------------------------------ ------------------------------- ----------------------------------
Total Distributions (363,768) (732,751) (14,979) (18,574)
================================================ =============================== ==================================
Fund Share Transactions
Receipts for shares sold
Institutional Class 1,774,766 3,567,811 42,599 36,981
- ------------------------------------------------ ------------------------------- ----------------------------------
Administrative Class 73,049 117,173 1,055 218
- ------------------------------------------------ ------------------------------- ----------------------------------
Issued as reinvestment of distributions
Institutional Class 287,642 592,359 14,290 17,509
- ------------------------------------------------ ------------------------------- ----------------------------------
Administrative Class 3,881 3,923 125 126
- ------------------------------------------------ ------------------------------- ----------------------------------
Cost of shares redeemed
Institutional Class (951,321) (1,308,591) (67,033) (25,812)
- ------------------------------------------------ ------------------------------- ----------------------------------
Administrative Class (46,142) (24,091) (31) (78)
- ------------------------------------------------ ------------------------------- ----------------------------------
Net increase (decrease) resulting from Fund
share transactions 1,141,875 2,948,584 (8,995) 28,944
- ------------------------------------------------ ------------------------------- ----------------------------------
Total Increase (Decrease) in Net Assets 1,156,716 3,103,451 (11,604) 13,649
================================================ =============================== ==================================
Net Assets
Beginning of period 10,352,223 7,248,772 458,903 445,254
- ------------------------------------------------ ------------------------------- ----------------------------------
End of period * $11,508,939 $ 10,352,223 $ 447,299 $ 458,903
- ------------------------------------------------ ------------------------------- ----------------------------------
*Including net overdistributed
investment income of: $ (18,844) $ (18,792) $ (329) $ (329)
- ------------------------------------------------ ------------------------------- ----------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------
Total Return Fund III
-------------------------------------
Six Months Ended Year Ended
September 30, 1996 March 31, 1996
(unaudited)
-------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Net investment income $ 4,734 $ 8,158
- ------------------------------------------------ ----------------------------------
Realized gain (loss) (3,568) 2,985
- ------------------------------------------------ ----------------------------------
Net change in unrealized appreciation
(depreciation) on investments 1,672 875
- ------------------------------------------------ ----------------------------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 2,673 (1,851)
- ------------------------------------------------ ----------------------------------
Net change in unrealized appreciation
(depreciation) on translation of assets
and liabilities denominated in foreign
currencies 124 52
- ------------------------------------------------ ----------------------------------
Net increase resulting from operations 5,635 10,219
================================================ ==================================
Distributions to Shareholders
From net investment income
Institutional Class (4,354) (6,946)
- ------------------------------------------------ ----------------------------------
Administrative Class 0 0
- ------------------------------------------------ ----------------------------------
In excess of net investment income
Institutional Class (380) (1,214)
- ------------------------------------------------ ----------------------------------
Administrative Class 0 0
- ------------------------------------------------ ----------------------------------
From net realized capital gains
Institutional Class 0 (1,687)
- ------------------------------------------------ ----------------------------------
Administrative Class 0 0
- ------------------------------------------------ ----------------------------------
In excess of net realized capital gains
Institutional Class 0 0
- ------------------------------------------------ ----------------------------------
Administrative Class 0 0
- ------------------------------------------------ ----------------------------------
Tax basis return of capital
Institutional Class 0 0
- ------------------------------------------------ ----------------------------------
Administrative Class 0 0
- ------------------------------------------------ ----------------------------------
Total Distributions (4,734) (9,847)
================================================ ==================================
Fund Share Transactions
Receipts for shares sold
Institutional Class 13,868 42,689
- ------------------------------------------------ ----------------------------------
Administrative Class 0 0
- ------------------------------------------------ ----------------------------------
Issued as reinvestment of distributions
Institutional Class 4,550 9,384
- ------------------------------------------------ ----------------------------------
Administrative Class 0 0
- ------------------------------------------------ ----------------------------------
Cost of shares redeemed
Institutional Class (3,037) (9,719)
- ------------------------------------------------ ----------------------------------
Administrative Class 0 0
- ------------------------------------------------ ----------------------------------
Net increase (decrease) resulting from Fund
share transactions 15,381 42,354
- ------------------------------------------------ ----------------------------------
Total Increase (Decrease) in Net Assets 16,282 42,726
================================================ ==================================
Net Assets
Beginning of period 142,223 99,497
- ------------------------------------------------ ----------------------------------
End of period * $ 158,505 $ 142,223
- ------------------------------------------------ ----------------------------------
*Including net overdistributed
investment income of: $ (380) $ (380)
- ------------------------------------------------ ----------------------------------
</TABLE>
See Notes to Financial Statements
22
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
$ in thousands
--------------------------------------
Low Duration Fund
--------------------------------------
Increase (Decrease) in Net Six Months Ended Year Ended
Assets from: September 30, 1996 March 31, 1996
(unaudited)
--------------------------------------
<S> <C> <C>
Operations
Net investment income $ 87,699 $ 171,117
- -------------------------------------------- ----------------------------------
Realized gain (loss) (24,476) 9,315
- -------------------------------------------- ----------------------------------
Net change in unrealized appreciation
(depreciation) on investments 23,916 36,405
- -------------------------------------------- ----------------------------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 2,318 (1,934)
- -------------------------------------------- ----------------------------------
Net change in unrealized appreciation
(depreciation) on translation of assets
and liabilities denominated in foreign
currencies 1,060 302
- -------------------------------------------- ----------------------------------
Net increase resulting from operations 90,517 215,205
============================================ ==================================
Distributions to Shareholders
From net investment income
Institutional Class (82,481) (171,057)
- -------------------------------------------- ----------------------------------
Administrative Class (98) (91)
- -------------------------------------------- ----------------------------------
In excess of net investment income
Institutional Class (5,115) 0
- -------------------------------------------- ----------------------------------
Administrative Class (6) 0
- -------------------------------------------- ----------------------------------
From net realized capital gains
Institutional Class 0 0
- -------------------------------------------- ----------------------------------
Administrative Class 0 0
- -------------------------------------------- ----------------------------------
In excess of net realized capital gains
Institutional Class 0 0
- -------------------------------------------- ----------------------------------
Administrative Class 0 0
- -------------------------------------------- ----------------------------------
Tax basis return of capital
Institutional Class 0 0
- -------------------------------------------- ----------------------------------
Administrative Class 0 0
- -------------------------------------------- ----------------------------------
Total Distributions (87,700) (171,148)
============================================ ==================================
Fund Share Transactions
Receipts for shares sold
Institutional Class 492,070 1,416,204
- -------------------------------------------- ----------------------------------
Administrative Class 1,838 2,678
- -------------------------------------------- ----------------------------------
Issued as reinvestment of distributions
Institutional Class 75,038 143,328
- -------------------------------------------- ----------------------------------
Administrative Class 100 83
- -------------------------------------------- ----------------------------------
Cost of shares redeemed
Institutional Class (561,809) (1,258,060)
- -------------------------------------------- ----------------------------------
Administrative Class (547) (983)
- -------------------------------------------- ----------------------------------
Net increase (decrease) resulting from Fund
share transactions 6,690 303,250
- -------------------------------------------- ----------------------------------
Total Increase (Decrease) in Net Assets 9,507 347,307
============================================ ==================================
Net Assets
Beginning of period 2,680,110 2,332,803
- -------------------------------------------- ----------------------------------
End of period * $ 2,689,617 $ 2,680,110
- -------------------------------------------- ----------------------------------
*Including net overdistributed investment
income of: $ (5,121) $ (5,120)
- -------------------------------------------- ----------------------------------
</TABLE>
<TABLE>
<CAPTION>
$ in thousands
-----------------------------------------------------------------------------
Low Duration Fund II Short-Term Fund
-----------------------------------------------------------------------------
Increase (Decrease) in Net Six Months Ended Year Ended Six Months Ended Year Ended
Assets from: September 30, 1996 March 31, 1996 September 30, 1996 March 31, 1996
(unaudited) (unaudited)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 8,129 $ 14,123 $ 3,536 $ 6,228
- -------------------------------------------- ---------------------------------- ----------------------------------
Realized gain (loss) (2,673) 992 7 592
- -------------------------------------------- ---------------------------------- ----------------------------------
Net change in unrealized appreciation
(depreciation) on investments 1,586 (369) 453 701
- -------------------------------------------- ---------------------------------- ----------------------------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 472 (414) 22 (93)
- -------------------------------------------- ---------------------------------- ----------------------------------
Net change in unrealized appreciation
(depreciation) on translation of assets
and liabilities denominated in foreign
currencies 0 0 102 (24)
- -------------------------------------------- ---------------------------------- ----------------------------------
Net increase resulting from operations 7,514 14,332 4,120 7,404
============================================ ================================== ==================================
Distributions to Shareholders
From net investment income
Institutional Class (6,767) (13,042) (3,278) (5,943)
- -------------------------------------------- ---------------------------------- ----------------------------------
Administrative Class 0 0 (97) (24)
- -------------------------------------------- ---------------------------------- ----------------------------------
In excess of net investment income
Institutional Class (1,363) (603) (156) (261)
- -------------------------------------------- ---------------------------------- ----------------------------------
Administrative Class 0 0 (5) (1)
- -------------------------------------------- ---------------------------------- ----------------------------------
From net realized capital gains
Institutional Class 0 0 0 0
- -------------------------------------------- ---------------------------------- ----------------------------------
Administrative Class 0 0 0 0
- -------------------------------------------- ---------------------------------- ----------------------------------
In excess of net realized capital gains
Institutional Class 0 0 0 0
- -------------------------------------------- ---------------------------------- ----------------------------------
Administrative Class 0 0 0 0
- -------------------------------------------- ---------------------------------- ----------------------------------
Tax basis return of capital
Institutional Class 0 (479) 0 0
- -------------------------------------------- ---------------------------------- ----------------------------------
Administrative Class 0 0 0 0
- -------------------------------------------- ---------------------------------- ----------------------------------
Total Distributions (8,130) (14,124) (3,536) (6,229)
============================================ ================================== ==================================
Fund Share Transactions
Receipts for shares sold
Institutional Class 31,151 166,259 77,797 133,513
- -------------------------------------------- ---------------------------------- ----------------------------------
Administrative Class 0 0 4,706 4,324
- -------------------------------------------- ---------------------------------- ----------------------------------
Issued as reinvestment of distributions
Institutional Class 7,689 13,248 3,052 4,930
- -------------------------------------------- ---------------------------------- ----------------------------------
Administrative Class 0 0 5 0
- -------------------------------------------- ---------------------------------- ----------------------------------
Cost of shares redeemed
Institutional Class (34,803) (97,282) (55,014) (127,940)
- -------------------------------------------- ---------------------------------- ----------------------------------
Administrative Class 0 0 (6,367) (320)
- -------------------------------------------- ---------------------------------- ----------------------------------
Net increase (decrease) resulting from Fund
share transactions 4,037 82,225 24,179 14,507
- -------------------------------------------- ---------------------------------- ----------------------------------
Total Increase (Decrease) in Net Assets 3,421 82,433 24,763 15,682
============================================ ================================== ==================================
Net Assets
Beginning of period 253,299 170,866 105,796 90,114
- -------------------------------------------- ---------------------------------- ----------------------------------
End of period * $ 256,720 $ 253,299 $ 130,559 $ 105,796
- -------------------------------------------- ---------------------------------- ----------------------------------
*Including net overdistributed investment
income of: $ (1,363) $ (1,362) $ (161) $ (161)
- -------------------------------------------- ---------------------------------- ----------------------------------
</TABLE>
See Notes to Financial Statements
23
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (Cont.)
<TABLE>
<CAPTION>
------------------------------------ ----------------------------------
$ in thousands Long-Term U.S.
Government Fund Foreign Fund
------------------------------------ ----------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
Increase (Decrease) in Net Assets from: September 30, 1996 March 31, 1996 September 30, 1996 March 31, 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operations
Net investment income $ 1,077 $ 2,494 $ 4,582 $ 14,026
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Realized gain (loss) (748) 3,539 13,158 26,188
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Net change in unrealized appreciation
(depreciation) on investments (248) 143 3,627 1,524
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 237 (585) (441) (1,652)
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Net change in unrealized appreciation
(depreciation) on translation of assets and
liabilities denominated in foreign currencies 0 0 1,742 6,933
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Net increase resulting from operations 318 5,591 22,668 47,019
==================================================== ===================================== =====================================
Distributions to Shareholders
From net investment income
Institutional Class (1,077) (2,372) (4,582) (8,030)
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Administrative Class 0 0 0 0
- ---------------------------------------------------- ------------------------------------- -------------------------------------
In excess of net investment income
Institutional Class 0 (122) 0 (5,997)
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Administrative Class 0 0 0 0
- ---------------------------------------------------- ------------------------------------- -------------------------------------
From net realized capital gains
Institutional Class 0 (1,698) 0 (5,828)
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Administrative Class 0 0 0 0
- ---------------------------------------------------- ------------------------------------- -------------------------------------
In excess of net realized capital gains
Institutional Class 0 (518) 0 (685)
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Administrative Class 0 0 0 0
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Total Distributions (1,077) (4,710) (4,582) (20,540)
==================================================== ===================================== =====================================
Fund Share Transactions
Receipts for shares sold
Institutional Class 3,418 21,443 57,982 79,674
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Administrative Class 0 0 0 0
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Issued as reinvestment of distributions
Institutional Class 811 3,954 3,646 17,861
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Administrative Class 0 0 0 0
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Cost of shares redeemed
Institutional Class (14,121) (26,116) (123,296) (98,221)
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Administrative Class 0 0 0 0
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Net increase (decrease) resulting from Fund
share transactions (9,892) (719) (61,668) (686)
- ---------------------------------------------------- ------------------------------------- -------------------------------------
Total Increase (Decrease) in Net Assets (10,651) 162 (45,582) 25,793
==================================================== ===================================== =====================================
Net Assets
Beginning of period 32,511 32,349 258,493 232,700
- ---------------------------------------------------- ------------------------------------- -------------------------------------
End of period * $ 21,860 $ 32,511 $ 214,911 $ 258,493
- ---------------------------------------------------- ------------------------------------- -------------------------------------
*Including net undistributed (overdistributed)
investment income of: $ 236 $ 236 $ 3,281 $ 3,281
- ---------------------------------------------------- ------------------------------------- -------------------------------------
<CAPTION>
-------------------------------------
Global Fund
-------------------------------------
Six Months Ended Year Ended
September 30, 1996 March 31, 1996
(unaudited)
<S> <C> <C>
Net investment income $ 3,703 $ 5,776
- ---------------------------------------------------- -------------------------------------
Realized gain (loss) 3,807 4,700
- ---------------------------------------------------- -------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 2,265 (531)
- ---------------------------------------------------- -------------------------------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 688 (620)
- ---------------------------------------------------- -------------------------------------
Net change in unrealized appreciation
(depreciation) on translation of assets and
liabilities denominated in foreign currencies (225) 946
- ---------------------------------------------------- -------------------------------------
Net increase resulting from operations 10,238 10,271
==================================================== =====================================
Distributions to Shareholders
From net investment income
Institutional Class (3,687) (5,778)
- ---------------------------------------------------- -------------------------------------
Administrative Class 0 0
- ---------------------------------------------------- -------------------------------------
In excess of net investment income
Institutional Class (16) 0
- ---------------------------------------------------- -------------------------------------
Administrative Class 0 0
- ---------------------------------------------------- -------------------------------------
From net realized capital gains
Institutional Class 0 (2,136)
- ---------------------------------------------------- -------------------------------------
Administrative Class 0 0
- ---------------------------------------------------- -------------------------------------
In excess of net realized capital gains
Institutional Class 0 (1,658)
- ---------------------------------------------------- -------------------------------------
Administrative Class 0 0
- ---------------------------------------------------- -------------------------------------
Total Distributions (3,703) (9,572)
==================================================== =====================================
Fund Share Transactions
Receipts for shares sold
Institutional Class 23,137 54,351
- ---------------------------------------------------- -------------------------------------
Administrative Class 25 0
- ---------------------------------------------------- -------------------------------------
Issued as reinvestment of distributions
Institutional Class 2,930 8,928
- ---------------------------------------------------- -------------------------------------
Administrative Class 0 0
- ---------------------------------------------------- -------------------------------------
Cost of shares redeemed
Institutional Class (5,614) (6,621)
- ---------------------------------------------------- -------------------------------------
Administrative Class 0 0
- ---------------------------------------------------- -------------------------------------
Net increase (decrease) resulting from Fund
share transactions 20,478 56,658
- ---------------------------------------------------- -------------------------------------
Total Increase (Decrease) in Net Assets 27,013 57,357
==================================================== =====================================
Net Assets
Beginning of period 133,833 76,476
- ---------------------------------------------------- -------------------------------------
End of period * $ 160,846 $ 133,833
- ---------------------------------------------------- -------------------------------------
*Including net undistributed (overdistributed)
investment income of: $ (16) $ (16)
- ---------------------------------------------------- -------------------------------------
</TABLE>
See Notes to Financial Statements
24
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (Cont.)
<TABLE>
<CAPTION>
$ in thousands
---------------------------------------------------------------------------------
High Yield Fund Money Market Fund
---------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Five Months Ended
Increase (Decrease) in Net Assets from: September 30, 1996 March 31, 1996 September 30, 1996 March 31, 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net investment income $ 29,849 $ 42,773 $ 774 $ 391
- --------------------------------------------- ------------------------------------------ -------------------------------
Realized gain (loss) 3,979 9,316 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
Net change in unrealized appreciation
(depreciation) on investments 7,810 11,935 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 0 (22) 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
Net change in unrealized appreciation
(depreciation) on translation of assets
and liabilities denominated in foreign
currencies 0 0 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
Net increase resulting from operations 41,638 64,002 774 391
============================================= ========================================== ===============================
Distributions to Shareholders
From net investment income
Institutional Class (29,747) (42,753) (774) (365)
- --------------------------------------------- ------------------------------------------ -------------------------------
Administrative Class (109) (25) 0 (26)
- --------------------------------------------- ------------------------------------------ -------------------------------
In excess of net investment income
Institutional Class 0 0 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
Administrative Class 0 0 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
From net realized capital gains
Institutional Class 0 (2,427) 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
Administrative Class 0 0 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
In excess of net realized capital gains
Institutional Class 0 0 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
Administrative Class 0 0 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
Total Distributions (29,856) (45,205) (774) (391)
============================================= ========================================== ===============================
Fund Share Transactions
Receipts for shares sold
Institutional Class 243,608 294,885 26,010 23,183
- --------------------------------------------- ------------------------------------------ -------------------------------
Administrative Class 6,888 998 4 4
- --------------------------------------------- ------------------------------------------ -------------------------------
Issued as reinvestment of distributions
Institutional Class 28,742 43,030 726 388
- --------------------------------------------- ------------------------------------------ -------------------------------
Administrative Class 72 25 0 0
- --------------------------------------------- ------------------------------------------ -------------------------------
Cost of shares redeemed
Institutional Class (66,883) (156,050) (24,370) (5,377)
- --------------------------------------------- ------------------------------------------ -------------------------------
Administrative Class (4,978) (46) (3) (4)
- --------------------------------------------- ------------------------------------------ -------------------------------
Net increase (decrease) resulting from Fund
share transactions 207,449 182,842 2,367 18,194
- --------------------------------------------- ------------------------------------------ -------------------------------
Total Increase (Decrease) in Net Assets 219,231 201,639 2,367 18,194
============================================= ========================================== ===============================
Net Assets
Beginning of period 537,990 336,351 25,945 7,751
- --------------------------------------------- ------------------------------------------ -------------------------------
End of period * $ 757,221 $ 537,990 $ 28,312 $ 25,945
- --------------------------------------------- ------------------------------------------ -------------------------------
*Including net undistributed (overdistributed)
investment income of: $ 3,597 $ 3,604 $ 0 $ 0
- --------------------------------------------- ------------------------------------------ -------------------------------
</TABLE>
See Notes to Financial Statements
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (Cont.)
$ in thousands
---------------------------------------------------------------------------------
StocksPLUS Strategic
Fund Balanced Fund
---------------------------------------------------------------------------------
Six Months Ended Year Ended Period from June 28, 1996
Increase (Decrease) in Net Assets from: September 30, 1996 March 31, 1996 to September 30, 1996
(unaudited) (unaudited)
<S> <C> <C> <C>
Net investment income $ 8,200 $ 11,933 $ 199
- --------------------------------------------- ------------------------------------------------- ---------------------
Realized gain (loss) 707 9,202 (101)
- --------------------------------------------- ------------------------------------------------- ---------------------
Net change in unrealized appreciation
(depreciation) on investments 566 28 79
- --------------------------------------------- ------------------------------------------------- ---------------------
Net change in unrealized appreciation
(depreciation) on futures contracts
and written options 3,484 (766) 172
- --------------------------------------------- ------------------------------------------------- ---------------------
Net change in unrealized appreciation
(depreciation) on translation of assets
and liabilities denominated in foreign
currencies (51) 0 0
- --------------------------------------------- ------------------------------------------------- ---------------------
Net increase resulting from operations 12,906 20,397 349
============================================= ================================================= =====================
Distributions to Shareholders
From net investment income
Institutional Class (6,253) (8,982) 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Administrative Class 0 0 0
- --------------------------------------------- ------------------------------------------------ ----------------------
In excess of net investment income
Institutional Class 0 0 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Administrative Class 0 0 0
- --------------------------------------------- ------------------------------------------------ ----------------------
From net realized capital gains
Institutional Class 0 (9,224) 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Administrative Class 0 0 0
- --------------------------------------------- ------------------------------------------------ ----------------------
In excess of net realized capital gains
Institutional Class 0 (251) 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Administrative Class 0 0 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Total Distributions (6,253) (18,457) 0
============================================= ================================================ ======================
Fund Share Transactions
Receipts for shares sold
Institutional Class 31,936 114,561 10,029
- --------------------------------------------- ------------------------------------------------ ----------------------
Administrative Class 0 0 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Issued as reinvestment of distributions
Institutional Class 5,586 17,428 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Administrative Class 0 0 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Cost of shares redeemed
Institutional Class (14,744) (28,558) 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Administrative Class 0 0 0
- --------------------------------------------- ------------------------------------------------ ----------------------
Net increase (decrease) resulting from Fund
share transactions 22,778 103,431 10,029
- --------------------------------------------- ------------------------------------------------ ----------------------
Total Increase (Decrease) in Net Assets 29,431 105,371 10,378
============================================= ================================================ =====================
Net Assets
Beginning of period 151,869 46,498 0
- --------------------------------------------- ------------------------------------------------ ----------------------
End of period * $181,300 $151,869 $ 10,378
- --------------------------------------------- ------------------------------------------------ ----------------------
*Including net undistributed (overdistributed)
investment income of: $ 3,709 $1,762 $ 199
- --------------------------------------------- ------------------------------------------------ ----------------------
</TABLE>
See Notes to Financial Statements
25
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Selected Per Share Data Net Realized/
for the Year or Period Ended: Net Asset Unrealized Total Income Dividends Dividends in Distributions
Value Net Gain from from Net Excess of Net from Net
Beginning of Investment (Loss) on Investment Investment Investment Realized
Period Income Investments Operations Income Income Capital Gains
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Return Fund
Institutional Class
09/30/96 (a) $ 10.29 $ 0.34 $ 0.00 $ 0.34 $ (0.32) $ (0.02) $ 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/96 10.02 0.81 0.29 1.10 (0.61) (0.10) (0.12)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/95 10.25 0.64 (0.24) 0.40 (0.56) (0.05) 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/94 10.91 0.68 (0.16) 0.52 (0.71) (0.15) (0.30)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/93 10.46 0.76 0.76 1.52 (0.76) 0.00 (0.31)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/92 10.15 0.86 0.60 1.46 (0.86) 0.00 (0.29)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
Administrative Class
09/30/96 (a) 10.29 0.33 0.00 0.33 (0.31) (0.02) 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/96 10.01 0.80 0.29 1.09 (0.60) (0.09) (0.12)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
09/07/94 - 03/31/95 10.00 0.31 0.06 0.37 (0.32) (0.03) 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
Total Return Fund II
Institutional Class
09/30/96 (a) $ 9.89 $ 0.31 $ (0.04) $ 0.27 $ (0.30) $ (0.01) $ 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
11/01/95 - 03/31/96 10.21 0.25 (0.17) 0.08 (0.26) 0.00 (0.09)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
10/31/95 (b) 9.39 0.69 0.76 1.45 (0.62) 0.00 (0.01)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
10/31/94 (b) 10.38 0.51 (0.88) (0.37) (0.51) 0.00 (0.05)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
10/31/93 (b) 9.99 0.61 0.74 1.35 (0.61) 0.00 (0.35)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
12/30/91 - 10/31/92 (b) 10.00 0.49 0.23 0.72 (0.49) 0.00 (0.24)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
Administrative Class
09/30/96 (a) 9.89 0.30 (0.04) 0.26 (0.30) 0.00 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
11/01/95 - 03/31/96 10.22 0.24 (0.17) 0.07 (0.26) 0.00 (0.09)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
11/30/94 - 10/31/95 (b) 9.34 0.56 0.88 1.44 (0.55) 0.00 (0.01)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
Total Return Fund III
09/30/96 (a) $ 9.13 $ 0.29 $ 0.03 $ 0.32 $ (0.26) $ (0.02) $ 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/96 8.99 0.72 0.17 0.89 (0.54) (0.09) (0.12)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/95 9.18 0.59 (0.16) 0.43 (0.52) (0.02) 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/94 9.81 0.59 (0.03) 0.56 (0.66) (0.12) (0.20)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/93 10.31 0.64 0.75 1.39 (0.64) 0.00 (1.25)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
05/01/91 - 03/31/92 10.00 0.63 0.58 1.21 (0.63) 0.00 (0.27)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
Low Duration Fund
Institutional Class
09/30/96 (a) $ 9.95 $ 0.33 $ 0.01 $ 0.34 $ (0.31) $ (0.02) $ 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/96 9.76 0.66 0.21 0.87 (0.68) 0.00 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/95 10.04 0.65 (0.30) 0.35 (0.54) 0.00 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/94 10.30 0.62 (0.16) 0.46 (0.64) (0.03) (0.05)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/93 10.20 0.75 0.22 0.97 (0.74) 0.00 (0.13)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/92 10.02 0.83 0.25 1.08 (0.82) 0.00 (0.08)
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
Administrative Class
09/30/96 (a) 9.95 0.31 0.01 0.32 (0.30) (0.01) 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
03/31/96 9.76 0.63 0.21 0.84 (0.65) 0.00 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
12/31/94 - 03/31/95 9.67 0.18 0.07 0.25 (0.14) 0.00 0.00
- --------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
</TABLE>
+ Annualized
(a) Unaudited
(b) Audited by other independent accountants.
See Notes to Financial Statements
26
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Per Share Data
for the Year or Period Ended:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Ratio
of Net
Distributions Ratio of Investment
in Excess Tax Net Net Expenses Income
of Net Basis Asset Assets to to
Realized Return Value End Average Average Portfolio
Capital of Total End of Total of Period Net Net Turnover
Gains Capital Distributions Period Return (000's) Assets Assets Rate
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return Fund
Institutional Class
09/30/96 (a) $ 0.00 $ 0.00 $ (0.34) $ 10.29 3.41% $11,373,400 0.43%+ 6.72%+ 89.71%
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/96 0.00 0.00 (0.83) 10.29 11.14 10,247,605 0.42 6.85 221.13
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/95 0.00 (0.02) (0.63) 10.02 4.22 7,239,735 0.41 6.72 98.48
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/94 (0.02) 0.00 (1.18) 10.25 4.55 5,008,160 0.41 6.27 176.74
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/93 0.00 0.00 (1.07) 10.91 15.29 3,155,441 0.43 7.07 89.95
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/92 0.00 0.00 (1.15) 10.46 14.90 1,813,935 0.46 8.18 110.46
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
Administrative Class
09/30/96 (a) 0.00 0.00 (0.33) 10.29 3.28 135,539 0.68 + 6.64 + 89.71
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/96 0.00 0.00 (0.81) 10.29 10.99 104,618 0.68 6.64 221.13
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
09/07/94 - 03/31/95 0.00 (0.01) (0.36) 10.01 3.76 9,037 0.66 + 6.54 + 98.48
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
Total Return Fund II
Institutional Class
09/30/96 (a) $ 0.00 $ 0.00 $ (0.31) $ 9.85 2.86% $ 442,834 0.50%+ 6.43%+ 151.18%
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
11/01/95 - 03/31/96 (0.05) 0.00 (0.40) 9.89 0.78 455,583 0.51 + 6.36 + 73.18
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
10/31/95 (b) 0.00 0.00 (0.63) 10.21 15.96 442,091 0.50 6.47 41.05
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
10/31/94 (b) 0.00 (0.06) (0.62) 9.39 (3.58) 357,900 0.50 5.22 99.46
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
10/31/93 (b) 0.00 0.00 (0.96) 10.38 13.79 371,260 0.50 5.38 49.71
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
12/30/91 - 10/31/92 (b) 0.00 0.00 (0.73) 9.99 7.52 287,113 0.50 + 5.83 + 133.61
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
Administrative Class
09/30/96 (a) 0.00 0.00 (0.30) 9.85 2.73 4,465 0.75 + 6.15 + 151.18
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
11/01/95 - 03/31/96 (0.05) 0.00 (0.40) 9.89 0.57 3,320 0.76 + 6.06 + 73.18
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
11/30/94 - 10/31/95 (b) 0.00 0.00 (0.56) 10.22 15.92 3,163 0.76 + 6.22 + 40.91
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
Total Return Fund III
09/30/96 (a) $ 0.00 $ 0.00 $ (0.28) $ 9.17 3.63% $ 158,505 0.50%+ 6.28%+ 74.95%
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/96 0.00 0.00 (0.75) 9.13 10.06 142,223 0.50 6.82 176.97
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/95 0.00 (0.08) (0.62) 8.99 4.92 99,497 0.50 6.95 145.98
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/94 (0.21) 0.00 (1.19) 9.18 5.64 97,522 0.50 6.00 95.21
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/93 0.00 0.00 (1.89) 9.81 14.47 65,349 0.51 6.06 161.38
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
05/01/91 - 03/31/92 0.00 0.00 (0.90) 10.31 13.61 + 47,908 0.60 + 6.75 + 521.14
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
Low Duration Fund
Institutional Class
09/30/96 (a) $ 0.00 $ 0.00 $ (0.33) $ 9.96 3.46% $ 2,685,682 0.43%+ 6.60%+ 114.52%
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/96 0.00 0.00 (0.68) 9.95 9.13 2,677,574 0.42 6.88 208.79
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/95 0.00 (0.09) (0.63) 9.76 3.60 2,332,032 0.41 6.46 77.14
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/94 0.00 0.00 (0.72) 10.04 4.56 2,298,255 0.43 6.05 42.69
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/93 0.00 0.00 (0.87) 10.30 9.91 1,403,594 0.45 7.21 67.51
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/92 0.00 0.00 (0.90) 10.20 11.30 906,650 0.50 8.08 37.21
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
Administrative Class
09/30/96 (a) 0.00 0.00 (0.31) 9.96 3.33 3,935 0.68 + 6.40 + 114.52
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
03/31/96 0.00 0.00 (0.65) 9.95 8.83 2,536 0.69 6.73 208.79
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
12/31/94 - 03/31/95 0.00 (0.02) (0.16) 9.76 2.53 771 0.66 + 6.93 + 77.14
- ------------------------ -------- -------- -------- --------- ------ ----------- ------ -------- ---------
</TABLE>
+ Annualized
(a) Unaudited
(b) Audited by other independent accountants.
See Notes to Financial Statements
27
<PAGE>
FINANCIAL HIGHLIGHTS (Cont.)
<TABLE>
<CAPTION>
Selected Per Share Data --------- ---------- ------------- ------------ ---------- ------------ -------------
for the Year or Period Ended: Net Realized/
Net Asset Unrealized Total Income Dividends Dividends in Distributions
Value Net Gain from from Net Excess of Net from Net
Beginning Investment (Loss) on Investment Investment Investment Realized
of Period Income Investments Operations Income Income Capital Gains
--------- ---------- ----------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Low Duration Fund II
09/30/96 (a) $ 9.82 $ 0.32 $ (0.02) $ 0.30 $ (0.26) $ (0.06) $ 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/96 9.77 0.66 0.04 0.70 (0.60) (0.03) 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/95 9.94 0.62 (0.16) 0.46 (0.58) (0.03) 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/94 10.25 0.60 (0.28) 0.32 (0.58) 0.00 (0.05)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/93 10.04 0.63 0.25 0.88 (0.64) 0.00 (0.03)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
11/01/91 - 03/31/92 10.00 0.28 0.03 0.31 (0.27) 0.00 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
Short-Term Fund
Institutional Class
09/30/96 (a) $ 9.92 $ 0.30 $ 0.05 $ 0.35 $ (0.29) $ (0.01) $ 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/96 9.79 0.69 0.12 0.81 (0.65) (0.03) 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/95 9.92 0.56 (0.13) 0.43 (0.55) (0.01) 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/94 10.03 0.48 (0.12) 0.36 (0.47) 0.00 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/93 10.01 0.37 0.02 0.39 (0.37) 0.00 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/92 10.02 0.55 0.00 0.55 (0.55) 0.00 (0.01)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
Administrative Class
09/30/96 (a) 9.92 0.29 0.05 0.34 (0.28) (0.01) 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
02/01/96 - 03/31/96 9.98 0.11 (0.07) 0.04 (0.10) 0.00 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
Long-Term U.S. Government Fund
09/30/96 (a) $ 9.96 $ 0.38 $ (0.23) $ 0.15 $ (0.35) $ 0.00 $ 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/96 9.85 0.83 0.66 1.49 (0.68) (0.04) (0.50)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/95 9.96 0.60 (0.09) 0.51 (0.60) (0.02) 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/94 11.36 0.62 (0.06) 0.56 (1.05) (0.04) (0.70)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/93 10.82 0.70 1.66 2.36 (0.70) 0.00 (1.12)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
07/01/91 - 03/31/92 10.00 0.64 0.85 1.49 (0.64) 0.00 (0.03)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
Foreign Fund
09/30/96 (a) $ 10.50 $ 0.26 $ 0.84 $ 1.10 $ (0.22) $ 0.00 $ 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/96 9.38 0.96 1.03 1.99 (0.34) (0.25) (0.25)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/95 10.18 0.38 (0.57) (0.19) 0.00 0.00 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/94 10.34 0.55 0.27 0.82 (0.55) 0.00 (0.06)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
12/03/92 - 03/31/93 10.00 0.16 0.34 0.50 (0.16) 0.00 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
Global Fund
Institutional Class
09/30/96 (a) $ 10.05 $ 0.25 $ 0.43 $ 0.68 $ (0.25) $ 0.00 $ 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/96 9.87 0.45 0.72 1.17 (0.61) 0.00 (0.21)
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
03/31/95 9.85 0.69 (0.14) 0.55 (0.29) (0.24) 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
11/23/93 - 03/31/94 10.00 0.16 (0.15) 0.01 (0.16) 0.00 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
Administrative Class
08/01/96 - 09/30/96 (a) 10.28 0.08 0.20 0.28 (0.08) 0.00 0.00
- --------------------------------- ---------- ---------- ------------ ---------- ----------- ------------ ----------
</TABLE>
+ Annualized
(a) Unaudited
See Notes to Financial Statements
28
<PAGE>
FINANCIAL HIGHLIGHTS (Cont.)
Selected Per Share Data
for the Year or Period Ended:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Ratio
Distributions of Net
in Excess Tax Net Net Ratio of Investment
of Net Basis Asset Assets Expenses to Income to
Realized Return Value End of Average Average Porfolio
Capital of Total End of Total Period Net Net Turnover
Gains Capital Distributions Period Return (000's) Assets Assets Rate
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Low Duration Fund II
09/30/96 (a) $0.00 $0.00 $(0.32) $9.80 3.09% $256,720 0.50%+ 6.42%+ 147.94%
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/96 0.00 (0.02) (0.65) 9.82 7.30 253,299 0.48 6.61 225.02
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/95 0.00 (0.02) (0.63) 9.77 4.80 170,866 0.47 6.35 102.43
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/94 0.00 0.00 (0.63) 9.94 3.15 141,411 0.50 5.73 53.78
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/93 0.00 0.00 (0.67) 10.25 8.95 101,025 0.50 6.16 95.33
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
11/01/91 - 03/31/92 0.00 0.00 (0.27) 10.04 7.72 + 31,027 0.51 + 6.80 + 12.57
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
Short-Term Fund
Institutional Class
09/30/96 (a) $0.00 $0.00 $(0.30) $ 9.97 3.63% $128,198 0.45%+ 6.28%+ 56.87%
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/96 0.00 0.00 (0.68) 9.92 8.49 101,797 0.58 6.86 214.78
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/95 0.00 0.00 (0.56) 9.79 4.46 90,114 0.50 5.67 79.30
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/94 0.00 0.00 (0.47) 9.92 3.66 73,176 0.50 4.87 45.81
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/93 0.00 0.00 (0.37) 10.03 3.94 46,905 0.50 3.67 54.50
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/92 0.00 0.00 (0.56) 10.01 5.66 44,172 0.50 5.52 94.62
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
Administrative Class
09/30/96 (a) 0.00 0.00 (0.29) 9.97 3.50 2,361 0.70 + 6.08 + 56.87
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
02/01/96 - 03/31/96 0.00 0.00 (0.10) 9.92 0.41 3,999 0.52 + 4.44 + 214.78
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
Long-Term U.S. Government Fund
09/30/96 (a) $0.00 $0.00 $(0.35) $9.76 1.61% $ 21,860 0.50%+ 7.43%+ 152.18%
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/96 (0.16) 0.00 (1.38) 9.96 14.83 32,511 0.56 6.80 238.32
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/95 0.00 0.00 (0.62) 9.85 5.50 32,349 0.50 6.62 88.92
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/94 (0.17) 0.00 (1.96) 9.96 4.13 25,978 0.50 5.37 97.67
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/93 0.00 0.00 (1.82) 11.36 23.42 22,946 0.50 6.16 320.08
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
07/01/91 - 03/31/92 0.00 0.00 (0.67) 10.82 20.57 + 15,900 0.50 + 7.91 + 427.81
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
Foreign Fund
09/30/96 (a) $0.00 $0.00 $(0.22) $11.38 10.59% $214,911 0.48%+ 4.00%+ 518.75%
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/96 (0.03) 0.00 (0.87) 10.50 21.80 258,493 0.52 5.83 1,233.71
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/95 0.00 (0.61) (0.61) 9.38 (1.85) 232,700 0.47 6.44 299.45
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/94 (0.37) 0.00 (0.98) 10.18 7.79 498,521 0.54 5.12 260.34
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
12/03/92 - 03/31/93 0.00 0.00 (0.16) 10.34 16.23 + 178,895 0.65 + 4.97 + 122.55
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
Global Fund
Institutional Class
09/30/96 (a) $0.00 $0.00 $(0.25) $10.48 6.91% $160,821 0.55%+ 4.99%+ 453.28%
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/96 (0.17) 0.00 (0.99) 10.05 12.04 133,833 0.58 5.88 1,082.91
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
03/31/95 0.00 0.00 (0.53) 9.87 10.35 76,476 0.64 5.59 461.48
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
11/23/93 - 03/31/94 0.00 0.00 (0.16) 9.85 0.08 40,485 0.50 + 4.55 + 132.41
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
Administrative Class
08/01/96 - 09/30/96 (a) 0.00 0.00 (0.08) 10.48 3.22 25 0.80 + 1.02 + 453.28
- ------------------------------- -------- -------- --------- --------- ------- ----------- --------- ---------- ----------
</TABLE>
+ Annualized
(a) Unaudited
See Notes to Financial Statements
29
<PAGE>
FINANCIAL HIGHLIGHTS (Cont.)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Selected Per Share Data Net Realized/
for the Year or Period Ended: Net Asset Unrealized Total Income Dividends Dividends in Distributions
Value Net Gain from from Net Excess of Net from Net
Beginning of Investment (Loss) on Investment Investment Investment Realized
Period Income Investments Operations Income Income Capital Gains
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund
Institutional Class
09/30/96 (a) $ 10.94 $ 0.46 $ 0.19 $ 0.65 $ (0.48) $ 0.00 $ 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
03/31/96 10.42 1.04 0.54 1.58 (1.01) 0.00 (0.05)
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
03/31/95 10.52 0.99 (0.12) 0.87 (0.93) (0.02) 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
03/31/94 10.41 0.90 0.18 1.08 (0.90) 0.00 (0.07)
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
12/16/92 - 03/31/93 10.00 0.24 0.41 0.65 (0.24) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
Administrative Class
09/30/96 (a) 10.94 0.45 0.19 0.64 (0.47) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
03/31/96 10.41 1.02(c) 0.54(c) 1.56 (0.98) 0.00 (0.05)
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
01/16/95 - 03/31/95 10.14 0.23 0.25 0.48 (0.21) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
Money Market Fund
Institutional Class
09/30/96 (a) $ 1.00 $ 0.03 $ 0.00 $ 0.03 $ (0.03) $ 0.00 $ 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
11/01/95 - 03/31/96 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
10/31/95 (b) 1.00 0.06 0.00 0.06 (0.06) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
10/31/94 (b) 1.00 0.03 0.00 0.03 (0.03) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
10/31/93 (b) 1.00 0.03 0.00 0.03 (0.03) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
10/31/92 (b) 1.00 0.04 0.00 0.04 (0.04) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
03/01/91 - 10/31/91 (b) 1.00 0.04 0.00 0.04 (0.04) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
Administrative Class
09/30/96 (a) 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
11/01/95 - 03/31/96 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
01/24/95 - 10/31/95 (b) 1.00 0.05 0.00 0.05 (0.05) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
StocksPLUS Fund
09/30/96 (a) $ 11.16 $ 0.53 $ 0.33 $ 0.86 $ (0.42) $ 0.00 $ 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
03/31/96 10.48 0.91 2.48 3.39 (1.05) 0.00 (1.62)
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
03/31/95 9.52 1.03 0.69 1.72 (0.76) 0.00 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
05/14/93 - 03/31/94 10.00 0.34 0.10 0.44 (0.34) (0.01) (0.10)
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
Strategic Balanced Fund
06/28/96 - 09/30/96 (a) $ 10.00 $ 0.20 $ 0.15 $ 0.35 $ 0.00 $ 0.00 $ 0.00
- ----------------------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
</TABLE>
+ Annualized
(a) Unaudited
(b) Audited by other independent accountants.
(c) Per share amounts based on average number of shares outstanding during the
period.
See Notes to Financial Statements
30
<PAGE>
FINANCIAL HIGHLIGHTS (Cont.)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Selected Per Share Data Distributions
for the Year or Period Ended: in Excess of Tax Basis Net Asset
Net Realized Return of Total Value End
Capital Gains Capital Distributions of Period Total Return
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High Yield Fund
Institutional Class
09/30/96 (a) $ 0.00 $ 0.00 $ (0.48) $ 11.11 6.17%
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/96 0.00 0.00 (1.06) 10.94 15.70
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/95 (0.02) 0.00 (0.97) 10.42 8.81
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/94 0.00 0.00 (0.97) 10.52 10.65
- -------------------------------------------------- --------------------------------------------------------------------------
12/16/92 - 03/31/93 0.00 0.00 (0.24) 10.41 24.43+
- -------------------------------------------------- --------------------------------------------------------------------------
Administrative Class
09/30/96 (a) 0.00 0.00 (0.47) 11.11 6.04
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/96 0.00 0.00 (1.03) 10.94 15.54
- -------------------------------------------------- --------------------------------------------------------------------------
01/16/95 - 03/31/95 0.00 0.00 (0.21) 10.41 4.66
- -------------------------------------------------- --------------------------------------------------------------------------
Money Market Fund
Institutional Class
09/30/96 (a) $ 0.00 $ 0.00 $ (0.03) $ 1.00 2.61%
- -------------------------------------------------- --------------------------------------------------------------------------
11/01/95 - 03/31/96 0.00 0.00 (0.02) 1.00 2.58
- -------------------------------------------------- --------------------------------------------------------------------------
10/31/95 (b) 0.00 0.00 (0.06) 1.00 5.67
- -------------------------------------------------- --------------------------------------------------------------------------
10/31/94 (b) 0.00 0.00 (0.03) 1.00 3.53
- -------------------------------------------------- --------------------------------------------------------------------------
10/31/93 (b) 0.00 0.00 (0.03) 1.00 2.83
- -------------------------------------------------- --------------------------------------------------------------------------
10/31/92 (b) 0.00 0.00 (0.04) 1.00 3.85
- -------------------------------------------------- --------------------------------------------------------------------------
03/01/91 - 10/31/91 (b) 0.00 0.00 (0.04) 1.00 3.78
- -------------------------------------------------- --------------------------------------------------------------------------
Administrative Class
09/30/96 (a) 0.00 0.00 (0.02) 1.00 2.49
- -------------------------------------------------- --------------------------------------------------------------------------
11/01/95 - 03/31/96 0.00 0.00 (0.02) 1.00 2.47
- -------------------------------------------------- --------------------------------------------------------------------------
01/24/95 - 10/31/95 (b) 0.00 0.00 (0.05) 1.00 4.21
- -------------------------------------------------- --------------------------------------------------------------------------
StocksPLUS Fund
09/30/96 (a) $ 0.00 $ 0.00 $ (0.42) $ 11.60 7.78%
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/96 (0.04) 0.00 (2.71) 11.16 34.07
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/95 0.00 0.00 (0.76) 10.48 18.64
- -------------------------------------------------- --------------------------------------------------------------------------
05/14/93 - 03/31/94 (0.47) 0.00 (0.92) 9.52 1.55
- -------------------------------------------------- --------------------------------------------------------------------------
Strategic Balanced Fund
06/28/96 - 09/30/96 (a) $ 0.00 $ 0.00 $ 0.00 $ 10.35 3.50%
- -------------------------------------------------- --------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------
Selected Per Share Data Ratio of Net
for the Year or Period Ended: Ratio of Investment
Net Assets Expenses to Income to Portfolio
End of Period Average Net Average Net Turnover
(000's) Assets Assets Rate
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Yield Fund
Institutional Class
09/30/96 (a) $ 754,183 0.50%+ 9.00%+ 28.20%
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/96 536,983 0.47 9.28 65.79
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/95 336,310 0.48 9.37 77.60
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/94 219,976 0.50 8.40 112.40
- -------------------------------------------------- --------------------------------------------------------------------------
12/16/92 - 03/31/93 24,069 0.50+ 8.24+ 29.74
- -------------------------------------------------- --------------------------------------------------------------------------
Administrative Class
09/30/96 (a) 3,038 0.75+ 8.56+ 28.20
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/96 1,007 0.80 9.16 65.79
- -------------------------------------------------- --------------------------------------------------------------------------
01/16/95 - 03/31/95 41 0.73+ 10.12+ 77.60
- -------------------------------------------------- --------------------------------------------------------------------------
Money Market Fund
Institutional Class
09/30/96 (a) $ 28,300 0.35%+ 5.15%+ N/A
- -------------------------------------------------- --------------------------------------------------------------------------
11/01/95 - 03/31/96 25,935 0.33+ 5.44+ N/A
- -------------------------------------------------- --------------------------------------------------------------------------
10/31/95 (b) 7,741 0.40 5.53 N/A
- -------------------------------------------------- --------------------------------------------------------------------------
10/31/94 (b) 7,454 0.40 3.52 N/A
- -------------------------------------------------- --------------------------------------------------------------------------
10/31/93 (b) 5,836 0.40 2.78 N/A
- -------------------------------------------------- --------------------------------------------------------------------------
10/31/92 (b) 7,817 0.40 4.02 N/A
- -------------------------------------------------- --------------------------------------------------------------------------
03/01/91 - 10/31/91 (b) 45,406 0.53+ 5.2 N/A
- -------------------------------------------------- --------------------------------------------------------------------------
Administrative Class
09/30/96 (a) 12 0.60+ 5.00+ N/A
- -------------------------------------------------- --------------------------------------------------------------------------
11/01/95 - 03/31/96 10 0.61+ 5.95+ N/A
- -------------------------------------------------- --------------------------------------------------------------------------
01/24/95 - 10/31/95 (b) 10 0.68+ 5.94+ N/A
- -------------------------------------------------- --------------------------------------------------------------------------
StocksPLUS Fund
09/30/96 (a) $ 181,300 0.65%+ 9.89%+ 27.29%
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/96 151,869 0.70 15.23 101.67
- -------------------------------------------------- --------------------------------------------------------------------------
03/31/95 46,498 0.50 11.89 176.98
- -------------------------------------------------- --------------------------------------------------------------------------
05/14/93 - 03/31/94 14,330 0.50+ 4.00+ 33.29
- -------------------------------------------------- --------------------------------------------------------------------------
Strategic Balanced Fund
06/28/96 - 09/30/96 (a) $ 10,378 0.64%+ 7.73%+ 36.75%
- -------------------------------------------------- --------------------------------------------------------------------------
</TABLE>
+ Annualized
(a) Unaudited
(b) Audited by other independent accountants.
(c) Per share amounts based on average number of shares outstanding during the
period.
See Notes to Financial Statements
31
<PAGE>
SCHEDULE OF INVESTMENTS
Total Return Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Corporate Bonds and Notes - 17.6%
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Finance - 8.0%
ABN AMRO Bank N.V.
7.750% due 05/15/23 $ 200 $ 201
Ahmanson (H.F.) & Co.
6.000% due 03/27/97 25,000 25,015
Associates Corp. of North America
6.875% due 01/15/97 1,000 1,003
9.700% due 05/01/97 450 460
6.125% due 02/01/98 1,475 1,474
8.800% due 08/01/98 600 625
6.250% due 03/15/99 700 697
7.500% due 05/15/99 700 716
6.750% due 10/15/99 90 90
AT&T Capital Corp.
6.990% due 10/04/96 5,000 5,004
5.940% due 04/18/97 50,000 50,035
6.690% due 05/09/97 25,000 25,136
7.350% due 03/02/98 6,000 6,090
Avco Financial Services
7.375% due 08/15/01 300 306
Bancomer
8.000% due 07/07/98 7,000 6,965
Banesto
8.250% due 07/28/02 28,900 30,235
BankAmerica Corp.
7.500% due 10/15/02 1,000 1,024
Bankers Trust
7.250% due 11/01/96 1,050 1,051
8.000% due 03/15/97 250 252
8.625% due 04/01/18 214 219
Banponce Corp.
8.170% due 12/09/96 25,000 25,098
5.938% due 03/19/97 (d) 25,000 25,027
8.040% due 11/24/97 9,000 9,179
Barclays American Corp.
9.125% due 12/01/97 350 361
Beneficial Corp.
8.930% due 12/16/96 500 504
6.210% due 09/11/97 145 145
9.600% due 10/16/98 250 264
Canadian Pacific Securities Ltd.
9.450% due 08/01/21 2,750 3,133
Capital One Bank
8.330% due 02/10/97 1,020 1,029
Chemical Banking Corp.
6.125% due 11/01/08 400 358
Chrysler Financial Corp.
8.125% due 12/15/96 13,000 13,063
5.080% due 01/24/97 5,000 4,995
8.070% due 01/30/97 4,000 4,033
8.100% due 02/03/97 31,900 32,173
7.110% due 03/21/97 2,500 2,517
8.420% due 02/01/99 695 722
8.460% due 01/19/00 700 735
Citicorp
8.750% due 11/01/96 5,000 5,011
5.513% due 01/30/98 (d) 7,000 6,990
8.750% due 02/15/98 9,000 9,293
5.688% due 05/29/98 (d) 21,600 21,570
Coleman Holdings
0.000% due 05/27/98 (h) 7,349 6,339
Commercial Credit
6.000% due 06/15/00 300 293
Den Danske Bank
6.850% due 06/23/00 (d) 4,500 4,531
First Chicago Corp.
8.200% due 11/15/96 5,000 5,014
First Interstate Bancorp
12.750% due 05/01/97 1,250 1,298
5.881% due 06/25/97 (d) 5,000 5,009
8.875% due 01/01/09 374 384
First Security Bank
7.450% due 11/15/96 34,000 34,088
Ford Motor Credit Corp.
7.875% due 01/15/97 1,000 1,006
9.350% due 05/14/97 1,000 1,021
8.000% due 12/01/97 260 265
7.240% due 04/01/98 11,000 11,144
6.170% due 11/09/98 (d) 17,080 17,053
8.375% due 01/15/00 150 157
7.020% due 10/10/00 70,000 70,372
General American Capital Corp.
6.745% due 07/01/18 (d) 10,076 9,966
General Electric Capital Corp.
8.300% due 09/20/09 150 165
General Motors Acceptance Corp.
6.226% due 10/15/96 (d) 36,000 36,090
7.875% due 11/05/96 250 250
8.000% due 12/05/96 15,000 15,074
7.750% due 12/10/96 1,000 1,005
7.650% due 12/17/96 275 276
7.750% due 01/24/97 5,400 5,440
7.700% due 01/24/97 14,225 14,327
7.750% due 01/28/97 4,250 4,282
7.375% due 02/27/97 2,000 2,012
7.875% due 02/27/97 2,000 2,019
7.625% due 02/28/97 5,000 5,034
7.875% due 03/04/97 250 256
7.250% due 03/14/97 15,000 15,110
7.750% due 04/15/97 8,150 8,230
6.700% due 04/15/97 26,100 26,239
8.375% due 05/01/97 1,350 1,369
7.750% due 05/12/97 2,000 2,022
7.250% due 05/19/97 7,500 7,569
7.125% due 05/23/97 1,000 1,008
6.125% due 06/09/97 8,000 8,017
6.000% due 06/16/97 1,000 1,001
7.100% due 07/01/97 1,700 1,714
6.400% due 07/30/97 1,000 1,004
6.300% due 09/10/97 1,000 1,002
6.000% due 10/10/97 23,000 22,982
7.850% due 11/17/97 13,000 13,242
7.375% due 03/23/98 2,290 2,326
7.375% due 05/26/99 190 194
8.625% due 06/15/99 650 682
9.625% due 12/15/01 300 334
Georgia Pacific Credit Corp.
9.850% due 06/15/97 3,000 3,072
Goldman Sachs Mortgage Corp.
6.000% due 12/31/07 11,894 10,440
Great Western Bank
8.625% due 12/01/98 3,000 3,107
10.500% due 05/30/00 500 537
10.250% due 06/15/00 5,500 5,896
Heller Financial
6.450% due 02/15/97 325 326
Household Financial Corp.
6.250% due 10/15/97 201 201
ITT Hartford
7.250% due 12/01/96 500 501
Inter-American Development Bank
8.875% due 06/01/09 200 230
Lehman Brothers
6.730% due 02/27/98 45,000 45,152
6.263% due 06/22/98 (d) 25,000 25,213
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
Manufacturers Hanover Corp.
8.125% due 01/15/97 $ 417 $ 420
Maritrans Capital Corp.
9.250% due 04/01/07 1,000 899
Merrill Lynch & Co.
5.760% due 06/23/97 (d) 19,000 18,970
Mesa Operating Co.
10.625% due 07/01/06 4,250 4,489
Morgan Stanley Group
7.790% due 02/03/97 21,000 21,156
National Credit Card Trust
9.450% due 12/31/97 100 100
NationsBank Corp.
6.750% due 02/26/01 500 497
NCNB Corp.
8.500% due 11/01/96 1,000 1,002
Northern Trust
9.000% due 05/15/98 200 209
Norwest Financial, Inc.
4.970% due 10/29/96 300 300
6.500% due 11/15/97 1,500 1,507
5.750% due 11/16/98 300 296
7.000% due 01/15/03 300 300
PaineWebber
6.250% due 06/15/98 100 100
Reliance Group Holdings
9.000% due 11/15/00 9,000 9,203
Saferco
9.460% due 05/31/99 1,000 1,068
9.590% due 05/31/01 3,000 3,313
Salomon, Inc.
6.268% due 10/23/96 (d) 5,560 5,562
6.151% due 11/21/96 (d) 19,000 19,013
5.300% due 12/06/96 5,000 4,996
5.530% due 08/25/97 2,400 2,388
5.650% due 10/15/97 6,000 5,968
5.700% due 02/11/98 1,300 1,286
Sears Financial
0.000% due 07/12/98 3,480 3,108
9.250% due 12/01/16 2,565 2,653
Security Pacific Corp.
6.200% due 03/01/18 (d) 180 178
Shearson Lehman
9.875% due 10/25/17 426 432
Signet Bank Corp.
5.625% due 05/15/97 (d) 1,000 996
5.875% due 04/15/98 (d) 9,000 8,952
9.625% due 06/01/99 6,500 6,930
Tenneco Credit Corp.
9.250% due 11/01/96 4,500 4,510
9.625% due 08/15/01 300 330
Transamerica Financial
5.991% due 04/20/99 (d) 500 492
Trizec Finance
10.875% due 10/15/05 3,715 4,034
U.S. Life Corp.
6.750% due 01/15/98 100 101
U.S. West Capital Funding, Inc.
8.000% due 10/15/96 139 139
Wachovia Bank
6.700% due 04/14/99 500 503
----------
922,088
==========
Industrials - 5.4%
ALCO Standard Corp.
6.750% due 12/01/25 1,200 1,041
American Home Products
6.875% due 04/15/97 900 905
Amerigas Partners L.P.
10.125% due 04/15/07 2,730 2,860
AMR Corp.
7.600% due 01/27/97 6,000 6,037
7.470% due 01/28/97 6,500 6,529
7.750% due 12/01/97 10,000 10,144
9.500% due 07/15/98 5,500 5,756
9.270% due 08/13/98 1,000 1,044
8.050% due 03/05/99 4,000 4,100
9.750% due 03/15/00 7,760 8,350
10.610% due 01/11/01 4,000 4,493
10.570% due 01/15/01 3,000 3,355
10.590% due 01/31/01 3,000 3,359
10.000% due 02/01/01 2,000 2,209
10.000% due 03/07/01 1,500 1,649
9.400% due 05/08/01 3,000 3,252
9.500% due 05/15/01 2,250 2,457
9.130% due 10/25/01 2,000 2,142
8.470% due 02/20/02 2,000 2,103
8.500% due 02/26/02 1,000 1,053
Anheuser Busch
7.000% due 09/01/05 300 296
Arkla, Inc.
9.875% due 04/15/97 55,050 56,164
9.320% due 12/15/97 1,000 1,031
8.740% due 05/14/98 3,000 3,093
Baxter International
9.500% due 06/15/08 200 226
BP America, Inc.
8.875% due 12/01/97 600 618
Building Materials Corp.
0.000% due 07/01/04 (h) 3,320 2,673
Century Communication
11.875% due 10/15/03 6,000 6,480
CF Cable TV, Inc.
9.125% due 07/15/07 1,600 1,640
Coastal Corp.
8.750% due 05/15/99 4,300 4,476
9.750% due 08/01/03 1,000 1,130
Continental Cablevision
11.000% due 06/01/07 4,536 5,114
Cumberland Farms
10.500% due 10/01/03 3,906 3,769
Dayton Hudson Co.
10.000% due 12/01/00 1,000 1,109
Delta Air Lines
7.730% due 05/14/97 8,800 8,887
9.230% due 07/02/02 15,392 16,283
10.000% due 06/05/13 10,828 12,328
9.750% due 05/15/21 500 579
Dimon, Inc.
8.875% due 06/01/06 3,000 3,023
Eastman Kodak
8.550% due 05/01/97 400 406
E.I. Du Pont de Nemours
8.650% due 12/01/97 500 515
Exide Corp.
0.000% due 12/15/04 (h) 1,275 1,151
Federal Express
10.000% due 09/01/98 800 847
G-I Holdings, Inc.
0.000% due 10/01/98 (h) 7,000 6,108
General Motors Corp.
8.170% due 01/02/00 3,094 3,186
8.950% due 07/02/09 21,500 23,085
Gulf Canada Resources
9.250% due 01/15/04 1,250 1,286
9.625% due 07/01/05 2,000 2,090
</TABLE>
33
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Total Return Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
HealthSouth Rehabilitation
9.500% due 04/01/01 $ 7,300 $ 7,647
HMH Properties
9.500% due 05/15/05 2,000 2,010
Hollinger International Publishing
9.250% due 02/01/06 3,000 2,933
Integrated Health Services
9.625% due 05/31/02 3,000 3,068
10.750% due 07/15/04 3,650 3,869
K-III Communications Co.
8.500% due 02/01/06 4,000 3,730
Kaiser Aluminum & Chemical
9.875% due 02/15/02 250 255
KCS Energy, Inc.
11.000% due 01/15/03 2,000 2,180
Keystone Group
9.750% due 09/01/03 250 268
Lenfest Communications
8.375% due 11/01/05 5,000 4,725
Maxus Energy Corp.
9.875% due 10/15/02 300 305
Mazda Manufacturing Corp.
10.500% due 07/01/08 1,981 2,456
McDermott, Inc.
9.375% due 03/15/02 1,000 1,053
Nabisco, Inc.
8.000% due 01/15/00 6,500 6,711
News America Holdings Corp.
12.000% due 12/15/01 2,000 2,141
8.625% due 02/01/03 750 801
Noranda, Inc.
7.000% due 07/15/05 1,800 1,745
Northern Indiana Public
6.375% due 09/01/97 5,950 5,964
Owens Illinois
10.000% due 08/01/02 300 313
11.000% due 12/01/03 8,000 8,780
Pepsico, Inc.
5.463% due 07/01/98 400 394
7.750% due 10/01/98 500 513
Pfizer, Inc.
6.500% due 02/01/97 400 401
Philip Morris Co.
8.750% due 12/01/96 5,000 5,022
8.750% due 06/15/97 100 102
Purity Supreme
11.750% due 08/01/99 9,000 9,698
RJR Nabisco
7.625% due 09/01/00 6,000 5,856
8.000% due 07/15/01 30,000 29,399
Repap Wisconsin, Inc.
9.250% due 02/01/02 3,750 3,713
Revlon Consumer Products Corp.
9.375% due 04/01/01 5,255 5,347
Rogers Cablesystems, Inc.
10.000% due 12/01/07 5,000 5,025
9.375% due 06/01/08 2,750 2,736
Rogers Cantel Mobile
11.125% due 07/15/02 5,000 5,281
Schering-Plough
0.000% due 12/02/96 600 595
SCI Television
11.000% due 06/30/05 5,000 5,350
Sears Roebuck & Co.
6.580% due 07/23/97 150 151
5.820% due 02/22/99 125 123
Showboat, Inc.
9.250% due 05/01/08 1,000 1,000
Stone Consolidated
10.250% due 12/15/00 5,000 5,313
Sweetheart Cup Co.
9.625% due 09/01/00 1,200 1,236
Telewest Communications
9.625% due 10/01/06 5,000 5,000
Tenet Healthcare
9.625% due 09/01/02 6,250 6,820
10.125% due 03/01/05 (d) 1,000 1,090
Texaco Capital
9.000% due 11/15/97 1,000 1,030
Time Warner, Inc.
7.450% due 02/01/98 1,000 1,013
6.460% due 08/15/00 (d) 52,669 52,670
7.975% due 08/15/04 31,053 31,379
8.110% due 08/15/06 78,529 78,242
Transtexas Gas Corp.
11.500% due 06/15/02 1,000 1,068
Union Oil of California
9.750% due 12/01/00 400 442
United Air Lines
6.750% due 12/01/97 11,400 11,406
10.670% due 05/01/04 2,050 2,377
USX Corp.
6.375% due 07/15/98 16,200 16,126
9.800% due 07/01/01 300 331
Varity Corp.
11.375% due 11/15/98 10,500 10,560
Viacom, Inc.
6.750% due 01/15/03 1,200 1,126
Vons
6.625% due 05/15/98 10,001 9,950
World Color Press, Inc.
9.125% due 03/15/03 5,000 4,973
----------
624,243
==========
Utilities - 4.2%
AES Corp.
10.250% due 07/15/06 4,500 4,781
Arkansas Power & Light
10.370% due 12/22/97 3,000 3,106
Bell Atlantic Financial
6.625% due 11/30/97 400 403
Cablevision Industries
10.750% due 01/30/02 44,032 47,161
California Energy
0.000% due 01/15/04 (h) 9,235 9,443
Calpine Corp.
9.250% due 02/01/04 4,150 3,963
Carolina Power & Light
7.900% due 12/27/96 11,000 11,067
6.375% due 10/01/97 50 50
5.375% due 07/01/98 100 98
Centerior Fuel Corp.
9.200% due 08/02/98 15,000 15,383
Central Maine Power Co.
6.250% due 11/01/98 1,000 986
Central Power & Light
6.000% due 10/01/97 850 849
Chesapeake & Potomac Telephone
8.000% due 10/15/29 1,125 1,175
Cincinnati Bell, Inc.
6.700% due 12/15/97 1,000 1,005
Cleveland Electric Illuminating Co.
9.375% due 03/01/17 3,000 2,957
CMS Energy
9.500% due 10/01/97 31,100 31,810
9.875% due 10/01/99 (d) 4,200 4,368
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
Commonwealth Edison
7.000% due 02/15/97 $ 5,175 $ 5,188
Connecticut Light & Power
6.500% due 01/01/98 1,000 998
Consolidated Natural Gas Co.
5.875% due 10/01/98 500 496
Consumers Power Co.
8.750% due 02/15/98 5,550 5,687
CTC Mansfield Funding
10.250% due 03/30/03 16,250 16,697
11.125% due 09/30/16 101,315 107,406
El Paso Electric Co.
7.250% due 02/01/99 10,956 10,929
First PV Funding
8.950% due 01/15/97 100 100
10.150% due 01/15/16 14,360 15,096
GTE Corp.
10.750% due 09/15/17 300 325
Hydro Quebec
5.688% due 04/15/99 (d) 10,000 9,965
9.400% due 02/01/21 500 581
9.500% due 11/15/30 2,370 2,795
Long Island Lighting Co.
8.750% due 02/15/97 14,000 14,116
6.250% due 07/15/01 7,000 6,475
9.750% due 05/01/21 28,818 28,909
9.625% due 07/01/24 10,000 9,995
MCI Communications
6.250% due 03/23/99 600 597
New England Power
6.140% due 02/02/98 500 498
6.100% due 02/04/98 1,000 998
North Atlantic Energy
9.050% due 06/01/02 5,172 5,107
Pacific Gas & Electric
5.375% due 08/01/98 500 492
7.670% due 12/15/98 208 212
6.750% due 12/01/00 709 706
Pennsylvania Power & Light
5.500% due 04/01/98 250 247
Public Service Electric & Gas
6.875% due 06/01/97 1,200 1,208
Public Service of New Hampshire
9.170% due 05/15/98 16,000 16,498
Questar Pipeline
9.375% due 06/01/21 200 214
Southern California Edison
6.125% due 07/15/97 500 500
5.875% due 02/01/98 343 341
5.450% due 06/15/98 400 394
Southwestern Bell
5.550% due 03/10/98 1,000 991
Texas Gas Transmission Corp.
9.625% due 07/15/97 5,400 5,538
Texas Utilities
6.078% due 05/01/99 (d) 32,125 32,231
Texas-New Mexico Power
11.250% due 01/15/97 4,265 4,324
10.750% due 09/15/03 4,950 5,196
Toledo Edison Co.
6.125% due 08/01/97 200 199
8.180% due 07/30/02 1,400 1,385
8.700% due 09/01/02 10,000 9,667
7.850% due 03/31/03 7,000 6,761
7.875% due 08/01/04 500 479
Triton Energy
0.000% due 11/01/97 6,800 6,299
Tucson Electric Power
8.500% due 10/01/09 1,000 916
U.S. West Communications, Inc.
6.625% due 09/15/05 300 289
Virginia Electric & Power Co.
7.250% due 03/01/97 250 252
9.375% due 06/01/98 500 524
6.250% due 08/01/98 200 200
Wilmington Trust Co.-Tucson Electric
10.732% due 01/01/13 991 951
----------
478,577
----------
Total Corporate Bonds and Notes 2,024,908
(Cost $2,011,376) ==========
- --------------------------------------------------------------------------------
U.S. Treasury Obligations - 19.3%
- --------------------------------------------------------------------------------
U.S. Treasury Bonds
10.750% due 08/15/05 430 544
13.875% due 05/15/11 310 462
13.250% due 05/15/14 900 1,371
7.250% due 08/15/22 1,505 1,537
7.125% due 02/15/23 5,430 5,466
7.625% due 02/15/25 3,495 3,754
6.875% due 08/15/25 28,000 27,571
6.750% due 08/15/26 90,000 87,975
U.S. Treasury Notes
8.000% due 10/15/96 2,315 2,319
7.250% due 11/30/96 435 436
6.125% due 12/31/96 500 501
7.500% due 12/31/96 650 654
7.500% due 01/31/97 330 332
6.625% due 03/31/97 750 755
6.500% due 05/15/97 760 764
6.125% due 05/31/97 395,000 396,358
5.625% due 06/30/97 130,000 130,041
6.375% due 06/30/97 1,750 1,760
5.875% due 07/31/97 80,000 80,125
6.500% due 08/15/97 2,355 2,370
6.000% due 08/31/97 95,000 95,178
5.750% due 09/30/97 275,500 275,414
6.250% due 07/31/98 1,790 1,796
6.125% due 08/31/98 5,425 5,430
5.500% due 02/28/99 775 763
6.375% due 05/15/99 11,535 11,571
6.000% due 08/15/99 300 298
6.125% due 09/30/00 383,900 379,941
6.500% due 05/31/01 2,605 2,608
5.750% due 08/15/03 81,535 77,738
7.250% due 05/15/04 74,250 76,849
7.875% due 11/15/04 243,185 261,044
6.875% due 05/15/06 286,845 290,251
7.000% due 07/15/06 1,125 1,148
U.S. Treasury Strips
0.000% due 05/15/03 9 6
0.000% due 05/15/08 263 119
----------
Total U.S. Treasury Obligations 2,225,249
(Cost $2,220,885) ==========
- --------------------------------------------------------------------------------
U.S. Government Agencies - 0.1%
- --------------------------------------------------------------------------------
A.I.D. Housing Guarantee - Peru
9.980% due 08/01/08 1,320 1,358
Federal Home Loan Bank
8.250% due 11/25/96 800 803
9.200% due 08/25/97 150 154
6.320% due 12/04/97 1,500 1,507
Federal Home Loan Mortgage Corp.
7.900% due 04/27/05 300 302
7.250% due 08/24/05 395 393
</TABLE>
35
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Total Return Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Assn.
0.000% due 04/01/97 $ 869 $ 844
7.000% due 12/05/05 250 246
Government Trust Certificate - Greece
8.000% due 05/15/98 96 97
Government Trust Certificate - Israel
9.250% due 11/15/96 5 5
0.000% due 05/15/10 7,300 2,767
Tennessee Valley Authority
0.000% due 05/15/97 1,242 1,200
----------
Total U.S. Government Agencies 9,676
(Cost $9,961) ==========
- --------------------------------------------------------------------------------
Mortgage-Backed Securities - 59.5%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 3.9%
5.000% due 10/04/96 (d) 500 500
5.250% due 12/01/98 32 32
5.500% due 07/01/00-03/01/10 (g) 113 112
6.000% due 12/01/98-01/01/01 (g) 869 854
6.000% due 03/01/11 384 365
6.375% due 04/01/17 (d) 76 77
6.500% due 04/01/08-09/01/10 (g) 584 569
6.500% due 11/13/26 128,000 120,200
7.000% due 12/01/03-11/01/10 (g) 1,012 1,005
7.000% due 11/01/25 195 189
7.125% due 06/01/17 (d) 47 48
7.150% due 09/01/23 (d) 4,792 4,877
7.339% due 05/01/23 (d) 3,818 3,932
7.340% due 11/01/23 (d) 2,635 2,705
7.352% due 07/01/23 (d) 4,939 5,047
7.357% due 07/01/22 (d) 4,222 4,347
7.440% due 10/01/23 (d) 2,117 2,194
7.444% due 10/01/23 (d) 3,107 3,219
7.451% due 11/01/23 (d) 1,410 1,442
7.489% due 11/01/23 (d) 2,360 2,446
7.492% due 06/01/24 (d) 25,254 26,020
7.500% due 05/01/99-05/01/08 (g) 740 744
7.500% due 06/01/11-01/01/17 (g) 1,217 1,223
7.500% due 04/01/23-05/01/23 (g) 12,649 12,589
7.511% due 09/01/23 (d) 44,060 45,307
7.519% due 01/01/24 (d) 1,930 1,988
7.543% due 10/01/23 (d) 5,135 5,293
7.553% due 10/01/23 (d) 8,018 8,264
7.555% due 06/01/24 (d) 4,741 4,866
7.591% due 08/01/23 (d) 24,928 25,560
7.619% due 07/01/23 (d) 2,030 2,081
7.625% due 01/01/19 (d) 24 25
7.658% due 11/01/23 (d) 6,840 7,047
7.750% due 04/01/07 69 70
7.757% due 08/01/24 (d) 18,802 19,411
7.770% due 06/01/28 (d) 11,055 11,406
7.838% due 07/01/24 (d) 7,896 8,153
7.840% due 08/01/23 (d) 4,363 4,477
7.906% due 09/01/23 (d) 10,442 10,785
7.913% due 08/01/23 (d) 2,266 2,332
7.968% due 09/01/23 (d) 10,950 11,239
7.978% due 10/01/23 (d) 8,124 8,394
8.000% due 10/01/07-05/01/17 (g) 4,611 4,693
8.000% due 03/01/25-06/01/26 (g) 46,951 47,545
8.250% due 08/01/07-02/01/08 (g) 160 164
8.500% due 09/01/01-06/01/09 (g) 1,414 1,462
8.500% due 12/01/16-10/10/26 (g) 6,252 6,421
8.750% due 02/01/01-09/01/10 (g) 813 839
9.000% due 01/01/02-06/01/12 (g) 1,377 1,445
9.000% due 07/01/14-05/01/17 (g) 335 352
9.250% due 06/01/09-08/01/09 (g) 202 213
9.500% due 06/01/02-08/01/07 (g) 2,275 2,394
9.500% due 03/01/16-06/01/21 (g) 2,474 2,654
10.000% due 06/01/04-12/01/05 (g) 1,521 1,618
10.250% due 04/01/09-05/01/09 (g) 3,055 3,313
11.000% due 12/01/99-11/01/09 (g) 45 50
11.000% due 04/01/10-07/01/19 (g) 1,633 1,814
11.250% due 10/01/09-09/01/15 (g) 221 246
11.500% due 03/01/00 18 19
12.500% due 07/01/99 12 13
13.250% due 10/01/13 86 99
14.000% due 04/01/16 45 52
15.500% due 08/01/11-11/01/11 (g) 27 32
16.250% due 05/01/11-11/01/11 (g) 21 24
----------
446,896
==========
Federal Housing Administration - 0.7%
5.250% due 02/01/03 330 308
7.211% due 12/01/21 3,794 3,798
7.375% due 03/01/19-07/01/21 5,372 5,357
7.399% due 02/01/21 2,824 2,819
7.430% due 12/01/16-05/01/23 (g) 55,050 54,939
7.650% due 11/01/18 371 363
----------
67,584
==========
Federal National Mortgage Association - 7.5%
5.623% due 02/01/26 (d) 4,233 4,305
6.000% due 03/01/11-03/01/18 (d)(g) 215 209
6.000% due 03/01/24 2,542 2,334
6.050% due 05/01/26 (d) 818 811
6.059% due 10/01/27 (d) 2,278 2,259
6.060% due 01/01/16 (d) 55 54
6.062% due 03/02/29 (d) 429 426
6.067% due 08/01/29 (d) 118,805 117,836
6.069% due 02/01/19 (d) 178 176
6.073% due 09/01/27-02/01/31 (d)(g) 171,979 170,581
6.074% due 09/01/27 (d) 6,458 6,405
6.075% due 10/01/28 (d) 81,668 81,010
6.084% due 09/01/24 (d) 5,505 5,465
6.091% due 03/01/33 (d) 17,138 17,004
6.124% due 10/23/26 10,000 9,894
6.230% due 01/01/26 (d) 13,274 13,589
6.500% due 10/01/05-04/01/08 (g) 451 447
6.500% due 03/01/26 139 131
6.750% due 08/01/03 914 906
6.877% due 09/01/22 (d) 4,326 4,418
6.899% due 11/01/25 (d) 18,482 18,852
6.918% due 09/01/22 (d) 4,790 4,912
6.973% due 11/01/25 (d) 8,960 9,193
7.000% due 04/01/04-03/01/08 (g) 928 924
7.000% due 01/01/24-08/01/25 (g) 23,093 22,446
7.250% due 05/01/02-05/01/09 (g) 230 228
7.250% due 01/01/23 11,962 11,683
7.255% due 09/01/25 (d) 10,036 10,291
7.325% due 06/01/24 (d) 19,096 19,654
7.391% due 07/01/24 (d) 34,864 35,752
7.411% due 03/01/33 (d) 42,889 44,144
7.431% due 12/01/23 (d) 4,137 4,273
7.460% due 05/01/24 (d) 9,665 9,981
7.500% due 08/01/03-12/01/10 (g) 961 969
7.500% due 04/01/24-06/01/25 (g) 105,445 104,778
7.556% due 01/01/25 (d) 6,180 6,405
7.567% due 12/01/23 (d) 11,539 11,958
7.571% due 12/01/24 (d) 6,249 6,555
7.573% due 01/01/24 (d) 2,400 2,481
7.600% due 01/01/24 (d) 9,833 10,174
7.613% due 12/01/23 (d) 6,620 6,850
7.640% due 11/01/23 (d) 4,087 4,232
7.644% due 06/01/25 (d) 12,059 12,428
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
7.645% due 08/01/23 (d) $ 3,607 $ 3,738
7.673% due 11/01/23-01/01/24 (d)(g) 4,123 4,273
7.684% due 09/01/24 (d) 6,219 6,448
7.744% due 04/01/25 (d) 9,147 9,442
7.745% due 09/01/23 (d) 9,444 9,780
7.750% due 06/01/09 253 254
7.763% due 10/01/23 (d) 12,124 12,564
7.783% due 06/01/24 (d) 4,016 4,162
8.000% due 09/01/01-10/01/08 (g) 2,403 2,443
8.000% due 04/01/18 32 33
8.250% due 11/01/04-06/01/13 (g) 1,481 1,508
8.500% due 07/01/99-12/01/09 (g) 6,403 6,625
8.500% due 02/01/10-09/01/18 (g) 1,936 2,005
9.000% due 01/01/99-11/01/06 (g) 2,921 3,049
9.000% due 05/01/15-04/01/17 (g) 544 570
9.500% due 12/01/06-03/01/16 (g) 122 130
9.500% due 07/01/22 117 126
9.750% due 11/01/08 95 102
10.500% due 12/01/16-04/01/22 (g) 1,420 1,566
13.000% due 09/01/13 80 93
13.250% due 09/01/11 27 31
14.500% due 11/01/11-01/01/13 (g) 104 123
14.750% due 08/01/12-11/01/14 (g) 531 618
15.500% due 10/01/12-12/01/12 (g) 45 54
15.750% due 12/01/11-08/01/12 (g) 259 302
16.000% due 09/01/12 284 338
----------
867,800
==========
Government National Mortgage Association - 26.7%
5.000% due 01/20/24-05/20/24 (d)(g) 22,378 22,668
5.500% due 01/20/26 (d) 29,729 29,125
5.650% due 10/15/12 14 13
6.000% due 10/15/08 315 302
6.000% due 10/15/23-09/20/26 (d)(g) 240,144 222,161
6.500% due 10/15/08 300 294
6.500% due 01/20/23-11/19/26 (d)(g) 1,258,567 1,183,084
6.875% due 08/20/21-09/20/22 (d)(g) 5,650 5,744
7.000% due 10/15/08 295 294
7.000% due 07/15/22-11/19/26 (d)(g) 672,733 666,880
7.125% due 04/20/23-06/20/25 (d)(g) 268,175 271,837
7.250% due 07/20/22-09/20/24 (d)(g) 428,899 435,932
7.500% due 08/15/05-12/15/09 (g) 4,204 4,261
7.500% due 01/15/22-07/15/26 (g) 182,376 181,312
8.000% due 08/15/05-09/15/08 (g) 1,524 1,564
8.000% due 06/15/16-07/15/26 (g) 32,582 33,335
8.250% due 08/15/04-07/15/08 (g) 829 846
8.500% due 06/15/01-07/15/08 (g) 351 364
8.500% due 08/15/16-11/15/22 (g) 882 912
8.750% due 03/15/07-07/15/07 (g) 212 219
9.000% due 09/15/01-05/15/09 (g) 1,164 1,222
9.000% due 05/15/16-06/15/22 (g) 4,119 4,360
9.250% due 10/15/01-03/15/06 (g) 635 666
9.500% due 04/15/01-11/15/09 (g) 696 741
9.500% due 04/15/16-08/15/23 (g) 2,420 2,609
9.750% due 08/15/97-07/15/04 (g) 326 343
9.750% due 09/15/17-01/15/21 (g) 310 332
10.000% due 06/20/01-08/20/04 (g) 114 119
10.000% due 01/15/15-03/20/20 (g) 1,674 1,825
10.250% due 05/15/01 23 24
10.500% due 06/15/04 179 192
10.750% due 08/15/98-09/15/98 (g) 44 46
11.000% due 05/15/04 120 130
11.250% due 03/15/01 12 13
11.500% due 04/15/13-05/15/13 (g) 17 20
12.000% due 03/20/99-02/15/00 (g) 22 23
12.000% due 01/15/13-03/15/15 (g) 109 124
12.500% due 01/15/11 7 8
13.000% due 12/15/12-10/15/14 (g) 78 90
13.250% due 10/20/14 48 55
13.500% due 11/15/12-12/15/12 (g) 16 19
14.500% due 09/15/12 31 37
15.000% due 09/15/12-10/15/12 (g) 21 25
16.000% due 01/15/12-04/15/12 (g) 17 21
17.000% due 11/15/11-12/15/11 (g) 162 200
----------
3,074,391
==========
Collateralized Mortgage Obligations - 17.9%
AFC Home Equity Loan Trust
7.328% due 10/25/26 (d) 22,533 22,723
American Southwest Financial
12.250% due 11/01/14 93 105
9.450% due 03/01/15 76 76
12.500% due 04/01/15 1,049 1,165
12.000% due 05/01/15 1,863 2,095
11.400% due 09/01/15 1,457 1,520
Bear Stearns
9.200% due 11/01/18 60 62
9.500% due 06/25/23 1,597 1,616
6.156% due 10/25/23 (d) 10,989 10,965
10.000% due 08/25/24 15,018 15,436
7.000% due 03/25/27 7,000 6,362
Capstead
8.400% due 01/25/21 7,320 7,370
8.750% due 07/25/21 10,000 10,232
Centex Acceptance Corp.
11.000% due 11/01/15 376 378
Chase Mortgage Financial Corp.
8.250% due 10/25/10 5,406 5,432
9.500% due 04/25/24 1,773 1,780
8.000% due 06/25/24 513 518
7.500% due 10/25/24 81 81
Citicorp Mortgage
9.500% due 07/01/04 164 167
8.500% due 05/25/06 5 5
8.500% due 04/01/17 394 394
8.000% due 07/25/18 127 128
9.500% due 01/01/19 4,164 4,216
9.500% due 09/25/19 250 255
9.500% due 10/25/19 218 218
9.500% due 09/25/20 1,954 1,999
7.750% due 04/25/21 580 576
6.000% due 08/25/21 709 700
7.418% due 10/25/22 (d) 30,443 31,118
CMC Securities Corp.
6.883% due 09/25/23 (d) 21,556 21,677
CMO Trust
10.200% due 02/01/16 880 929
8.000% due 01/01/17 355 363
Collateralized Mortgage Securities Corp.
11.875% due 04/01/15 2,335 2,474
11.450% due 09/01/15 77 84
11.450% due 11/01/15 452 492
8.750% due 04/20/19 1,373 1,421
Countrywide
7.629% due 07/25/24 (d) 20,740 21,071
Donaldson, Lufkin & Jenrette
7.345% due 08/01/21 (d) 9,239 9,288
7.473% due 12/25/22 (d) 3,441 3,519
7.857% due 03/25/24 (d) 2,923 2,996
Drexel Mortgage Funding
9.500% due 11/20/17 2,498 2,596
8.600% due 03/01/18 1,063 1,080
9.500% due 08/01/19 32 33
Federal Home Loan Mortgage Corp.
8.500% due 03/15/97 50 50
6.500% due 07/15/02 5,000 5,018
5.250% due 03/15/03 11,429 11,380
</TABLE>
37
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Total Return Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
5.000% due 03/15/03 $ 9,524 $ 9,471
5.000% due 04/15/03 8,000 7,948
8.750% due 10/15/05 48 49
10.750% due 11/30/05 1,446 1,518
6.500% due 08/15/06 710 704
9.000% due 09/15/08 43 45
10.250% due 03/15/09 35 36
4.750% due 09/15/09 60 60
4.750% due 07/15/10 60 59
4.875% due 12/15/11 10,815 10,736
4.750% due 03/15/12 451 448
8.500% due 08/15/13 2,000 2,099
6.050% due 09/15/13 10,000 9,978
8.500% due 09/15/13 5,941 6,231
11.000% due 11/30/15 9,850 10,786
6.210% due 08/15/17 345 342
7.250% due 10/25/17 (d) 11,793 11,988
9.500% due 01/15/19 1,089 1,117
8.250% due 05/15/19 403 403
6.500% due 05/15/19 615 601
8.500% due 10/15/19 1,412 1,440
9.000% due 11/15/19 320 322
10.000% due 11/15/19 250 270
9.000% due 11/15/19 5,097 5,204
8.500% due 01/15/20 2,898 2,944
8.500% due 03/15/20 2,939 2,998
9.300% due 03/15/20 69 70
9.000% due 05/15/20 27 27
9.125% due 06/15/20 4,446 4,596
5.750% due 08/15/20 300 283
8.500% due 09/15/20 22,948 23,611
9.000% due 09/15/20 178 187
8.750% due 10/15/20 500 516
5.500% due 10/15/20 200 177
9.500% due 11/15/20 13,855 14,471
8.900% due 11/15/20 27,613 27,993
6.000% due 12/15/20 400 368
8.750% due 12/15/20 1,265 1,316
9.000% due 12/15/20 7,555 7,942
8.500% due 06/15/21 47,409 48,890
6.950% due 07/15/21 700 670
7.000% due 07/15/21 4,000 3,894
8.000% due 07/15/21 8,557 8,685
9.000% due 07/15/21 4,107 4,377
9.500% due 07/15/21 6,373 6,815
6.200% due 08/15/21 1,500 1,463
6.950% due 08/15/21 185 175
8.000% due 08/15/21 23,472 24,024
6.500% due 09/15/21 2,500 2,375
9.000% due 11/15/21 1,811 1,844
6.850% due 01/15/22 700 670
7.000% due 07/15/22 401 347
8.500% due 10/15/22 17,373 17,933
7.500% due 07/15/23 6,149 5,896
7.190% due 10/25/23 (d) 38,349 38,984
6.500% due 02/15/24 65 61
Federal National Mortgage Assn.
9.100% due 02/25/02 8,423 8,575
5.000% due 02/25/03 18,251 18,121
5.750% due 12/25/03 175 174
6.000% due 07/25/07 300 286
7.876% due 08/25/07 (d) 126 91
7.000% due 02/25/08 1,095 1,051
10.500% due 08/25/08 7,146 8,313
5.000% due 05/25/12 38,758 38,474
6.400% due 09/25/14 882 876
8.500% due 10/25/14 107 108
10.000% due 12/25/14 1,858 1,924
7.000% due 04/25/15 2,990 3,002
6.000% due 11/25/15 26,003 25,878
7.500% due 08/25/16 4,360 4,367
9.670% due 01/25/17 797 826
9.200% due 12/25/17 1,970 2,035
9.300% due 05/25/18 2,536 2,682
9.500% due 06/25/18 1,248 1,328
5.500% due 07/25/18 220 214
8.500% due 07/25/18 344 347
7.750% due 10/25/18 1,601 1,605
9.500% due 11/25/18 12,245 13,417
7.500% due 01/25/19 255 254
6.625% due 06/25/19 68 68
9.500% due 06/25/19 5,102 5,413
8.000% due 10/25/19 17,525 17,864
7.500% due 12/25/19 200 200
9.000% due 12/25/19 20,148 21,091
7.500% due 05/25/20 8,000 7,973
8.000% due 07/25/20 223 227
9.000% due 09/25/20 6,850 7,189
8.000% due 12/25/20 19,436 19,706
7.500% due 01/25/21 23,531 22,428
8.750% due 01/25/21 10,407 10,671
7.500% due 02/25/21 21,878 21,844
7.500% due 03/25/21 20,919 20,872
7.250% due 04/25/21 8,960 8,693
7.500% due 06/25/21 320 321
8.000% due 07/25/21 25,213 24,898
8.500% due 09/25/21 15,166 15,474
8.000% due 10/25/21 22,430 22,746
6.000% due 12/25/21 200 186
8.000% due 01/25/22 21,700 22,176
8.000% due 03/25/22 629 638
7.000% due 04/25/22 17,091 15,824
7.000% due 07/25/22 8,901 8,372
8.000% due 07/25/22 2,788 2,806
6.500% due 08/25/23 243 233
6.750% due 10/25/23 456 370
6.500% due 11/25/23 170 152
7.000% due 11/17/24 65,731 57,922
First Boston Corp.
8.000% due 12/01/00 128 126
9.450% due 08/20/17 54 54
7.500% due 04/25/21 1,087 1,086
First Commonwealth Savings & Loan
10.375% due 04/01/05 23 24
General Electric Capital Mortgage
8.000% due 07/25/23 12,979 12,921
6.500% due 12/25/23 3,330 3,317
6.500% due 03/25/24 11,646 9,426
8.000% due 06/25/25 14,336 14,635
Glendale Federal Savings & Loan
7.226% due 03/01/28 (d) 12,682 12,816
Greenwich
7.087% due 04/25/22 (d) 3,681 3,708
6.867% due 07/25/22 (d) 16,406 16,471
7.038% due 10/25/22 (d) 455 458
7.119% due 04/25/23 (d) 5,583 5,639
7.609% due 04/25/24 (d) 10,093 10,204
7.810% due 06/25/24 (d) 15,992 16,282
8.529% due 08/25/24 (d) 19,415 19,767
8.244% due 11/25/24 (d) 11,330 11,532
IMC Home Equity Loan Trust
7.315% due 07/25/26 (d) 2,876 2,898
Imperial CMB Trust
5.730% due 09/25/26 (d) 54,966 54,932
Independent National Mortgage Corp.
9.000% due 12/25/19 16,796 16,956
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
6.650% due 10/25/24 $ 2,723 $ 2,408
7.923% due 11/25/24 (d) 17,507 17,944
7.069% due 07/25/25 (d) 47,681 48,195
7.692% due 07/25/25 (d) 54,665 55,792
International Mortgage Acceptance Corp.
12.250% due 03/01/14 787 855
J.P. Morgan & Co.
9.000% due 10/20/20 12,409 13,161
Kidder Peabody
8.390% due 05/20/18 541 550
7.732% due 03/25/24 (d) 34,254 34,738
7.730% due 09/25/24 (d) 20,000 20,313
Marine Midland
8.000% due 04/25/23 110 112
8.000% due 10/25/23 350 353
Merrill Lynch Mortgage
9.470% due 04/27/18 39 40
7.601% due 06/15/21 (d) 10,956 10,935
7.861% due 06/15/21 (d) 10,283 10,228
8.221% due 06/15/21 (d) 2,297 2,285
8.101% due 06/25/22 17,965 18,257
Morgan Stanley Mortgage
8.971% due 10/22/15 1,057 1,059
8.150% due 07/20/21 19 19
Nomura Asset Securitization Corp.
7.478% due 05/25/24 (d) 19,638 19,896
Norwest Mortgage
12.500% due 02/01/14 1,511 1,613
12.250% due 04/01/14 149 161
PaineWebber Mortgage
6.000% due 04/25/09 11,951 10,633
7.000% due 02/25/24 2,771 2,771
Prudential Bache
6.069% due 09/01/18 (d) 693 692
9.000% due 01/01/19 540 558
8.400% due 03/20/21 4,754 4,883
Prudential Home
7.000% due 04/25/99 292 291
8.000% due 06/25/22 18,650 18,160
6.900% due 03/25/23 1,424 1,421
7.000% due 04/25/23 6,323 6,311
7.750% due 10/25/24 8,000 8,128
7.500% due 06/25/25 15,432 15,542
PSB Financial Corp.
11.050% due 12/01/15 1,458 1,556
Residential Asset Securities Corp.
8.000% due 10/25/24 20,288 20,342
5.800% due 10/25/27 (d) 25,000 25,000
Residential Funding
8.081% due 02/25/07 173 175
7.000% due 08/25/08 23,482 23,369
6.500% due 09/25/08 7,000 6,393
8.500% due 05/25/17 225 222
9.000% due 01/01/20 2,132 2,198
8.500% due 02/25/21 382 381
8.000% due 01/25/23 10,000 9,968
10.000% due 09/25/23 2,510 2,688
6.750% due 11/25/23 40,573 32,167
7.500% due 09/25/25 18,183 17,467
Resolution Trust Corp.
7.500% due 12/15/04 996 996
6.110% due 01/25/21 (d) 1,437 1,377
8.717% due 08/25/21 (d) 13,329 13,535
8.717% due 08/25/21 8,000 8,065
8.719% due 08/25/21 183 185
6.047% due 10/25/21 (d) 651 640
8.145% due 10/25/21 (d) 382 388
8.625% due 10/25/21 300 302
7.437% due 01/25/22 (d) 3,962 4,031
7.758% due 03/25/22 (d) 6,691 6,745
8.499% due 05/25/22 (d) 4,207 4,269
6.638% due 06/25/23 (d) 10,220 10,303
7.500% due 08/25/23 507 509
10.641% due 05/25/24 (d) 6,330 6,527
9.450% due 05/25/24 19,693 20,013
8.150% due 06/25/24 84 85
6.438% due 07/25/24 (d) 6,502 6,526
7.000% due 10/25/24 16 15
7.100% due 12/25/24 1,500 1,458
7.050% due 03/25/25 340 338
7.750% due 03/25/25 5,000 4,961
8.750% due 05/25/26 1,018 1,018
7.345% due 07/25/28 (d) 14,001 14,197
Ryland Acceptance Corp.
8.650% due 05/15/00 8,094 7,960
9.450% due 10/01/16 245 259
7.483% due 07/25/22 (d) 42,000 42,656
7.809% due 08/25/22 (d) 5,056 5,148
8.000% due 09/25/22 6,257 6,281
8.200% due 09/25/22 100 103
7.128% due 08/25/29 (d) 12,014 12,202
6.884% due 10/25/31 (d) 19,815 19,704
14.000% due 11/25/31 2,573 2,854
Salomon Mortgage
7.264% due 11/25/22 (d) 2,365 2,384
7.882% due 07/01/24 (d) 28,322 29,048
Santa Barbara Savings
9.500% due 11/20/18 6,661 6,699
Saxon Mortgage
6.424% due 06/25/22 (d) 1,318 1,319
7.097% due 09/25/22 (d) 4,857 4,933
7.512% due 08/25/23 (d) 52,599 53,421
7.659% due 09/25/22 (d) 5,378 5,447
8.601% due 05/25/32 (d) 20,564 20,769
Structured Asset Securities Corp.
5.944% due 02/25/28 24,500 24,393
UBS Mortgage
9.000% due 11/27/19 3,277 3,289
Vendee Mortgage
7.750% due 03/15/16 600 603
----------
2,058,362
==========
Other Mortgage-Backed Securities - 2.5%
Bank of America
8.375% due 05/01/07 4 4
9.000% due 03/01/08 121 126
Daiwa Mortgage
7.313% due 09/25/06 (d) 3,008 3,035
First Interstate Bancorp
9.125% due 01/01/09 24 24
General Electric Credit Corp.
8.000% due 03/01/02 197 201
Georgia Federal Mortgage
10.500% due 11/01/14 2,611 2,696
German American Capital Corp.
8.360% due 09/30/02 5,779 5,849
Great Western Savings & Loan
5.900% due 09/25/17 (d) 256 249
Guardian
7.021% due 12/25/18 (d) 754 647
Home Savings of America
5.757% due 05/25/27 (d) 4,763 4,621
Imperial Savings & Loan
10.000% due 09/01/16 334 350
8.569% due 01/25/17 156 157
9.800% due 07/25/17 596 599
</TABLE>
39
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Total Return Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
LTC Commercial Corp.
7.100% due 11/28/12 $ 4,689 $ 4,613
MDC Mortgage Funding
8.201% due 01/25/25 (d) 9,762 9,948
Mellon Financial Co.
13.250% due 01/15/99 335 356
Merrill Lynch Mortgage
9.250% due 12/15/09 70 73
Mid-State Trust
8.330% due 04/01/30 36,884 38,079
OSCC Home Equity
6.950% due 05/15/07 167 161
PaineWebber Mortgage
8.115% due 11/25/23 (d) 2,052 2,110
Resolution Trust Corp.
7.859% due 02/25/20 (d) 506 381
7.420% due 09/25/20 (d) 17,667 839
8.239% due 06/25/21 (d) 14,093 14,115
7.570% due 09/25/21 (d) 7,562 7,652
6.438% due 10/25/21 (d) 1,503 1,512
7.189% due 10/25/28 (d) 18,792 19,015
7.233% due 10/25/28 (d) 36,645 37,309
7.500% due 10/25/28 6,238 6,250
7.172% due 05/25/29 (d) 6,831 6,893
7.592% due 05/25/29 (d) 8,675 8,588
7.792% due 05/25/29 (d) 8,275 8,342
Rural Housing
3.330% due 10/01/28 725 658
Ryland Acceptance Corp.
9.000% due 12/01/16 1,135 1,179
11.500% due 12/25/16 330 330
7.281% due 11/28/22 (d) 7,000 7,127
7.822% due 09/25/23 (d) 19,048 19,345
Salomon Mortgage
11.500% due 09/01/15 2,343 2,549
Saxon Mortgage
7.329% due 12/25/22 (d) 19,943 20,117
Sears Mortgage
12.000% due 02/25/14 1,818 1,991
8.000% due 03/25/22 3,430 3,428
7.572% due 10/25/22 (d) 8,276 8,699
Securitized Asset Sales, Inc.
7.516% due 10/25/23 (d) 10,979 11,130
7.736% due 12/26/23 (d) 10,552 10,716
Structured Asset Securities Corp.
9.250% due 07/01/19 200 199
USGI Capital
8.500% due 11/25/07 12,679 12,671
Western Federal Savings & Loan
6.624% due 11/25/18 (d) 492 489
6.674% due 03/25/19 (d) 3,711 3,707
----------
289,129
==========
Stripped Mortgage-Backed Securities - 0.3%
Federal Home Loan Mortgage Corp. (IO)
6.500% due 12/15/02 103 4
10.038% due 09/15/05 78 10
6.500% due 11/15/06 5,026 487
6.500% due 03/15/07 11,479 929
5.750% due 09/15/07 (d) 18,793 1,451
5.428% due 02/15/08 (d) 1,264 105
11.651% due 01/15/16 93 12
6.500% due 08/15/16 10,563 808
7.000% due 04/15/18 8,315 775
9.993% due 11/15/18 300 73
8.845% due 01/15/21 676 189
9.000% due 05/15/22 324 84
Federal National Mortgage Assn. (IO)
33.862% due 04/25/02 69 4
6.750% due 09/25/04 304 19
7.000% due 06/25/05 107 4
10.458% due 07/25/05 (d) 3,512 354
6.500% due 07/25/06 14,295 1,203
6.500% due 02/25/07 10,115 994
6.500% due 07/25/07 2,984 273
6.500% due 09/25/07 16,324 1,498
6.500% due 10/25/07 4,715 471
0.100% due 03/25/09 (d) 72,259 1,631
7.000% due 08/25/15 8,590 783
6.500% due 08/25/20 2,666 667
10.070% due 01/25/21 215 71
9.032% due 08/25/21 3,410 807
0.950% due 11/25/21 (d) 74,728 1,308
6.500% due 01/25/23 10,624 1,487
Federal Home Loan Mortgage Corp. (PO)
0.000% due 06/15/21 9,519 8,457
0.000% due 02/15/24 405 400
Federal National Mortgage Assn. (PO)
0.000% due 09/01/07 1,644 1,194
0.000% due 02/25/21 9,396 7,666
0.000% due 06/25/22 5,698 4,760
0.000% due 08/25/23 508 265
PaineWebber (IO)
13.595% due 08/01/19 400 153
----------
39,396
----------
Total Mortgage-Backed Securities 6,843,558
(Cost $6,837,218) ==========
- --------------------------------------------------------------------------------
Asset-Backed Securities - 1.5%
- --------------------------------------------------------------------------------
American Airlines Equipment Trust
10.210% due 01/01/10 6,500 7,638
Delta Air Lines Equipment Trust
10.500% due 01/02/07 7,980 9,325
10.570% due 01/02/07 15,881 19,514
9.550% due 01/02/08 7,773 8,819
Discover Card Trust
7.300% due 05/21/99 133 134
5.879% due 10/16/13 (d) 400 406
Ford Motor Credit Corp.
5.500% due 02/15/03 1,300 1,235
MBNA Master Credit Card Trust
6.050% due 11/15/02 245 241
NationsBank Corp.
5.850% due 06/15/02 971 970
Standard Credit Card Master Trust
6.750% due 06/07/00 290 293
7.250% due 04/07/08 300 302
Student Loan Marketing Assn.
5.895% due 04/25/04 (d) 43,519 43,585
United Air Lines Equipment Trust
9.200% due 03/22/08 4,610 4,967
10.360% due 11/13/12 7,000 8,327
10.020% due 03/22/14 4,500 5,156
10.850% due 07/05/14 34,111 41,059
10.125% due 03/22/15 14,300 16,383
9.060% due 06/17/15 5,000 5,342
9.210% due 01/21/17 2,000 2,161
----------
Total Asset-Backed Securities 175,857
(Cost $171,429) ==========
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Sovereign Issues - 4.0%
- --------------------------------------------------------------------------------
<S> <C> <C>
Banco Nacional de Obra y Servicios
6.875% due 10/01/98 $ 19,500 $ 19,169
Commonwealth of Canada
5.250% due 10/17/96 2,000 1,995
Kingdom of Sweden
10.250% due 11/01/15 500 614
Petroleos Mexicanos
8.750% due 03/05/97 3,500 3,516
Province of Newfoundland
9.000% due 06/01/19 500 562
Province of Nova Scotia
9.375% due 07/15/02 1,000 1,110
Province of Ontario
7.750% due 06/04/02 200 209
7.000% due 08/04/05 1,000 995
Province of Quebec
7.500% due 07/15/02 6,000 6,145
Province of Saskatchewan
9.125% due 02/15/21 3,000 3,502
Republic of Argentina
7.850% due 11/15/96 25,000 24,727
7.850% due 01/17/97 20,000 19,484
5.547% due 09/01/97 (d) 1,100 1,098
6.625% due 03/31/05 (d) 264,453 221,149
5.000% due 03/31/23 (d) 90,000 52,538
United Mexican States
6.250% due 12/31/19 89,000 61,633
6.352% due 12/31/19 (d) 2,000 1,685
6.398% due 12/31/19 (d) 10,000 8,425
6.453% due 12/31/19 (d) 39,000 32,858
----------
Total Sovereign Issues 461,414
(Cost $402,007) ==========
- --------------------------------------------------------------------------------
Foreign Currency-Denominated Issues (c) (f) - 1.7%
- --------------------------------------------------------------------------------
City of Montreal
11.500% due 09/20/00 C$ 7,000 6,044
Commonwealth of Canada
0.000% due 11/07/96 430 314
6.500% due 06/01/04 1,000 717
4.250% due 12/01/26 50,642 35,481
Commonwealth of New Zealand
6.500% due 02/15/00 160,000 106,535
10.000% due 03/15/02 40,000 30,241
Kingdom of Netherlands
6.250% due 07/15/98 15,000 9,173
Petroleos Mexicanos
7.750% due 09/30/98 FF 5,000 995
Reynolds R.J.
6.875% due 11/22/00 DM 9,500 6,382
----------
Total Foreign Currency-
Denominated Issues 195,882
(Cost $211,512) ==========
- --------------------------------------------------------------------------------
OTC Interest Rate Caps - 0.0%
- --------------------------------------------------------------------------------
3 Month Libor
Strike @ 85.50 Exp. 06/16/97 $2,454,000 61
----------
Total OTC Interest Rate Caps 61
(Cost $61) ==========
- --------------------------------------------------------------------------------
Purchased CME Put Options - 0.0%
- --------------------------------------------------------------------------------
Eurodollar December Futures
Strike @ 91.25 Exp. 12/16/96 $12,800,000 $ 320
Eurodollar December Futures
Strike @ 91.50 Exp. 12/16/96 1,200,000 30
----------
Total Purchased CME Put Options 350
(Cost $256) ==========
- --------------------------------------------------------------------------------
Purchased OTC Call Options - 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Note
5.625% due 11/00/00
Strike @ 89.81 Exp. 10/28/96 50,000 3,574
U.S. Treasury Note
5.625% due 02/01/00
Strike @ 90.125 Exp. 10/07/96 25,000 1,653
----------
Total Purchased OTC Call Options 5,227
(Cost $4,939) ==========
- --------------------------------------------------------------------------------
Preferred Stock - 0.1%
- --------------------------------------------------------------------------------
Shares
Banco Bilbao Vizcaya International 266,217 7,521
Cleveland Electric Illuminating Co. 2,808 282
First Nationwide Bank 50,000 5,675
----------
Total Preferred Stock 13,478
(Cost $12,851) ==========
- --------------------------------------------------------------------------------
Short-Term Instruments - 6.1%
- --------------------------------------------------------------------------------
Principal
Amount
(000's)
Discount Notes - 2.6%
Abbott Laboratories
5.320% due 10/24/96 $ 22,500 22,424
Caisse d'Amortissement
5.310% due 10/07/96 400 400
5.350% due 10/28/96 500 498
5.340% due 11/21/96 3,800 3,770
5.350% due 11/27/96 1,000 992
Canadian Wheat Board
5.220% due 10/01/96 10,000 10,000
Coca-Cola Co.
5.270% due 10/28/96 3,800 3,785
Dow Jones, Inc.
5.300% due 11/26/96 300 298
E.I. Du Pont de Nemours
5.330% due 11/20/96 32,500 32,259
Electricite de France
5.280% due 11/26/96 11,800 11,703
Federal Home Loan Mortgage Corp.
5.370% due 11/13/96 970 964
Federal National Mortgage Assn.
5.260% due 11/07/96 14,600 14,521
Ford Motor Credit Corp.
5.440% due 10/04/96 36,000 35,984
5.330% due 10/24/96 6,900 6,877
5.310% due 11/08/96 3,500 3,480
5.310% due 11/19/96 6,000 5,957
5.330% due 12/09/96 3,700 3,662
General Motors Acceptance Corp.
5.320% due 11/25/96 52,900 52,470
Hewlett-Packard Co.
5.400% due 11/27/96 6,900 6,841
Illinois Tool Works
5.310% due 11/26/96 2,300 2,281
</TABLE>
41
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Total Return Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
Kellog Co.
5.280% due 11/04/96 $ 5,000 $ 4,975
Mobil Australia
5.340% due 10/16/96 1,000 998
5.350% due 10/25/96 13,400 13,352
National Rural Utilities Cooperative
5.400% due 11/13/96 3,000 2,981
5.280% due 11/22/96 3,600 3,573
Ontario Hydro
5.300% due 10/31/96 30,000 29,868
Pfizer, Inc.
5.280% due 10/09/96 20,400 20,376
Proctor & Gamble Co.
5.280% due 12/03/96 300 297
-----------
295,586
===========
Repurchase Agreements - 1.8%
Daiwa Securities America
5.750% due 10/01/96 107,000 107,000
(Dated 09/30/96. Collateralized
by U.S. Treasury Bond 7.500%
due 11/15/01 valued at $54,057,065
and U.S. Treasury Bond
7.250% due 02/15/98 valued
at $58,578,730. Repurchase
proceeds are $107,017,090.)
Goldman Sachs & Co.
5.730% due 10/01/96 67,000 67,000
(Dated 09/30/96. Collateralized by
U.S. Treasury Bond 12.375%
due 05/15/04 valued at $68,445,117.
Repurchase proceeds are $67,010,664.)
State Street Bank
4.750% due 10/01/96 37,208 37,208
(Dated 09/30/96. Collateralized
by U.S. Treasury Bond 8.75%
due 05/15/17 valued at $37,955,446.
Repurchase proceeds are $37,212,909.)
-----------
211,208
===========
U.S. Treasury Bills - 1.7%
5.093% due 10/17/96-11/14/96 (b)(g) 101,025 95,164
5.513% due 01/09/97-06/26/97 (g) 100,810 102,375
-----------
197,539
===========
Total Short-Term Instruments 704,333
(Cost $709,499) ===========
Total Investments (a) - 109.9% $12,659,993
(Cost $12,591,994)
Written Options (e) - (0.0%) (9,081)
(Premiums $21,031)
Other Assets and Liabilities (Net) - (9.9%) (1,141,973)
-----------
Net Assets - 100.0% $11,508,939
===========
Notes to Schedule of Investments ($ 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. $ 149,581
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value. (81,582)
-----------
Unrealized appreciation-net $ 67,999
===========
(b) Securities with an aggregate market value of $95,164 have
been segregated with the custodian to cover margin
requirements for the following open future contracts
at September 30, 1996:
<CAPTION>
Unrealized
Type Contracts Appreciation
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury 5 Year Note (12/96) 2,199 $ 2,837
U.S. Treasury 10 Year Note (12/96) 22,401 21,939
U.S. Treasury 30 Year Bond (12/96) 11,237 11,745
Eurodollar June Futures (6/97) 6,638 7,738
-----------
$ 44,259
===========
(c) Foreign forward currency contracts outstanding at September 30, 1996:
<CAPTION>
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sell A$ 53,883 10/96 $ 19
Sell BP 7,542 11/96 (16)
Buy C$ 69,500 10/96 95
Sell 69,500 10/96 133
Buy 290,322 11/96 547
Sell 290,322 11/96 (471)
Buy 128,500 03/97 845
Sell 128,500 03/97 (457)
Buy 25,000 04/97 172
Sell 25,000 04/97 (63)
Buy 50,176 05/97 (289)
Sell 58,200 05/97 370
Sell 35,178 09/97 (167)
Buy DG 102 12/96 (2)
Buy DM 524,125 12/96 (1,572)
Sell 413,306 12/96 19,900
Buy 361,008 01/97 (1,320)
Sell 361,008 01/97 11,986
Buy 65,330 02/97 (31)
Sell 65,330 02/97 1,406
Buy 30,310 04/97 (22)
Sell 40,043 04/97 690
Sell FF 5,735 12/96 1
Sell JY 3,162,267 12/96 826
Sell N$ 22,340 11/96 (311)
-----------
$ 32,269
===========
</TABLE>
42
<PAGE>
(d) Variable rate security. The rate listed is as of
September 30, 1996.
(e) Premiums received on Written Put Options:
<TABLE>
<CAPTION>
Premium Market
Type Par Received Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CME Eurodollar March Futures
Strike @ 93.00 Exp. 03/17/97 3,610,000 $ 1,456 $ 226
CME Eurodollar March Futures
Strike @ 93.50 Exp. 03/17/97 1,650,000 1,211 330
CME Eurodollar March Futures
Strike @ 94.00 Exp. 03/17/97 4,000,000 4,279 2,200
CME Eurodollar June Futures
Strike @ 93.00 Exp. 06/16/97 300,000 223 68
CME Eurodollar June Futures
Strike @ 93.25 Exp. 06/16/97 1,200,000 1,059 390
CME Eurodollar June Futures
Strike @ 93.50 Exp. 06/16/97 12,235,000 11,971 5,811
CME Eurodollar December Futures
Strike @ 93.50 Exp. 12/16/96 2,250,000 832 56
-------------------------
$ 21,031 $ 9,081
=========================
</TABLE>
(f) Principal amount denoted in indicated currency:
A$ - Australian Dollar
BP - British Pound
C$ - Canadian Dollar
DG - Dutch Guilder
DM - German Mark
FF - French Franc
JY - Japanese Yen
N$ - New Zealand Dollar
(g) Securities are grouped by coupon and represent a range of maturities.
(h) Security becomes interest bearing at a future date.
See Notes to Financial Statements
43
<PAGE>
SCHEDULE OF INVESTMENTS
Total Return Fund II
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Corporate Bonds and Notes - 18.5%
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Finance - 5.5%
Citicorp
5.513% due 01/30/98 (c) $ 5,000 $ 4,993
5.688% due 05/29/98 (c) 5,000 4,993
First Interstate Bancorp
5.881% due 06/25/97 (c) 250 250
General Motors Acceptance Corp.
6.750% due 04/25/97 10,000 10,059
7.900% due 05/01/97 500 506
Great Western Financial
8.625% due 12/01/98 3,000 3,107
Lehman Brothers Holdings
8.875% due 11/01/98 500 522
----------
24,430
==========
Industrials - 9.0%
AMR Corp.
7.750% due 12/01/97 10,000 10,143
9.430% due 05/10/01 1,000 1,085
8.900% due 02/26/07 6,450 6,921
Time Warner, Inc.
6.460% due 08/15/00 (c) 5,575 5,575
7.975% due 08/15/04 3,345 3,380
8.110% due 08/15/06 6,690 6,665
8.180% due 08/15/07 6,690 6,760
----------
40,529
==========
Utilities - 4.0%
Commonwealth Edison
8.000% due 10/15/03 7,550 7,573
CTC Mansfield Funding
11.125% due 09/30/16 2,500 2,650
Illinois Power Co.
5.850% due 10/01/96 1,000 1,000
Long Island Lighting Co.
9.000% due 11/01/22 7,250 6,746
----------
17,969
----------
Total Corporate Bonds and Notes 82,928
(Cost $80,635) ==========
- --------------------------------------------------------------------------------
U.S. Treasury Notes - 24.7%
- --------------------------------------------------------------------------------
6.125% due 05/31/97 50,000 50,171
5.875% due 07/31/97 60,000 60,094
----------
Total U.S. Treasury Notes 110,265
(Cost $110,090) ==========
- --------------------------------------------------------------------------------
Mortgage-Backed Securities - 69.2%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 8.9%
6.500% due 11/13/26 250 235
7.250% due 03/01/06 456 457
7.479% due 02/01/23 (c) 1,775 1,837
7.500% due 11/13/26 5,500 5,442
7.545% due 04/01/29 (c) 3,437 3,536
7.962% due 12/01/22 (c) 18,159 18,756
8.000% due 04/1/25-12/01/25(e) 8,925 9,025
8.250% due 03/1/08-05/01/08(e) 273 281
8.500% due 12/01/01 7 7
9.500% due 02/01/11 176 188
10.000% due 06/01/11 33 35
10.500% due 04/01/01 155 164
15.500% due 06/01/11 3 3
----------
39,966
==========
- --------------------------------------------------------------------------------
Federal Housing Administration - 0.2%
5.596% due 10/01/19 $ 384 $ 385
8.829% due 05/01/19 620 649
----------
1,034
==========
Federal National Mortgage Association - 10.9%
6.993% due 02/01/23 (c) 6,082 6,169
7.000% due 08/01/09 473 472
7.355% due 07/01/20 (c) 1,844 1,900
7.394% due 04/01/24 (c) 4,009 4,128
7.487% due 12/01/23 (c) 2,009 2,073
7.500% due 04/01/24 16,541 16,429
7.600% due 01/01/24 (c) 4,916 5,087
7.689% due 10/01/24 (c) 2,911 3,018
7.750% due 10/01/07 533 536
8.000% due 10/01/05 590 602
8.500% due 07/1/03-08/01/07(e) 5,751 5,959
9.000% due 12/01/01 1,568 1,637
11.000% due 09/01/10 303 335
13.750% due 10/1/10-01/01/13(e) 147 172
14.500% due 03/01/13 10 12
14.750% due 10/1/12-11/01/12(e) 42 49
----------
48,578
==========
Government National Mortgage Association - 27.5%
5.500% due 01/20/26 (c) 2,947 2,887
6.500% due 01/20/25(c) 3,791 3,837
6.500% due 10/17/26 30,000 28,050
7.000% due 10/17/26-11/19/26 (e) 80,000 76,938
7.125% due 06/20/23 (c) 6,660 6,764
7.250% due 09/20/24 (c) 3,757 3,805
7.500% due 03/15/24 418 415
12.000% due 10/15/12-06/15/15 (e) 67 77
----------
122,773
==========
Collateralized Mortgage Obligations - 19.8%
AFC Home Equity Loan Trust
7.328% due 10/25/26 (c) 5,633 5,681
American Southwest Financial
8.450% due 09/01/17 246 245
Capstead
8.900% due 12/25/21 807 828
Chase Mortgage Financial Corp.
8.000% due 06/25/24 408 412
Citicorp Mortgage
9.500% due 07/01/04 38 39
9.500% due 10/25/04 133 138
Collateralized Mortgage Securities Corp.
9.000% due 04/25/10 15,524 15,760
Donaldson, Lufkin & Jenrette
11.000% due 08/01/19 435 482
Federal Home Loan Mortgage Corp.
8.800% due 12/01/15 290 305
9.000% due 12/15/20 3,820 4,011
7.000% due 07/15/22 12,788 11,344
Federal National Mortgage Assn.
7.000% due 04/25/15 236 237
8.500% due 03/25/17 751 759
9.000% due 09/25/18 1,467 1,513
9.250% due 07/25/19 7,247 7,521
Guaranteed Mortgage Corp.
9.300% due 07/20/19 1,000 1,062
Independent National Mortgage Corp.
7.842% due 11/25/24 (c) 8,135 8,260
7.923% due 11/25/24 (c) 7,429 7,614
Norwest Mortgage
12.375% due 01/01/14 507 546
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
================================================================================
<S> <C> <C>
Residential Funding
10.000% due 10/01/19 $ 35 $ 36
Ryland Acceptance Corp.
8.000% due 09/25/22 6,037 6,060
Saxon Mortgage
7.659% due 09/25/22 (c) 4,408 4,465
7.445% due 01/25/23 (c) 6,834 6,902
Sears Mortgage
8.250% due 09/25/31 55 55
8.601% due 05/25/32 (c) 4,173 4,215
U.S. Home Equity
8.500% due 04/15/21 36 37
----------
88,527
==========
Other Mortgage-Backed Securities - 1.9%
Bank of America
9.000% due 03/01/08 101 104
Dime Savings
7.079% due 11/01/18 (c) 194 178
Federal Home Loan Mortgage Corp.
11.875% due 06/15/13 327 357
Ryland Acceptance Corp.
7.822% due 09/25/23 (c) 6,926 7,035
Security Pacific National Bank
8.500% due 03/01/17 4 4
Western Federal Savings & Loan
6.674% due 03/25/19 (c) 802 802
----------
8,480
----------
Total Mortgage-Backed Securities 309,358
(Cost $309,086) ==========
- --------------------------------------------------------------------------------
Asset-Backed Securities - 1.7%
- --------------------------------------------------------------------------------
United Air Lines Equipment Trust
9.190% due 12/24/13 7,213 7,375
----------
Total Asset-Backed Securities 7,375
(Cost $7,872) ==========
- --------------------------------------------------------------------------------
Purchased CME Put Options - 0.0%
- --------------------------------------------------------------------------------
Eurodollar December Futures
Strike @ 91.25 Exp. 12/16/96 550,000 19
Eurodollar March Futures
Strike @ 91.50 Exp. 03/17/97 750,000 14
----------
Total Purchased CME Put Options 33
(Cost $27) ==========
- --------------------------------------------------------------------------------
Purchased OTC Call Option - 0.8%
- --------------------------------------------------------------------------------
U.S. Treasury Note
6.250% due 4/30/01
Strike @ 91.73 Exp. 11/01/96 50,000 3,598
----------
Total Purchased OTC Call Option 3,598
(Cost $3,900) ==========
- --------------------------------------------------------------------------------
Short-Term Instruments - 8.6%
- --------------------------------------------------------------------------------
Discount Notes - 4.5%
Dow Jones, Inc.
5.300% due 11/26/96 2,900 2,876
Federal National Mortgage Assn.
5.250% due 10/01/96 900 900
G.E. Capital Corp.
5.420% due 03/03/97 4,700 4,592
Eli Lilly & Co.
5.280% due 12/16/96 6,800 6,722
Minnesota Mining & Manufacturing Co.
5.280% due 11/22/96 5,200 5,160
----------
20,250
==========
Repurchase Agreements - 3.2%
Goldman Sachs
5.730% due 10/01/96 8,200 8,200
(Dated 09/30/96. Collateralized by
U.S. Treasury Bond 7.125% 02/15/23
valued at $8,373,750. Repurchase
proceeds are $8,201,305.)
State Street Bank
4.750% due 10/01/96 6,309 6,309
(Dated 09/30/96. Collateralized by
Federal National Mortgage Assn.
6.580% 11/15/02 valued at $6,436,669.
----------
Repurchase proceeds are $6,309,832.) 14,509
==========
U.S. Treasury Bills - 0.9%
5.054% due 10/17/96-11/21/96 (b)(e) 4,135 4,113
----------
Total Short-Term Instruments 38,872
(Cost $38,873) ==========
Total Investments (a) - 123.5% $ 552,429
(Cost $550,483)
Written Options (d) - (0.2%) (743)
(Premiums $1,576)
Other Assets and Liabilities (Net)-(23.3%) (104,387)
----------
Net Assets - 100.0% $ 447,299
==========
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 value
over tax cost. $ 5,736
Aggregate gross unrealized depreciation for all
investments in which there was an excess value
of tax cost over value. (3,790)
----------
Unrealized appreciation - net $ 1,946
==========
(b) Securities with an aggregate market value of $4,113 have been
segregated with the custodian to cover margin requirements
for the following open future contracts at September 30, 1996:
<CAPTION>
Unrealized
Type Contracts Appreciation
- --------------------------------------------------------------------------------
<S> <C> <C>
Eurodollar June Futures (06/97) 200 $ 250
CBOT U.S. Treasury 5 Year Note (12/96) 267 317
CBOT U.S. Treasury 10 Year Note (12/96) 862 696
CBOT U.S. Treasury 30 Year Bond (12/96) 74 162
----------
$ 1,425
==========
</TABLE>
45
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Total Return Fund II
September 30, 1996 (unaudited)
================================================================================
(c) Variable rate security. The rate listed is as of
September 30, 1996.
(d) Premiums received on Written Put Options:
<TABLE>
<CAPTION>
Premiums Market
Type Par Received Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CME Eurodollar March Futures
Strike @ 93.00 Exp. 03/17/97 $115,000 $ 45 $ 7
CME Eurodollar June Futures
Strike @ 93.50 Exp. 06/16/97 250,000 1,531 736
-----------------------
$ 1,576 $ 743
=======================
</TABLE>
(e) Securities are grouped by coupon and represent a range of maturities.
See Notes to Financial Statements
46
<PAGE>
SCHEDULE OF INVESTMENTS
Total Return Fund III
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Corporate Bonds and Notes - 10.7%
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Finance - 0.8%
Coleman Holdings
0.000% due 05/27/98 (h) $ 1,500 $ 1,294
----------
Industrials - 3.3%
Coastal Corp.
10.375% due 10/01/00 3,000 3,353
Spieker Properties
6.950% due 12/15/02 2,000 1,943
----------
5,296
==========
Utilities - 6.6%
Cablevision Industries
10.750% due 01/30/02 3,000 3,213
Cleveland Electric Illuminating Co.
8.075% due 11/15/05 3,500 3,460
Niagara Mohawk Power
5.875% due 11/01/96 2,640 2,637
North Atlantic Energy
9.050% due 06/01/02 622 614
Texas Gas Transmission Corp.
9.625% due 07/15/97 500 513
----------
10,437
----------
Total Corporate Bonds and Notes 17,027
(Cost $17,108) ==========
- --------------------------------------------------------------------------------
U.S. Treasury Notes - 27.9%
- --------------------------------------------------------------------------------
6.125% due 05/31/97 40,000 40,138
7.250% due 08/15/04 4,000 4,141
----------
Total U.S. Treasury Notes 44,279
(Cost $44,179) ==========
- --------------------------------------------------------------------------------
U.S. Government Agencies - 0.3%
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.
9.150% due 04/10/98 300 313
5.870% due 10/15/03 50 47
Government Trust Certificate - Greece
8.000% due 05/15/98 174 177
----------
Total U.S. Government Agencies 537
(Cost $526) ==========
- --------------------------------------------------------------------------------
Mortgage-Backed Securities - 47.3%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 2.2%
7.962% due 12/01/22 (d) 2,924 3,020
8.000% due 02/01/06 406 415
----------
3,435
==========
Federal National Mortgage Association - 6.8%
6.070% due 07/01/17 (d) 109 108
6.073% due 02/01/27-12/01/27 (d)(g) 3,852 3,817
6.076% due 08/01/29 (d) 130 129
7.500% due 04/01/24 4,135 4,107
7.575% due 07/01/23 (d) 1,383 1,433
8.250% due 07/01/17 177 181
8.500% due 02/01/07 916 948
9.000% due 07/01/05 57 60
----------
10,783
==========
Government National Mortgage Association - 17.5%
5.500% due 01/20/26 (d) 1,965 1,925
6.500% due 11/19/26 15,000 14,006
7.000% due 10/20/24-11/20/24 (d)(g) 7,581 7,708
7.125% due 06/20/22 (d) 4,125 4,180
----------
27,819
==========
Collateralized Mortgage Obligations - 15.7%
Chase Mortgage Financial Corp.
9.500% due 04/25/24 180 181
CMC Securities Corp.
7.507% due 04/25/25 (d) 3,692 3,752
Collateralized Mortgage Trust
8.000% due 01/01/17 5,332 5,440
Federal Home Loan Mortgage Corp.
8.000% due 05/15/00 97 99
8.000% due 02/15/15 2,357 2,407
7.500% due 04/15/19 1,031 1,035
Federal National Mortgage Assn.
7.750% due 07/25/19 335 341
Greenwich
8.244% due 11/25/24 (d) 1,570 1,598
PNC Mortgage Securities Corp.
7.500% due 06/25/10 1,019 1,020
Residential Accredit Loans, Inc.
7.050% due 01/25/26 2,000 1,854
7.250% due 01/25/26 3,000 2,748
Residential Funding
9.000% due 07/01/21 563 566
Resolution Trust Corp.
8.835% due 12/25/23 2,500 2,532
Sears Mortgage
8.601% due 05/25/32 (d) 1,252 1,265
----------
24,838
==========
Other Mortgage-Backed Securities - 3.7%
Guardian
6.797% due 07/25/20 (d) 1,389 966
Resolution Trust Corp.
8.625% due 10/25/21 244 245
7.792% due 05/25/29 (d) 2,844 2,867
Ryland Acceptance Corp.
7.822% due 09/25/23 (d) 1,732 1,758
----------
5,836
==========
Stripped Mortgage-Backed Securities - 1.4%
Federal Home Loan Mortgage Corp. (IO)
6.500% due 04/15/22 8,554 1,127
Resolution Trust Corp. (PO)
0.000% due 09/25/00 1,239 1,127
----------
2,254
----------
Total Mortgage-Backed Securities 74,965
(Cost $75,566) ==========
- --------------------------------------------------------------------------------
Sovereign Issues - 2.9%
- --------------------------------------------------------------------------------
Republic of Argentina
6.625% due 03/31/05 (d) 3,960 3,286
Province of Quebec
8.800% due 04/15/03 1,000 1,085
----------
Total Sovereign Issues 4,371
(Cost $3,702) ==========
- --------------------------------------------------------------------------------
Foreign Currency - Denominated Issues (c) (f) - 3.4%
- --------------------------------------------------------------------------------
Commonwealth of Canada
8.500% due 04/01/02 C$ 2,000 1,607
8.750% due 12/01/05 2,520 2,059
Province of Saskatchewan
11.000% due 01/09/01 2,000 1,726
----------
Foreign Currency-Denominated Issues 5,392
(Cost $5,186) ==========
</TABLE>
47
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Total Return Fund III
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Purchased CME Put Options - 0.0%
- --------------------------------------------------------------------------------
<S> <C> <C>
Eurodollar December Futures
Strike @ 93.5 Exp. 12/19/96 $ 625 $ 6
Strike @ 93.5 Exp. 12/19/96 125 1
Eurodollar March Futures
Strike @ 93.5 Exp. 3/21/97 788 8
----------
Total Purchased CME Put Options 15
(Cost $13) ==========
- --------------------------------------------------------------------------------
Short-Term Instruments - 14.7%
- --------------------------------------------------------------------------------
Discount Notes - 11.9%
AT&T Corp.
5.250% due 11/12/96 1,300 1,292
Caisse d'Amortissement
5.320% due 11/20/96 500 496
5.310% due 11/25/96 3,900 3,868
5.300% due 12/13/96 2,000 1,978
Canadian Wheat Board
5.250% due 11/13/96 500 497
Federal National Mortgage Assn.
5.220% due 10/15/96 500 499
5.210% due 11/07/96 800 796
Ford Motor Credit Co.
5.340% due 11/13/96 1,200 1,192
General Electric Capital Corp.
5.320% due 10/08/96 900 899
5.310% due 11/06/96 500 497
5.280% due 11/12/96 600 597
5.300% due 11/12/96 400 398
Motorola, Inc.
5.270% due 11/12/96 3,000 2,982
National Rural Utilities Cooperative
5.340% due 11/13/96 2,000 1,987
Proctor & Gamble Co.
5.270% due 10/08/96 900 899
----------
18,877
==========
Repurchase Agreement - 1.7%
State Street Bank
4.750% due 10/01/96 2,620 2,620
(Dated 09/30/96. Collateralized by
Federal National Mortgage Assn. 6.580%
11/15/02 valued at $2,677,391.
Repurchase proceeds are $2,620,346.)
U.S. Treasury Bills - 1.1%
5.127% due 10/17/96-11/21/96 (b)(g) 1,830 1,820
----------
Total Short-Term Instruments 23,317
(Cost $23,318) ==========
Total Investments (a) - 107.2% $ 169,903
(Cost $169,598)
Written Options (e) - (0.2%) (287)
(Premiums $556)
Other Assets and Liabilities (Net) - (7.0%) (11,111)
----------
Net Assets - 100.0% $ 158,505
==========
================================================================================
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. $ 1,723
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value. (1,418)
----------
Unrealized appreciation-net $ 305
==========
(b) Securities with an aggregate market value of
$1,820 have been segregated with the custodian
to cover margin requirements for the following
open future contracts at September 30, 1996:
<CAPTION>
Unrealized
Type Contracts Appreciation
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury 5 Year Note (12/96) 100 $ 88
U.S. Treasury 10 Year Note (12/96) 538 656
U.S. Treasury 30 Year Bond (12/96) 100 94
Eurodollar June Futures (06/97) 200 1,000
----------
$ 1,838
==========
(c) Foreign forward currency contracts outstanding
at September 30, 1996:
<CAPTION>
Principal
Amount Unrealized
Covered Expiration Appreciation/
Type by Contract Month (Depreciation)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sell C$ 1,300 10/96 $ 2
Sell 4,325 11/96 (6)
Buy DM 4,495 01/97 (31)
Sell 4,495 01/97 171
----------
$ 136
==========
(d) Variable rate security. The rate listed is as of
September 30, 1996.
(e) Premiums received on Written Put Options:
<CAPTION>
Premiums Market
Type Par Received Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CME Eurodollar Futures
Strike @ 93.00 Exp. 03/17/97 $ 36,000 $ 14 $ 2
CME Eurodollar Futures
Strike @ 93.50 Exp. 06/16/97 600,000 542 285
-----------------------
$ 556 $ 287
=======================
</TABLE>
(f) Principal amount denoted in indicated currency:
C$ - Canadian Dollar
DM - German Mark
(g) Securities are grouped by coupon and represent a range of maturities.
(h) Security becomes interest bearing at a future date.
See Notes to Financial Statements
48
<PAGE>
SCHEDULE OF INVESTMENTS
Low Duration Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Corporate Bonds and Notes - 27.2%
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Finance - 9.4%
American General Finance Corp.
7.750% due 01/15/97 $ 600 $ 603
6.000% due 02/23/98 1,000 996
Associates Corp. of North America
6.750% due 07/15/97 625 629
7.250% due 05/15/98 500 508
7.500% due 05/15/99 1,000 1,023
AT&T Capital Corp.
7.660% due 01/30/97 600 604
Banc One Corp.
7.250% due 08/01/02 500 507
Bancomer
8.000% due 07/07/98 4,000 3,980
BankAmerica Corp.
7.200% due 09/15/02 100 101
Bankers Trust
7.250% due 11/01/96 5,500 5,506
Banponce Corp.
5.813% due 01/27/97 (d) 5,000 5,003
7.500% due 05/28/97 2,000 2,020
Chrysler Financial Corp.
8.125% due 12/15/96 15,000 15,072
6.100% due 11/03/97 2,000 1,999
8.330% due 02/02/98 5,490 5,634
6.280% due 07/17/98 3,000 2,994
Citicorp
5.513% due 01/30/98 (d) 1,000 999
5.688% due 05/29/98 (d) 8,000 7,989
Comercia Bank
6.750% due 05/12/98 500 504
Commercial Credit
5.500% due 05/15/98 1,000 984
Den Danske Bank
6.850% due 06/23/00 (d) 1,000 1,007
Discover Credit Corp.
7.760% due 05/13/97 5,000 5,051
Ford Motor Credit Corp.
7.875% due 01/15/97 700 704
6.800% due 08/15/97 1,200 1,208
6.520% due 02/03/98 1,000 1,004
General Motors Acceptance Corp.
8.000% due 10/01/96 500 500
6.226% due 10/15/96 (d) 16,000 16,040
7.650% due 12/17/96 425 427
8.250% due 01/13/97 9,000 9,073
8.000% due 01/23/97 17,000 17,137
7.750% due 01/24/97 2,500 2,518
7.625% due 02/28/97 10,000 10,069
7.750% due 04/15/97 13,834 13,969
7.000% due 08/19/97 175 176
Kansallis-Osake
7.860% due 09/30/43 (d) 13,500 13,892
Lehman Brothers, Inc.
7.000% due 05/15/97 500 503
7.375% due 08/15/97 500 505
Manufacturers Hanover Corp.
5.438% due 04/30/97 (d) 6,000 5,987
Norwest Financial, Inc.
6.400% due 11/15/96 15,000 15,026
Salomon, Inc.
5.200% due 01/20/97 750 748
8.850% due 02/10/97 2,000 2,019
8.670% due 02/13/97 1,500 1,515
5.930% due 03/17/97 12,590 12,588
7.000% due 01/20/98 2,500 2,518
6.125% due 08/18/98 12,820 12,757
Principal
Amount Value
(000's) (000's)
================================================================================
7.125% due 08/01/99 $ 1,000 $ 1,006
SGE Associates
8.070% due 07/20/00 20,586 20,650
Signet Banking Corp.
5.625% due 05/15/97 (d) 2,095 2,087
5.875% due 04/15/98 (d) 2,865 2,850
Society Bank
6.875% due 10/15/96 19,375 19,389
Transamerica Financial
6.940% due 04/27/98 700 706
Wachovia Bank
4.625% due 12/13/96 1,000 999
----------
252,283
==========
Industrials - 11.6%
Americo
6.850% due 09/18/98 7,000 7,003
AMR Corp.
7.600% due 01/27/97 2,000 2,012
6.500% due 03/15/97 3,075 3,085
9.500% due 07/15/98 1,000 1,047
9.270% due 08/13/98 2,000 2,089
8.100% due 11/01/98 2,000 2,058
8.730% due 11/02/98 3,000 3,113
9.910% due 03/01/01 2,500 2,740
10.000% due 03/07/01 4,000 4,398
9.440% due 05/15/01 5,000 5,401
9.125% due 10/24/01 1,000 1,071
Arkla, Inc.
9.875% due 04/15/97 11,500 11,733
9.200% due 12/18/97 1,000 1,030
Bausch & Lomb
6.480% due 12/17/97 275 276
Coastal Corp.
10.375% due 10/01/00 5,000 5,588
Consolidated Natural Gas Co.
8.750% due 06/01/99 400 423
Delta Air Lines
7.790% due 12/01/98 4,449 4,534
E.I. Du Pont de Nemours
8.500% due 02/10/98 100 103
Enserch Corp.
8.875% due 03/15/01 3,000 3,075
First Brands Corp.
9.125% due 04/01/99 3,000 3,045
Ford Motor Co.
9.250% due 07/15/97 14,900 15,264
9.000% due 09/15/01 500 543
Minnesota Mining & Manufacturing
6.250% due 03/29/99 200 199
Nabisco, Inc.
8.300% due 04/15/99 2,900 3,012
8.000% due 01/15/00 16,675 17,217
News America Holdings Corp.
12.000% due 12/15/01 4,805 5,144
Pepsico, Inc.
7.000% due 10/14/99 600 600
Pfizer, Inc.
6.500% due 02/01/97 500 501
Philip Morris Co.
8.750% due 12/01/96 8,250 8,287
7.500% due 03/15/97 250 252
Sears Roebuck & Co.
9.250% due 04/15/98 5,750 5,994
Time Warner, Inc.
7.450% due 02/01/98 27,410 27,774
6.460% due 08/15/00 (d) 35,787 35,788
7.975% due 08/15/04 21,247 21,470
</TABLE>
49
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Low Duration Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
8.110% due 08/15/06 $ 42,495 $ 42,340
8.180% due 08/15/07 42,495 42,940
Transco Energy
9.375% due 08/15/01 1,000 1,096
United Air Lines
6.750% due 12/01/97 11,875 11,881
USX Corp.
7.750% due 01/21/98 2,000 2,024
Varity Corp.
11.375% due 11/15/98 4,650 4,677
----------
310,827
==========
Utilities - 6.2%
Alabama Power
7.250% due 08/01/07 100 99
Bell Atlantic Financial
6.000% due 06/01/98 500 497
Cablevision Industries
10.750% due 01/30/02 2,000 2,142
Carolina Power & Light
7.900% due 12/27/96 16,300 16,400
Central Power & Light
6.625% due 01/01/98 100 100
Cleveland Electric Illuminating Co.
9.450% due 12/01/97 11,400 11,697
8.330% due 10/30/98 1,500 1,525
9.300% due 07/26/99 1,500 1,564
9.375% due 03/01/17 3,000 2,957
CMS Energy
9.500% due 10/01/97 (d) 23,175 23,704
Commonwealth Edison
5.750% due 12/01/96 2,000 1,999
8.875% due 05/15/97 7,000 7,107
Consumers Power Co.
8.750% due 02/15/98 5,000 5,123
CTC Mansfield Funding
11.125% due 09/30/16 7,985 8,465
Detroit Edison
6.000% due 12/01/96 4,040 4,040
Gulf States Utilities
6.670% due 11/01/96 2,500 2,505
Long Island Lighting Co.
8.750% due 02/15/97 1,000 1,008
7.625% due 04/15/98 3,000 3,015
7.300% due 07/15/99 3,000 2,956
6.250% due 07/15/01 2,275 2,104
Louisiana Power & Light Co.
7.740% due 07/01/02 10,500 10,586
10.300% due 01/02/05 2,940 3,026
Mississippi Power & Light
8.800% due 04/01/05 1,000 1,013
New York State Electric
6.500% due 09/01/98 2,350 2,346
North Atlantic Energy
9.050% due 06/01/02 4,702 4,643
Northern States Power Co.
5.875% due 10/01/97 100 100
Pennsylvania Power Co.
9.000% due 12/01/96 5,500 5,523
Public Service Electric & Gas
6.000% due 01/01/98 1,000 995
Texas-New Mexico Power
11.250% due 01/15/97 1,938 1,965
Texas Gas Transmission Corp.
9.625% due 07/15/97 9,000 9,229
Toledo Edison Co.
9.300% due 04/01/98 5,000 5,145
Transcontinental Gas Pipeline
9.000% due 11/15/96 4,850 4,868
8.125% due 01/15/97 5,500 5,534
Triton Energy
0.000% due 11/01/97 8,500 7,873
Union Electric
5.500% due 03/01/97 500 499
United Illuminating
7.375% due 01/15/98 1,000 1,007
9.760% due 01/02/06 3,153 3,251
Western Massachusetts Electric
6.750% due 03/01/98 792 790
----------
167,400
----------
Total Corporate Bonds and Notes 730,510
(Cost $726,761) ==========
- --------------------------------------------------------------------------------
U.S. Treasury Obligations - 0.2%
- --------------------------------------------------------------------------------
U.S. Treasury Strips (PO)
0.000% due 10/15/96 2,000 1,996
0.000% due 01/15/97 2,000 1,970
0.000% due 05/15/98 2,000 1,812
----------
Total U.S. Treasury Obligations 5,778
(Cost $5,769) ==========
- --------------------------------------------------------------------------------
U.S. Government Agencies - 0.2%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
7.300% due 10/28/02 100 100
8.440% due 10/27/04 500 510
Federal National Mortgage Assn.
5.200% due 07/10/98 1,500 1,470
Small Business Administration
8.250% due 01/25/13 (d) 1,790 1,882
7.500% due 02/25/14 (d) 1,487 1,541
Student Loan Marketing Assn.
7.560% due 12/09/96 100 100
Tennessee Valley Authority
0.000% due 10/15/98 1,000 882
----------
Total U.S. Government Agencies 6,485
(Cost $6,325) ==========
- --------------------------------------------------------------------------------
Mortgage-Backed Securities - 67.9%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 8.5%
5.000% due 05/01/98-08/01/98 (g) 21 21
5.500% due 05/01/98-04/01/07 326 320
6.050% due 01/01/17-06/01/17 (d)(g) 890 880
6.059% due 09/01/15-01/01/20 (d)(g) 3,637 3,597
6.059% due 11/01/26-06/01/30 (d)(g) 3,064 3,031
6.071% due 02/01/16 (d) 173 172
6.073% due 11/01/14-08/01/19 (d)(g) 3,126 3,093
6.086% due 05/01/17 (d) 326 322
6.091% due 01/01/30-12/01/30 (d)(g) 4,876 4,831
6.105% due 10/01/30 (d) 517 512
6.125% due 01/01/20 (d) 362 359
6.500% due 01/01/02-02/01/05 (g) 104 103
6.500% due 11/13/26 48,000 45,075
7.000% due 01/01/17-11/13/26 (g) 32,605 31,471
7.195% due 02/01/20 (d) 5,519 5,681
7.250% due 07/01/07 67 67
7.500% due 09/01/06 219 221
7.500% due 10/10/26 1,000 989
7.519% due 01/01/24 (d) 3,853 3,970
7.553% due 10/01/23 (d) 5,227 5,387
7.555% due 06/01/24 (d) 2,963 3,041
7.600% due 11/01/23 (d) 3,618 3,731
7.760% due 01/01/24 (d) 5,989 6,182
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
================================================================================
<S> <C> <C>
7.795% due 11/01/22 (d) $ 4,533 $ 4,632
7.962% due 12/01/22 (d) 2,924 3,020
8.000% due 07/01/06-04/01/07 (g) 428 437
8.000% due 07/02/24-10/10/26 (g) 79,026 80,021
8.250% due 10/01/07-11/01/07 (g) 76 77
8.500% due 07/01/01-05/01/10 (g) 763 785
8.500% due 01/01/12 80 83
8.500% due 10/10/26 1,500 1,540
8.750% due 02/01/01-04/01/02 (g) 218 225
9.000% due 09/01/98-07/01/04 (g) 267 276
9.000% due 12/15/20 9,906 10,432
9.250% due 07/01/01 16 16
9.500% due 03/01/01-12/01/04 (g) 255 267
9.750% due 03/01/01-11/01/08 (g) 1,706 1,817
10.000% due 04/01/01 16 17
10.500% due 07/01/00-10/01/00 (g) 97 102
10.500% due 10/01/10-02/01/16 (g) 73 79
10.750% due 10/01/00 73 78
10.750% due 09/01/09-08/01/11 (g) 792 872
11.250% due 10/01/14 14 15
11.500% due 10/01/15 2 3
11.750% due 11/01/10-08/01/15 (g) 24 27
14.000% due 09/01/12-12/01/12 (g) 6 8
----------
227,885
==========
Federal Housing Administration - 0.7%
6.950% due 04/01/14 1,832 1,760
7.421% due 11/01/19 1,055 1,052
7.430% due 10/01/19-12/01/21 (g) 14,999 15,005
9.680% due 02/01/24 1,185 1,234
----------
19,051
==========
Federal National Mortgage Association - 4.1%
6.059% due 03/01/18-02/01/19 (d)(g) 1,021 1,013
6.060% due 01/01/26 (d) 11,877 11,780
6.067% due 08/01/29 (d) 3,517 3,489
6.072% due 04/01/19 (d) 129 128
6.073% due 03/01/28-02/01/31 (d)(g) 6,966 6,910
6.075% due 01/01/26 (d) 2,069 2,054
6.107% due 01/01/26 (d) 5,896 5,856
6.146% due 04/01/18 (d) 9,360 9,214
6.500% due 06/01/08 48 45
7.000% due 12/01/06-09/01/07 (g) 104 101
7.323% due 01/01/24 (d) 9,793 10,100
7.516% due 04/01/24 (d) 8,148 8,412
7.637% due 10/01/24 (d) 17,576 18,214
7.638% due 07/01/23 (d) 5,007 5,188
7.763% due 10/01/23 (d) 8,053 8,345
8.000% due 03/01/04 245 251
8.467% due 05/01/97 (d) 412 423
8.500% due 03/01/08 85 88
8.500% due 02/01/17-11/01/23 (g) 11,815 12,228
9.000% due 07/01/97-08/01/98 (g) 1,001 1,025
10.000% due 02/01/04-06/01/13 (g) 2,697 2,885
10.000% due 09/01/14-06/01/19 (g) 1,318 1,432
10.500% due 06/01/05-11/01/05 (g) 551 585
11.000% due 10/01/98-09/01/00 (g) 44 47
11.250% due 12/01/10-10/01/15 (g) 341 380
12.000% due 01/01/15-10/01/15 (g) 18 20
12.750% due 02/01/14-11/01/14 (g) 122 142
13.000% due 07/01/15 10 11
13.250% due 09/01/11 29 34
13.500% due 04/01/14 9 11
15.500% due 10/01/12-12/01/12 (g) 91 109
15.750% due 12/01/11 68 79
16.000% due 09/01/12-12/01/12 (g) 36 43
----------
110,642
==========
Principal
Amount Value
(000's) (000's)
================================================================================
Government National Mortgage Association - 33.3%
5.500% due 08/20/25 (d) $ 4,794 $ 4,697
6.000% due 07/20/26 (d) 990 982
6.000% due 08/20/26-09/20/26 (g) 5,555 5,512
6.500% due 02/20/23-02/20/25 (d)(g) 39,510 39,958
6.875% due 09/20/22 (d) 5,387 5,489
7.000% due 08/20/23 2,739 2,778
7.000% due 10/20/23-10/20/24 (d)(g) 12,295 12,476
7.000% due 10/17/26-11/19/26 (g) 498,000 479,055
7.125% due 05/20/22-06/20/25 (d)(g) 70,410 71,377
7.250% due 07/20/22-08/20/22 (d)(g) 71,011 71,893
7.250% due 07/20/23 6,823 6,909
7.250% due 08/20/23-09/20/24 (d)(g) 70,900 72,207
7.500% due 02/15/22-12/15/23 (g) 121,442 120,727
8.000% due 07/15/04-11/15/06 (g) 10 11
9.750% due 07/15/13-02/15/20 (g) 1,648 1,766
10.750% due 10/15/98 31 32
11.750% due 07/15/13-09/15/15 (g) 423 477
12.000% due 06/20/15 36 41
13.500% due 05/15/11-11/15/12 (g) 62 73
16.500% due 12/15/11 1 1
16.750% due 12/15/96-01/15/97 (g) 2 2
16.750% due 12/15/11 3 3
----------
896,466
==========
Collateralized Mortgage Obligations - 15.9%
American Southwest Financial
5.100% due 06/02/99 13,986 13,466
Bear Stearns
8.200% due 09/25/22 1,314 1,315
8.000% due 05/25/23 419 423
Capstead
7.400% due 04/25/18 7,893 7,910
7.800% due 02/25/22 974 975
8.300% due 03/25/22 8,866 8,838
7.500% due 02/25/23 3,105 3,122
Chase Mortgage Financial Corp.
10.000% due 11/25/09 1,601 1,666
8.000% due 06/25/24 63 64
7.500% due 10/25/24 81 81
Citicorp Mortgage
9.000% due 10/01/01 108 111
9.000% due 11/01/01 1,958 2,019
8.500% due 06/25/06 2,208 2,226
9.350% due 06/01/10 33 33
7.250% due 11/01/11 956 955
10.000% due 01/25/13 149 157
9.500% due 10/25/15 1,641 1,681
CMO Trust
6.188% due 01/20/03 (d) 37 37
Collateralized Mortgage Obligation Trust
7.985% due 05/01/17 16,703 16,930
9.500% due 06/25/20 887 937
Conseco Commercial Mortgage
9.700% due 07/15/04 2,366 2,387
Countrywide
7.842% due 11/25/24 (d) 10,847 11,013
6.375% due 01/25/35 (d) 20,603 20,023
Donaldson, Lufkin & Jenrette
11.000% due 08/01/19 2,351 2,606
7.708% due 05/25/24 (d) 6,347 6,470
Federal Home Loan Mortgage Corp.
9.000% due 01/15/04 500 512
9.000% due 04/15/04 252 254
9.000% due 12/15/05 910 930
10.000% due 09/15/09 20 21
</TABLE>
51
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Low Duration Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
================================================================================
<S> <C> <C>
12.500% due 09/30/13 $ 1,858 $ 2,108
11.000% due 11/30/15 6,156 6,741
8.000% due 04/15/19 1,813 1,828
8.500% due 06/15/19 967 968
10.000% due 07/15/19 525 574
8.500% due 09/15/19 3,604 3,665
9.000% due 11/15/19 3,587 3,724
7.950% due 02/15/20 3,586 3,646
9.000% due 02/15/20 1,310 1,334
8.250% due 03/15/20 401 409
7.500% due 04/15/20 2,900 2,896
8.000% due 04/15/20 2,500 2,567
10.000% due 05/15/20 350 387
8.950% due 11/15/20 1,779 1,787
7.500% due 12/15/20 2,000 1,987
9.500% due 01/15/21 3,588 3,821
8.000% due 04/15/21 3,060 3,105
9.000% due 05/15/21 650 678
7.000% due 08/15/21 9,541 9,535
Federal National Mortgage Assn.
8.950% due 05/25/03 159 164
9.400% due 07/25/03 250 261
9.000% due 07/25/03 1,142 1,182
8.500% due 09/25/06 754 765
6.875% due 06/25/09 5,167 5,139
7.000% due 04/25/15 3,147 3,160
7.250% due 07/25/15 3,477 3,488
7.500% due 01/25/16 413 414
5.750% due 04/25/16 5,227 5,082
8.000% due 01/25/19 194 195
7.500% due 02/25/19 268 268
8.000% due 05/25/19 1,742 1,761
8.750% due 05/25/19 214 221
9.000% due 05/25/19 2,271 2,299
9.300% due 05/25/19 107 110
9.000% due 07/25/19 939 969
9.000% due 08/25/19 2,887 2,924
9.500% due 03/25/20 3,548 3,909
9.500% due 05/25/20 1,450 1,612
8.000% due 07/25/20 9,667 9,854
8.500% due 01/25/21 184 186
9.000% due 03/25/21 9,989 10,360
9.000% due 04/25/21 300 317
8.000% due 03/25/22 252 255
5.000% due 01/25/24 637 617
First Boston Corp.
7.050% due 07/25/23 583 584
General Electric Capital Mortgage
6.350% due 03/25/17 31,717 31,511
Glendale Federal Savings & Loan
6.935% due 03/25/30 (d) 3,429 3,483
Greenwich
8.244% due 11/25/24 (d) 8,791 8,947
Home MAC Mortgage Securities Corp.
8.550% due 07/01/08 29 29
Homestead Mortgage Acceptance Corp.
11.450% due 09/01/15 2,035 2,193
Housing Securities, Inc.
6.750% due 02/25/21 28,161 28,091
Independent National Mortgage Corp.
8.250% due 03/25/25 12,709 12,850
Norwest Mortgage
12.375% due 01/01/14 338 364
12.500% due 02/01/14 834 890
12.250% due 04/01/14 595 642
Prudential Bache
6.059% due 09/01/18 (d) 69 69
Principal
Amount Value
(000's) (000's)
================================================================================
Prudential Home
6.500% due 04/25/00 $ 103 $ 103
7.500% due 09/25/07 878 871
7.000% due 11/25/07 3,009 3,017
7.000% due 06/25/23 3,014 2,859
Prudential Securities
8.000% due 12/25/20 1,854 1,889
Residential Asset Securitization Trust
7.050% due 07/25/26 17,055 17,044
Residential Funding
6.157% due 07/01/19 (d) 1,665 1,566
7.059% due 09/01/19 (d) 429 423
8.250% due 07/25/21 259 258
9.000% due 12/25/21 296 307
Resolution Trust Corp.
6.991% due 09/25/19 (d) 3,500 3,518
6.110% due 01/25/21 (d) 287 275
6.735% due 07/25/21 (d) 57 57
7.137% due 10/25/21 (d) 1,793 1,798
10.000% due 05/25/22 326 333
7.250% due 10/25/23 803 800
9.500% due 05/25/24 548 538
7.000% due 10/25/24 3 3
8.750% due 05/25/26 29 29
6.270% due 09/25/27 (d) 3,246 3,113
9.000% due 09/25/28 397 407
Ryland Acceptance Corp.
8.000% due 03/01/18 2,728 2,655
9.500% due 07/01/18 1,500 1,494
Salomon Mortgage
7.200% due 12/25/17 (d) 3,274 3,275
6.975% due 01/25/18 (d) 81 81
9.554% due 10/25/18 8,077 8,366
5.922% due 03/25/24 (d) 8,431 8,423
Sears Mortgage
7.885% due 08/25/23 (d) 1,480 1,503
8.601% due 05/25/32 (d) 1,043 1,053
Securitized Asset Sales, Inc.
6.750% due 08/25/25 20,000 20,019
7.500% due 10/25/25 23,000 23,178
Shearson Lehman
9.600% due 03/25/21 1,795 1,876
UBS Mortgage
9.000% due 10/18/20 4,148 4,167
Westam Mortgage Financial Corp.
6.500% due 10/02/17 7,802 7,661
----------
427,046
==========
Other Mortgage-Backed Securities - 3.2%
Dime Savings
7.079% due 11/01/18 (d) 3,844 3,533
First Boston Mortgage Securities Corp.
8.300% due 08/20/09 495 504
Fleet Finance, Inc.
5.450% due 03/20/23 42 42
Glendale Federal Savings & Loan
11.000% due 03/01/10 47 49
Great Western Savings & Loan
6.100% due 12/01/17 (d) 612 600
Guardian
6.824% due 07/25/18 (d) 79 73
6.849% due 12/25/19 (d) 435 296
6.793% due 12/25/19 (d) 2,207 1,456
6.814% due 02/25/20 (d) 1,914 1,110
6.797% due 07/25/20 (d) 1,895 1,317
Home Savings of America
5.757% due 05/25/27 (d) 2,679 2,600
5.847% due 09/25/28 (d) 1,812 1,769
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
================================================================================
<S> <C> <C>
Imperial Savings & Loan
9.800% due 07/25/17 $ 83 $ 84
9.900% due 02/25/18 708 744
MDC Mortgage Funding
8.201% due 01/25/25 (d) 10,230 10,425
Residential Funding
8.500% due 04/01/02 47 46
Resolution Trust Corp.
7.531% due 05/25/19 (d) 11,929 11,933
7.400% due 08/25/19 (d) 7,401 7,368
10.365% due 08/25/21 (d) 1,425 1,494
8.625% due 10/25/21 610 612
7.221% due 03/25/22 (d) 3,918 3,925
6.900% due 02/25/27 9,000 7,830
6.307% due 10/25/28 (d) 3,956 4,016
7.482% due 05/25/29 (d) 3,929 3,926
Ryland Acceptance Corp.
7.281% due 11/28/22 (d) 10,068 10,251
Salomon Mortgage
11.500% due 09/01/15 1,172 1,275
8.230% due 12/25/17 (d) 648 635
Sears Mortgage
12.000% due 02/25/14 192 210
7.595% due 10/25/22 (d) 6,366 6,692
Security Pacific
7.850% due 05/15/98 8 8
Western Federal Savings & Loan
6.749% due 06/25/18 (d) 78 78
6.624% due 11/25/18 (d) 393 391
10.069% due 02/01/20 (d) 92 96
----------
85,388
==========
Stripped Mortgage-Backed Securities - 2.2%
Federal Home Loan Mortgage Corp. (IO)
7.000% due 07/15/04 5,089 251
6.250% due 09/15/04 12,394 749
6.000% due 02/15/06 16,478 1,093
9.982% due 07/15/06 12,597 1,948
10.195% due 08/15/06 3,922 580
11.944% due 12/15/06 5,338 1,233
6.000% due 10/15/07 5,481 481
6.000% due 02/15/08 13,837 1,367
7.000% due 07/15/12 5,662 238
6.500% due 08/25/13 15,335 1,041
7.000% due 08/15/18 7,321 1,882
7.500% due 12/15/18 10,466 1,257
6.500% due 05/15/19 23,369 2,775
6.500% due 06/15/19 24,798 2,616
10.496% due 04/15/21 7,854 1,300
6.500% due 04/15/22 13,822 1,821
7.000% due 05/15/23 1,274 200
4.000% due 01/15/24 20,919 5,999
Federal National Mortgage Assn. (IO)
6.000% due 07/25/05 7,073 493
7.272% due 09/25/06 6,500 1,466
6.000% due 02/25/08 16,055 1,659
6.500% due 03/25/09 5,854 804
0.100% due 03/25/09 48,414 1,133
6.500% due 03/25/09 7,705 1,690
6.500% due 02/25/13 9,991 565
8.815% due 06/25/16 16,248 1,780
9.987% due 12/25/18 4,674 495
7.500% due 03/25/19 11,503 1,707
6.500% due 04/25/20 47,750 5,091
7.000% due 05/25/21 23,895 2,994
8.598% due 02/25/22 5,000 1,307
6.500% due 03/25/23 11,710 1,884
4.875% due 03/25/24 (d) 17,582 1,257
Principal
Amount Value
(000's) (000's)
================================================================================
Federal National Mortgage Assn. (PO)
0.000% due 12/20/96 $ 1,475 $ 1,459
0.000% due 01/25/20 1,699 1,681
0.000% due 07/25/22 4,510 3,408
0.000% due 09/25/22 113 86
Resolution Trust Corp. (PO)
0.000% due 09/25/00 1,239 1,127
----------
58,917
----------
Total Mortgage-Backed Securities 1,825,395
(Cost $1,823,166) ==========
- --------------------------------------------------------------------------------
Asset-Backed Securities - 0.1%
- --------------------------------------------------------------------------------
Prudential Home (IO)
0.300% due 04/25/09 (d) 108,936 1,004
SCFC Boat Loan Trust
7.050% due 04/15/07 86 86
----------
Total Asset-Backed Securities 1,090
(Cost $1,051) ==========
- --------------------------------------------------------------------------------
Sovereign Issues - 4.7%
- --------------------------------------------------------------------------------
Banco Nacional de Obra y Servicios
6.875% due 10/01/98 10,000 9,830
Cemex
10.000% due 11/15/96 4,400 4,415
Kingdom of Sweden
5.440% due 12/06/96 1,700 1,683
Nacional Financiera
6.000% due 12/19/96 13,500 13,466
8.125% due 12/15/97 (d) 235 233
5.875% due 02/17/98 2,000 1,955
6.250% due 12/03/98 (d) 1,500 1,412
Petroleos Mexicanos
8.750% due 03/05/97 1,000 1,005
8.250% due 02/04/98 5,000 5,018
Province of British Columbia
5.310% due 12/19/96 20,000 19,762
Province of Quebec
5.500% due 10/26/01 (d) 250 246
United Mexican States
5.820% due 06/28/01 10,000 8,550
6.352% due 12/31/19 (d) 10,000 8,425
6.398% due 12/31/19 (d) 30,000 25,275
6.453% due 12/31/19 (d) 30,000 25,275
----------
Total Sovereign Issues 126,550
(Cost $128,279) ==========
- --------------------------------------------------------------------------------
Foreign Currency-Denominated Issues (c)(f) - 1.4%
- --------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior
8.000% due 05/06/98 DM 3,500 2,357
Kingdom of Netherlands
6.250% due 07/15/98 DG 59,000 36,080
----------
Total Foreign Currency-Denominated Issues 38,437
(Cost $38,796) ==========
- --------------------------------------------------------------------------------
Preferred Stock - 0.8%
- --------------------------------------------------------------------------------
Shares
Gulf States Utility 900 21,600
----------
Total Preferred Stock 21,600
(Cost $21,861) ==========
</TABLE>
53
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Low Duration Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Short-Term Instruments - 18.5%
- --------------------------------------------------------------------------------
<S> <C> <C>
Discount Notes - 18.0%
Ameritech Corp
5.410% due 11/18/96 $ 2,200 $ 2,184
Amoco Co.
5.270% due 11/26/96 7,000 6,943
AT&T Corp.
5.370% due 11/12/96 800 795
5.250% due 11/12/96 2,000 1,988
Caisse d'Amortissement
5.350% due 10/24/96 2,500 2,491
5.350% due 10/28/96 6,200 6,175
5.320% due 11/20/96 6,400 6,353
5.420% due 11/21/96 4,400 4,366
5.280% due 11/25/96 45,000 44,637
5.310% due 11/25/96 34,200 33,923
5.300% due 12/13/96 1,000 989
5.310% due 12/13/96 9,700 9,593
Canada Bills
5.360% due 10/10/96 10,000 9,987
Coca-Cola Co.
5.390% due 10/07/96 2,200 2,198
5.270% due 10/28/96 3,000 2,988
E.I. Du Pont de Nemours
5.340% due 10/16/96 25,000 24,944
Eli Lilly & Co.
5.440% due 12/16/96 900 890
5.330% due 01/06/97 12,200 12,023
Federal Farm Credit Bank
5.280% due 10/03/96 11,400 11,397
Federal Home Loan Mortgage Corp.
5.300% due 10/17/96 37,000 36,913
5.230% due 10/22/96 1,200 1,196
5.370% due 11/15/96 11,100 11,025
Federal National Mortgage Assn.
5.230% due 11/21/96 2,300 2,283
Ford Motor Credit Co.
5.420% due 10/15/96 13,200 13,172
5.380% due 10/28/96 40,000 39,839
5.380% due 11/05/96 5,000 4,974
5.310% due 11/08/96 11,700 11,634
5.400% due 11/12/96 1,600 1,590
5.330% due 12/09/96 1,700 1,682
General Electric Capital Corp.
5.260% due 11/12/96 44,500 44,227
Hewlett-Packard Co.
5.280% due 12/20/96 6,100 6,026
Minnesota Mining & Manufacturing Co.
5.270% due 10/16/96 800 798
Mobil Australia Finance
5.340% due 10/16/96 6,000 5,987
National Rural Utilities Cooperative
5.360% due 10/15/96 20,700 20,657
5.280% due 10/28/96 1,700 1,693
5.440% due 10/28/96 5,200 5,179
5.290% due 11/12/96 35,900 35,678
5.330% due 11/13/96 11,800 11,725
5.340% due 11/13/96 1,600 1,590
5.280% due 11/22/96 1,400 1,389
New Center Asset Trust
5.310% due 11/05/96 11,700 11,640
Norfolk Southern Corp.
5.400% due 11/05/96 4,800 4,775
Proctor & Gamble Co.
5.380% due 11/01/96 6,000 5,972
5.270% due 11/04/96 5,100 5,075
Shell Oil Co.
5.300% due 10/01/96 9,900 9,900
5.330% due 10/04/96 2,800 2,799
----------
484,282
==========
Repurchase Agreements - 0.2%
State Street Bank
4.750% due 10/01/96 5,888 5,888
(Dated 09/30/96. Collateralized by ----------
Federal National Mortgage Assn. 6.580%
11/15/02 valued at $6,010,472.
Repurchase proceeds are $5,888,777.)
U.S. Treasury Bills - 0.3%
5.053% due 10/17/96-11/21/96 (b)(g) 8,795 8,764
----------
Total Short-Term Instruments 498,934
(Cost $498,940) ==========
Total Investments (a) - 121.0% $3,254,779
(Cost $3,250,948)
Written Options (e) - (0.1%) (1,777)
(Premiums $3,980)
Other Assets and Liabilities (Net) - (20.9%) (563,385)
----------
Net Assets - 100.0% $2,689,617
==========
Notes to Schedule of Investments ($ 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. $ 23,135
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value. (19,304)
----------
Unrealized appreciation-net $ 3,831
==========
(b) Securities with an aggregate market value of
$8,764 have been segregated with the custodian to
cover magin requirements for the following open
future contracts at September 30, 1996:
<CAPTION>
Unrealized
Type Contracts Appreciation
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury 10 Year Note (12/96) 363 $ 102
U.S. Treasury 30 Year Bond (12/96) 37 34
----------
$ 136
</TABLE>
54
<PAGE>
================================================================================
(c) Foreign forward currency contracts outstanding at
September 30, 1996:
<TABLE>
<CAPTION>
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sell C$ 5,061 11/96 $ (8)
Buy DG 403 12/96 (7)
Sell DM 3,544 12/96 28
----------
$ 13
==========
(d) Variable rate security. The rate listed is as of
September 30, 1996.
(e) Premiums received on Written Put Options:
<CAPTION>
Premiums Market
Type Par Received Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CME Eurodollar March Futures
Strike @ 93.00 Exp. 03/17/97 $ 681,000 $ 269 $ 43
CME Eurodollar June Futures
Strike @ 93.50 Exp. 06/16/97 $3,650,000 3,711 1,734
--------------------------
$ 3,980 $ 1,777
==========================
</TABLE>
(f) Principal amount denoted in indicated currency:
C$ - Canadian Dollar
DG - Dutch Guilder
DM - German Mark
(g) Securities are grouped by coupon and represent a range of maturities.
See Notes to Financial Statements
55
<PAGE>
SCHEDULE OF INVESTMENTS
Low Duration Fund II
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Corporate Bonds and Notes - 7.9%
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Finance - 7.9%
AT&T Capital Corp.
6.990% due 10/04/96 $ 5,000 $ 5,004
Chrysler Financial Corp.
8.220% due 12/27/96 2,000 2,011
Ford Motor Credit Corp.
8.000% due 12/01/96 5,000 5,018
Golden West Financial Corp.
8.625% due 08/30/98 3,000 3,111
Household Financial Corp.
7.800% due 11/01/96 3,200 3,205
Salomon, Inc.
8.550% due 02/17/97 1,900 1,917
----------
Total Corporate Bonds and Notes 20,266
(Cost $20,168) ==========
- --------------------------------------------------------------------------------
U.S. Treasury Notes - 11.7%
- --------------------------------------------------------------------------------
6.125% due 05/31/97 20,000 20,069
6.125% due 08/31/98 10,000 10,009
----------
Total U.S. Treasury Notes 30,078
(Cost $30,025) ==========
- --------------------------------------------------------------------------------
U.S. Government Agencies - 0.1%
- --------------------------------------------------------------------------------
Government Trust Certificate - Israel
9.250% due 11/15/96 154 155
----------
Total U.S. Government Agencies 155
(Cost $155) ==========
- --------------------------------------------------------------------------------
Mortgage-Backed Securities - 80.4%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 13.3%
7.000% due 11/13/26 4,500 4,343
7.500% due 10/10/26 5,000 4,947
7.971% due 07/01/23 (c) 3,454 3,594
8.000% due 07/01/24-12/01/25 (e) 20,798 21,051
10.500% due 09/01/15-12/01/18 (e) 143 156
----------
34,091
==========
Federal National Mortgage Association - 5.0%
6.124% due 10/23/26 (c) 5,000 4,947
7.353% due 01/01/24 (c) 3,401 3,392
7.557% due 02/01/25 (c) 2,479 2,555
8.500% due 02/01/98-06/01/98 (e) 69 71
9.000% due 06/01/98 152 154
10.500% due 05/01/12 1,632 1,785
----------
12,904
==========
Government National Mortgage Association - 27.4%
7.000% due 10/17/26-11/19/26 (e) 30,000 28,851
7.125% due 4/20/22-06/20/22 (c)(e) 12,570 12,703
7.250% due 07/20/23 (c) 16,279 16,484
7.500% due 02/15/22-03/15/24 (e) 10,909 10,847
9.000% due 07/20/16-12/20/17 (e) 1,459 1,535
----------
70,420
==========
Collateralized Mortgage Obligations - 28.9%
American Southwest Financial
7.500% due 10/01/18 1,000 996
Capstead
7.500% due 02/25/23 3,000 3,016
Citicorp Mortgage
9.500% due 09/25/02 1,712 1,751
9.500% due 10/25/15 1,230 1,260
Principal
Amount Value
(000's) (000's)
================================================================================
CMC Securities Corp.
7.507% due 04/25/25 (c) $ 7,383 $ 7,503
Collateralized Mortgage Securities Corp.
9.000% due 04/25/10 4,663 4,734
11.875% due 04/01/15 324 344
Donaldson, Lufkin & Jenrette
7.708% due 05/25/24 (c) 3,204 3,266
Federal Home Loan Mortgage Corp.
8.500% due 05/15/04 1,587 1,603
12.900% due 05/01/14 474 495
8.600% due 06/15/19 1,777 1,799
Federal National Mortgage Assn.
9.250% due 10/25/18 212 222
7.000% due 08/25/22 1,000 997
8.000% due 11/25/23 11,876 11,887
General Electric Capital Mortgage
7.500% due 11/25/18 46 46
Kidder Peabody
7.150% due 04/25/25 2,677 2,602
Lomas & Nettleton
12.000% due 03/17/14 191 201
Prudential Home
7.000% due 07/25/23 499 497
7.500% due 06/25/25 9,045 9,109
Residential Asset Securitization Trust
9.000% due 07/25/26 9,673 9,969
Residential Funding
7.500% due 10/25/22 2,044 2,012
Resolution Trust Corp.
7.137% due 10/25/21 (c) 448 450
Ryland Acceptance Corp.
14.000% due 11/25/31 226 251
Salomon Mortgage
7.264% due 11/25/22 (c) 3,783 3,814
Saxon Mortgage
7.659% due 09/25/22 (c) 2,939 2,977
Sears Mortgage
8.601% due 05/25/32 (c) 1,460 1,475
UBS Mortgage
8.000% due 07/25/20 839 850
----------
74,126
==========
Other Mortgage-Backed Securities - 5.8%
Guardian
8.044% due 07/25/19 (c) 193 190
7.151% due 10/25/19 (c) 671 497
6.797% due 07/25/20 (c) 1,263 878
Resolution Trust Corp.
7.531% due 05/25/19 (c) 2,593 2,594
8.625% due 10/25/21 366 367
7.955% due 10/25/28 (c) 6,535 6,637
Sears Mortgage
6.500% due 03/25/17 373 345
7.572% due 10/25/22 (c) 3,310 3,480
----------
14,988
----------
Total Mortgage-Backed Securities 206,529
(Cost $206,859) ==========
- --------------------------------------------------------------------------------
Short-Term Instruments - 15.9%
- --------------------------------------------------------------------------------
Discount Notes - 14.5%
Ameritech Corp.
5.410% due 11/18/96 3,400 3,375
Coca-Cola Co.
5.390% due 10/07/96 2,900 2,897
5.270% due 11/14/96 2,400 2,385
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Assn.
5.320% due 10/01/96 $ 9,400 $ 9,400
5.210% due 11/07/96 900 895
General Electric Capital Corp.
5.280% due 11/12/96 900 894
4.750% due 11/25/96 5,000 4,959
General Motors Acceptance Corp.
5.320% due 11/25/96 3,600 3,571
Hewlett-Packard Co.
5.300% due 10/25/96 4,500 4,484
New Center Asset Trust
5.300% due 12/06/96 4,400 4,356
----------
37,216
==========
Repurchase Agreement - 1.0%
State Street Bank
4.750% due 10/01/96 2,508 2,508
(Dated 09/30/96. Collateralized by ----------
Federal National Mortgage Assn.
6.58% 11/15/02 valued at $2,562,646.
Repurchase proceeds are $2,508,331.)
U.S. Treasury Bills - 0.4%
5.078% due 10/17/96-11/21/96 (b)(e) 965 961
----------
Total Short-Term Instruments 40,685
(Cost $40,686) ==========
Total Investments (a) - 116.0% $ 297,713
(Cost $297,893)
Written Options (d) - (0.1%) (170)
(Premiums $312)
Other Assets and Liabilities (Net) - (15.9%) (40,823)
----------
Net Assets - 100.0% $ 256,720
==========
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. $ 1,891
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value. (2,071)
----------
Unrealized depreciation-net $ (180)
==========
(b) Securities with an aggregate market value
of $961 have been segregated with the custodian
to cover margin requirements for the following
open future contracts at September 30, 1996:
<CAPTION>
Unrealized
Type Contracts Appreciation
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury 5 Year Note (12/96) 100 $ 88
U.S. Treasury 10 Year Note (12/96) 126 35
----------
$ 123
==========
(c) Variable rate security. The rate listed is as of September 30, 1996.
(d) Premiums received on Written Put Options:
<CAPTION>
Premium Market
Type Par Received Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CME Eurodollar March Futures
Strike @ 93.00 Exp. 03/17/97 $ 63,000 $ 25 $ 4
CME Eurodollar June Futures
Strike @ 93.50 Exp. 06/16/97 350,000 287 166
-----------------------
$ 312 $ 170
=======================
</TABLE>
(e) Securities are grouped by coupon and represent a range of maturities.
See Notes to Financial Statements
57
<PAGE>
SCHEDULE OF INVESTMENTS
Short-Term Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Corporate Bonds and Notes - 39.2%
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking and Finance - 21.8%
Advanta National Bank
5.980% due 05/09/97 $ 2,700 $ 2,697
AT&T Capital Corp.
7.800% due 02/10/98 2,000 2,041
Capital One Bank
6.490% due 08/15/97 2,000 2,003
Caterpillar Financial
5.780% due 04/01/99 (d) 2,000 1,990
Donaldson, Lufkin & Jenrette
6.250% due 05/01/26 (d) 1,745 1,745
Ford Motor Credit Corp.
6.170% due 11/09/98 (d) 2,600 2,596
6.090% due 03/23/99 (d) 1,000 1,001
5.460% due 04/05/99 (d) 1,500 1,502
General Motors Acceptance Corp.
5.250% due 12/09/96 2,000 1,998
Kansallis-Osake
7.860% due 09/30/43 (d) 1,000 1,029
Lehman Brothers
6.390% due 09/01/99 (d) 3,000 3,008
Residential Funding
7.438% due 12/01/18 (d) 2,645 2,706
Salomon, Inc.
6.300% due 10/21/96 (d) 500 500
6.151% due 11/21/96 (d) 1,000 1,001
5.790% due 11/26/97 1,700 1,687
5.650% due 02/10/98 1,000 988
----------
28,492
==========
Industrials - 9.7%
Americo
6.850% due 09/18/98 1,000 1,000
COFIRI International, Inc.
5.925% due 10/27/00 (d) 2,000 1,983
Delta Air Lines
9.875% due 01/01/98 1,000 1,041
First Brands Corp.
9.125% due 04/01/99 1,000 1,015
G-I Holdings, Inc.
0.000% due 10/01/98 1,000 873
Sears Roebuck & Co.
5.933% due 03/10/99 (d) 3,000 3,000
TCI Communications, Inc.
7.130% due 02/03/98 3,000 3,013
Time Warner, Inc.
6.460% due 08/15/00 (d) 697 697
----------
12,622
==========
Utilities - 7.7%
Beaver Valley Funding Corp.
8.250% due 06/01/03 1,200 1,179
Consumers Power Co.
8.750% due 02/15/98 2,000 2,049
Gulf States Utilities
5.375% due 02/01/97 2,630 2,621
9.720% due 07/01/98 2,400 2,492
Hydro-Quebec
6.000% due 09/29/49 (d) 300 269
Triton Energy
0.000% due 11/01/97 (e) 1,500 1,389
----------
9,999
----------
Total Corporate Bonds and Notes 51,113
(Cost $50,795) ==========
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
Mortgage-Backed Securities - 38.2%
- --------------------------------------------------------------------------------
Federal National Mortgage Association - 1.2%
6.930% due 09/01/23 (d) $ 1,503 $ 1,519
----------
Government National Mortgage Association - 18.5%
5.000% due 04/20/26 1,131 1,091
5.000% due 02/20/26-05/20/26 (d)(h) 7,906 7,622
6.000% due 08/20/25 (d) 1,893 1,878
7.125% due 09/20/23 (d) 5,092 5,164
7.250% due 07/20/23-09/20/24 (d)(h) 8,239 8,403
----------
24,158
==========
Collateralized Mortgage Obligations - 12.3%
Donaldson, Lufkin & Jenrette
7.580% due 10/17/20 (d) 1,742 1,741
7.824% due 09/01/21 (d) 107 108
6.750% due 06/25/22 (d) 707 709
7.110% due 05/25/23 (d) 925 936
Federal National Mortgage Assn.
6.750% due 06/25/21 3,100 2,948
1.000% due 06/25/23 977 907
General Electric Capital Mortgage
6.500% due 12/25/23 529 527
Greenwich
7.705% due 04/25/22 (d) 321 323
7.038% due 10/25/22 (d) 260 262
Guardian
7.219% due 01/25/21 (d) 646 439
Housing Securities, Inc.
6.750% due 05/25/20 122 121
Manufacturers Hanover Corp.
7.250% due 12/16/25 (d) 2,662 2,654
Prudential Bache
6.059% due 09/01/18 (d) 68 68
Prudential Home
6.750% due 01/25/24 2,316 2,295
Resolution Trust Corp.
8.858% due 12/25/20 (d) 727 738
6.735% due 07/25/21 (d) 28 29
6.880% due 06/25/24 (d) 802 808
Ryland Acceptance Corp.
6.593% due 08/25/21 (d) 494 495
----------
16,108
==========
Other Mortgage-Backed Securities - 3.2%
Dime Savings
7.079% due 11/01/18 (d) 599 551
Guardian
6.793% due 12/25/19 (d) 413 272
6.814% due 02/25/20 (d) 529 307
6.852% due 02/25/20 (d) 584 309
Resolution Trust Corp.
8.625% due 10/25/21 1,000 1,003
6.745% due 05/25/29 (d) 1,302 1,314
Ryland Acceptance Corp.
6.880% due 10/25/18 (d) 87 88
6.704% due 12/25/21 (d) 275 277
----------
4,121
==========
Stripped Mortgage-Backed Securities - 3.0%
Federal National Mortgage Assn. (IO)
6.000% due 10/25/03 5,619 238
7.000% due 07/25/06 5,342 688
6.500% due 12/25/06 7,808 933
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
================================================================================
<S> <C> <C>
7.000% due 05/25/13 $ 3,760 $ 207
6.500% due 06/25/17 7,975 796
6.500% due 10/25/23 3,949 668
L.F. Rothchild Mortgage (PO)
0.000% due 04/01/17 461 443
----------
3,973
----------
Total Mortgage-Backed Securities $ 49,879
(Cost $50,734) ==========
- --------------------------------------------------------------------------------
Sovereign Issues - 4.5%
- --------------------------------------------------------------------------------
Cemex
10.000% due 11/15/96 1,000 1,004
Government of Malaysia
5.563% due 10/19/05 (d) 1,250 1,250
Nafinsa Trust II
8.075% due 03/31/99 (d) 221 212
Republic of Argentina
6.625% due 03/31/05 (d) 4,018 3,360
----------
Total Sovereign Issues 5,826
(Cost $5,489) ==========
- --------------------------------------------------------------------------------
Foreign Currency-Denominated Issues (c)(g) - 3.0%
- --------------------------------------------------------------------------------
Commonwealth of Canada
4.250% due 12/01/26 C$ 2,228 1,561
Kingdom of Netherlands
6.250% due 07/15/98 N$ 3,900 2,385
----------
Total Foreign Currency-Denominated Issues 3,946
(Cost $3,939) ==========
- --------------------------------------------------------------------------------
Short-Term Instruments - 18.1%
- --------------------------------------------------------------------------------
Discount Notes - 17.7%
Caisse d'Amortissement
5.350% due 10/28/96 $ 1,800 1,793
5.350% due 12/13/96 500 495
Canadian Wheat Board
5.360% due 11/05/96 1,000 995
Electricite de France
5.340% due 11/18/96 3,400 3,375
Federal National Mortgage Assn.
5.220% due 10/15/96 800 798
Ford Motor Credit Corp.
5.330% due 12/09/96 900 891
General Electric Capital Corp.
5.320% due 10/08/96 700 699
Illinois Tool Works
5.310% due 11/26/96 1,500 1,488
Mobil Australia
5.370% due 10/29/96 6,000 5,975
National Rural Utilities Cooperative
5.280% due 10/30/96 500 498
New Center Asset Trust
5.310% due 11/05/96 4,000 3,979
Proctor & Gamble Co.
5.380% due 11/01/96 2,100 2,090
----------
23,076
==========
Repurchase Agreement - 0.4%
State Street Bank
4.750% due 10/01/96 534 534
(Dated 09/30/96. Collateralized by ----------
Federal National Mortgage Assn.
6.580% 11/15/02 valued at $546,407.
Repurchase proceeds are $534,070.)
Principal
Amount Value
(000's) (000's)
================================================================================
U.S. Treasury Bills - 0.0%
5.100% due 11/14/96(b) 60 60
----------
Total Short-Term Instruments 23,670
(Cost $23,670)
Total Investments (a) - 103.0% $ 134,434
(Cost $134,627)
Written Options (f) - 0.0% (9)
(Premiums $21)
Other Assets and Liabilities (Net) - (3.0%) (3,866)
----------
Net Assets - 100.0% $ 130,559
==========
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. $ 962
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value. (1,155)
----------
Unrealized depreciation-net $ (193)
==========
(b) Securities with an aggregate market value of $60 have been
segregated with the custodian to cover margin requirement
for the following open future contracts at September 30, 1996:
<CAPTION>
Unrealized
Type Contracts Appreciation
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury 2 Year Note (12/96) 11 $ 9
(c) Foreign forward currency contracts outstanding
at September 30, 1996:
<CAPTION>
Principal
Amount Unrealized
Covered Expiration Appreciation/
Type By Contract Month (Depreciation)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Buy BF 88,411 06/97 $ (31)
Sell 88,411 06/97 6
Sell C$ 2,064 09/97 (10)
Sell DG 4,238 12/96 113
----------
$ 78
==========
</TABLE>
(d) Variable rate security. The rate listed is as of September 30, 1996.
(e) Security becomes interest bearing at a future date.
59
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Short-Term Fund
September 30, 1996 (unaudited)
================================================================================
(f) Premiums received on Written Put Options:
<TABLE>
<CAPTION>
Premium Market
Type Par Received Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CME Eurodollar June Futures $18,000 $ 21 $ 9
Strike @ 93.50 Exp. 06/16/97
</TABLE>
(g) Principal amount denoted in indicated currency:
BF - Belgian Franc
C$ - Canadian Dollar
DG - Dutch Guilder
N$ - New Zealand Dollar
(h) Securities are grouped by coupon and represent a range of maturities.
See Notes to Financial Statements
60
<PAGE>
SCHEDULE OF INVESTMENTS
Long-Term U.S. Government Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- --------------------------------------------------------------------------------
U.S. Treasury Bonds - 63.5%
- --------------------------------------------------------------------------------
<S> <C> <C>
6.250% due 08/15/23 $ 15,200 $ 13,728
6.750% due 08/15/26 161 157
----------
Total U.S. Treasury Bonds 13,885
(Cost $13,802) ==========
- --------------------------------------------------------------------------------
Mortgage-Backed Securities - 89.4%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 2.3%
7.257% due 06/01/22 (b) 206 211
7.419% due 05/01/22 (b) 268 276
----------
487
==========
Federal Housing Administration - 7.8%
7.421% due 11/01/19 232 231
7.430% due 12/28/17 1,483 1,478
----------
1,709
==========
Federal National Mortgage Association - 7.1%
7.383% due 05/01/25 (b) 939 965
7.523% due 10/01/24 (b) 569 590
----------
1,555
==========
Government National Mortgage Association - 11.8%
6.500% due 02/20/24 (b) 420 425
7.000% due 11/20/24 (b) 768 782
7.125% due 06/20/23 (b) 706 716
7.250% due 07/20/23 (b) 651 659
----------
2,582
==========
Collateralized Mortgage Obligations - 42.8%
Bear Stearns
7.100% due 06/25/24 385 358
California Federal Bank
6.743% due 08/25/30 (b) 1,685 1,667
Federal Home Loan Mortgage Corp.
9.500% due 01/15/05 159 166
8.000% due 03/15/05 4 4
6.500% due 07/15/21 330 289
Federal National Mortgage Assn.
8.000% due 01/25/19 194 195
7.000% due 02/25/20 657 597
8.750% due 08/25/20 404 417
8.000% due 03/25/22 63 64
7.000% due 06/25/22 320 267
7.800% due 10/25/22 678 651
6.000% due 08/25/23 856 737
General Electric Capital Mortgage
7.500% due 03/25/19 187 188
Independent National Mortgage Corp.
8.088% due 01/25/25 (b) 599 617
Prudential Home
6.500% due 01/25/24 1,000 827
Residential Funding
7.876% due 03/25/25 (b) 565 577
Resolution Trust Corp.
6.638% due 06/25/23 (b) 454 458
Vendee Mortgage
6.500% due 06/15/24 1,736 1,277
----------
9,356
==========
Other Mortgage-Backed Securities - 12.8%
Residential Funding
8.500% due 04/01/02 35 35
Resolution Trust Corp.
6.745% due 05/25/29 (b) 1,735 1,752
Ryland Acceptance Corp.
7.281% due 11/28/22 (b) 1,000 1,018
----------
2,805
==========
Stripped Mortgage-Backed Securities - 4.8%
Federal Home Loan Mortgage Corp. (IO)
7.000% due 07/15/04 1,527 75
6.000% due 08/15/06 502 49
6.500% due 10/15/06 774 86
6.500% due 11/15/06 1,005 97
6.500% due 02/25/07 582 57
6.000% due 10/15/07 999 89
2.675% due 12/15/08 (b) 3,255 155
6.500% due 08/25/20 1,000 150
6.500% due 09/25/21 1,341 211
7.000% due 02/15/26 1,043 71
----------
1,040
----------
Total Mortgage-Backed Securities 19,534
(Cost $19,498) ==========
- --------------------------------------------------------------------------------
Short-Term Instruments - 6.7%
- --------------------------------------------------------------------------------
Discount Notes - 5.5%
E.I. Du Pont de Nemours
5.250% due 10/18/96 300 299
Federal Home Loan Mortgage Corp.
5.290% due 11/13/96 300 298
Ford Motor Credit Corp.
5.290% due 10/18/96 300 299
General Electric Capital Corp.
5.420% due 03/03/97 100 98
Kellog Co.
5.280% due 10/03/96 200 200
----------
1,194
==========
Repurchase Agreement - 0.5%
State Street Bank
4.750% due 10/01/96 120 120
(Dated 09/30/96. Collateralized by ----------
U.S. Treasury Bond 7.500% 11/15/16
valued at $124,164. Repurchase proceeds
are $120,016.)
U.S. Treasury Bills - 0.7%
5.036% due 10/17/96-11/14/96 (d) 150 150
----------
Total Short-Term Instruments 1,464
(Cost $1,464) ==========
Total Investments (a) - 159.6% $ 34,883
(Cost $34,764)
Written Options (c) - (0.1%) (19)
(Premiums $41)
Other Assets and Liabilities (Net) - (59.5%) (13,004)
----------
Net Assets - 100.0% $ 21,860
==========
</TABLE>
61
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Long-Term U.S. Government Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
================================================================================
<S> <C>
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. $ 316
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value. (197)
----------
Unrealized appreciation-net $ 119
==========
(b) Variable rate security. The rate listed is as of
September 30, 1996.
(c) Premiums received on Written Put Options:
<CAPTION>
Premiums Market
Type Par Received Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CME Eurodollar March Futures
Strike @ 93.00 Exp. 03/17/97 $ 3,000 $ 1 $ 0
CME Eurodollar June Futures
Strike @ 93.50 Exp. 06/16/97 39,000 40 19
-----------------------
$ 41 $ 19
=======================
</TABLE>
(d) Securities are grouped by coupon rate and represent a range of maturities.
See Notes to Financial Statements
62
<PAGE>
SCHEDULE OF INVESTMENTS
Foreign Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
Argentina (c) (e) - 3.1%
- ----------------------------------------------------------------------------
Republic of Argentina
7.850% due 01/17/97 $ 6,000 $ 5,845
8.000% due 08/09/97 DG 1,300 777
----------
Total Argentina 6,622
==========
(Cost $6,655)
- ----------------------------------------------------------------------------
Belgium (c) (e) - 4.7%
- ----------------------------------------------------------------------------
Kingdom of Belgium
9.000% due 03/28/03 BF 200 8
5.100% due 11/21/04 (d) 183,200 6,064
8.500% due 10/01/07 106,300 3,953
----------
Total Belgium 10,025
==========
(Cost $10,048)
- ----------------------------------------------------------------------------
Canada (c) (e) - 30.7%
- ----------------------------------------------------------------------------
Commonwealth of Canada
9.000% due 12/01/04 C$ 18,460 15,264
8.000% due 12/01/06 57,200 44,295
Hydro-Quebec
6.000% due 09/29/49 (d) $ 4,000 3,584
Roger Cantel, Inc.
10.500% due 06/01/06 C$ 2,500 1,890
Sears Canada
11.700% due 07/10/00 1,000 850
----------
Total Canada 65,883
==========
(Cost $65,071)
- ----------------------------------------------------------------------------
Czechoslovakia (c) (e) - 4.6%
- ----------------------------------------------------------------------------
Bayerische Landesbank
11.500% due 10/09/97 CK 134,000 4,969
International Bank of
Reconstruction & Development
11.500% due 10/09/97 134,000 4,971
----------
Total Czechoslovakia 9,940
==========
(Cost $9,967)
- ----------------------------------------------------------------------------
Denmark (c) (e) - 1.9%
- ----------------------------------------------------------------------------
Kingdom of Denmark
8.000% due 05/15/03 DK 22,400 4,155
----------
Total Denmark 4,155
==========
(Cost $4,104)
- ----------------------------------------------------------------------------
Finland (e) - 3.8%
- ----------------------------------------------------------------------------
Republic of Finland
3.760% due 08/15/97 FM 30,000 6,376
3.600% due 09/15/97 8,000 1,695
----------
Total Finland 8,071
==========
(Cost $8,110)
- ----------------------------------------------------------------------------
France (c) (e) - 4.7%
- ----------------------------------------------------------------------------
Republic of France
7.750% due 10/25/05 FF 46,320 10,035
----------
Total France 10,035
==========
(Cost $9,820)
- ----------------------------------------------------------------------------
Germany (c) (e) - 6.8%
- ----------------------------------------------------------------------------
Republic of Germany
9.000% due 10/20/00 DM 4,200 3,175
6.875% due 06/11/03 16,300 11,389
----------
Total Germany 14,564
==========
(Cost $14,564)
- ----------------------------------------------------------------------------
Italy (c) (e) - 6.2%
- ----------------------------------------------------------------------------
Republic of Italy
9.188% due 09/01/05 IL 17,990,000 $ 13,274
----------
Total Italy 13,274
==========
(Cost $12,703)
- ----------------------------------------------------------------------------
Japan (c) (e) - 34.3%
- ----------------------------------------------------------------------------
Government of Japan
4.800% due 06/21/99 JY 3,248,000 32,024
6.400% due 03/20/00 2,263,000 23,726
5.500% due 03/20/02 1,717,000 18,079
----------
Total Japan 73,829
==========
(Cost $73,832)
- ----------------------------------------------------------------------------
Mexico (c) (e) - 11.9%
- ----------------------------------------------------------------------------
Bancomer
8.000% due 07/07/98 $ 2,000 1,990
Banco Nacional de Comercio Exterior
8.000% due 05/06/98 DM 13,000 8,755
Nacional Financiera
6.000% due 12/19/96 $ 1,000 998
8.125% due 12/15/97 (d) 165 163
Petroleos Mexicanos
7.750% due 09/30/98 FF 44,000 8,760
Third Mexican Acceptance Corp.
7.370% due 03/15/98 $ 1,000 975
United Mexican States
5.820% due 06/28/01 4,500 3,848
----------
Total Mexico 25,489
==========
(Cost $23,281)
- ----------------------------------------------------------------------------
Netherlands (c) (e) - 56.6%
- ----------------------------------------------------------------------------
Kingdom of Netherlands
6.250% due 07/15/98 DG 184,100 112,583
9.000% due 05/15/00 13,400 8,998
----------
Total Netherlands 121,581
==========
(Cost $123,664)
- ----------------------------------------------------------------------------
New Zealand (c) (e) - 7.3%
- ----------------------------------------------------------------------------
Commonwealth of New Zealand
10.000% due 07/15/97 N$ 7,110 5,015
6.500% due 02/15/00 10,200 6,792
10.000% due 03/15/02 3,330 2,517
8.000% due 04/15/04 500 347
8.000% due 11/15/06 1,400 974
----------
Total New Zealand 15,645
==========
(Cost $15,157)
- ----------------------------------------------------------------------------
Spain (c) (e) - 4.4%
- ----------------------------------------------------------------------------
Kingdom of Spain
10.000% due 02/28/05 SP 283,000 2,405
10.900% due 08/30/03 781,000 7,100
----------
Total Spain 9,505
==========
(Cost $9,241)
- ----------------------------------------------------------------------------
Sweden (c) (e) - 10.2%
- ----------------------------------------------------------------------------
Kingdom of Sweden
5.440% due 12/06/96 $ 2,700 2,673
11.000% due 01/21/99 SK 115,200 19,256
----------
Total Sweden 21,929
==========
(Cost $21,419)
</TABLE>
63
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Foreign Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
United Kingdom (c) (e) - 21.2%
- ----------------------------------------------------------------------------
United Kingdom Gilt
6.000% due 08/10/99 BP 29,560 $ 45,560
----------
Total United Kingdom 45,560
==========
(Cost $45,151)
- ----------------------------------------------------------------------------
United States (c) (e) - 30.6%
- ----------------------------------------------------------------------------
Corporate Bonds and Notes - 6.6%
First USA Bank
5.963% due 03/24/97 (d) $ 4,400 4,407
Hewlett Packard Co.
5.625% due 11/20/00 DM 2,500 1,679
Resolution Trust Corp.
7.750% due 04/25/28 $ 4,685 4,682
Time Warner, Inc.
6.460% due 08/15/00 (d) 875 875
7.975% due 08/15/04 525 531
8.110% due 08/15/06 1,050 1,046
8.180% due 08/15/07 1,050 1,061
----------
14,281
==========
Mortgage-Backed Securities - 23.4%
Chase Mortgage Financial Corp.
7.500% due 11/25/23 63 63
Collateralized Mortgage Obligation Trust
9.000% due 05/01/14 80 83
Federal Home Loan Mortgage Corp.
7.757% due 08/01/24 (d) 2,938 3,033
9.000% due 11/15/19 68 68
9.050% due 06/15/19 190 198
Federal National Mortgage Assn.
6.067% due 08/01/29 (d) 2,340 2,321
6.073% due 12/01/27 (d) 966 957
Government National Mortgage Assn.
6.875% due 09/20/22 (d) 913 930
7.000% due 11/20/21-10/20/24 (d)(g) 14,038 14,238
7.125% due 05/20/22-09/20/23 (d)(g) 3,344 3,390
7.250% due 07/20/23-09/20/24 (d)(g) 10,302 10,456
Independent National Mortgage Corp.
7.842% due 11/25/24 (d) 542 551
Morgan Stanley Mortgage
8.150% due 07/20/21 6 6
Paine Webber Mortgage
7.000% due 10/25/23 2,063 2,063
Resolution Trust Corp.
7.500% due 12/15/04 664 664
10.641% due 05/25/24 (d) 316 326
Ryland Acceptance Corp.
7.822% due 09/25/23 (d) 10,390 10,552
Sears Mortgage
6.424% due 06/25/22 (d) 264 264
8.250% due 09/25/31 151 149
----------
50,312
==========
Asset-Backed Securities - 0.6%
Student Loan Marketing Assn.
5.895% due 04/25/04 (d) 1,370 1,372
----------
1,372
----------
Total United States 65,965
==========
(Cost $66,148)
- ----------------------------------------------------------------------------
Purchased OTC Call Options (e) - 11.8%
- ----------------------------------------------------------------------------
Commonwealth of Canada
8.000% due 11/01/98 (f) C$ 28,600 2,127
Strike @ 94.27 Exp. 01/15/97
Kingdom of Denmark
8.000% due 05/15/03 (f) DK 22,400 470
Strike @ 96.25 Exp. 11/21/96
Government of Japan
4.800% due 06/21/99 (f) JY 3,248,000 3,246
Strike @ 98.00 Exp. 11/15/96
6.400% due 03/20/00 (f) 2,263,000 2,228
Strike @ 104.50 Exp. 12/11/96
5.500% due 03/20/02 (f) 238,000 262
Strike @ 104.00 Exp. 12/03/96
5.500% due 03/20/02 (f) 208,000 197
Strike @ 105.66 Exp. 01/10/97
Kingdom of Netherlands
6.250% due 07/15/98 (f) DG 29,500 1,830
Strike @ 93.50 Exp. 11/19/96
6.250% due 07/15/98 (f) 135,500 8,299
Strike @ 93.50 Exp. 12/03/96
6.250% due 07/15/98 (f) 9,000 557
Strike @ 93.50 Exp. 12/11/96
6.250% due 07/15/98 (f) 10,100 580
Strike @ 93.569 Exp. 01/13/97
Kingdom of Spain
10.900% due 08/30/03 (f) SP 781,000 1,209
Strike @ 97.10 Exp. 10/01/96
United Kingdom
6.000% due 08/10/99 (f) BP 27,500 4,374
----------
Strike @ 88.30 Exp. 10/07/96
Total Purchased OTC Call Options 25,379
==========
(Cost $24,260)
- ----------------------------------------------------------------------------
Short-Term Instruments - 34.7%
- ----------------------------------------------------------------------------
Discount Notes - 32.2%
Abbott Laboratories
5.320% due 10/24/96 $ 6,200 6,179
Ameritech Corp.
5.420% due 10/28/96 600 598
Caisse d'Amortissement
5.320% due 11/20/96 6,200 6,154
Canadian Wheat Board
5.360% due 11/05/96 800 796
5.270% due 11/06/96 2,500 2,487
5.250% due 11/13/96 900 894
Coca-Cola Co.
5.390% due 10/07/96 1,900 1,898
5.270% due 11/14/96 7,500 7,452
Commonwealth Bank of Australia
5.260% due 10/22/96 1,000 997
E.I. Du Pont de Nemours
5.260% due 11/19/96 4,000 3,971
Electricite de France
5.400% due 10/18/96 2,300 2,294
5.270% due 11/12/96 6,400 6,361
5.300% due 11/27/96 7,100 7,040
Ford Motor Credit Co.
5.440% due 10/04/96 2,000 1,999
5.410% due 10/07/96 1,500 1,499
Hewlett Packard Co.
5.300% due 10/25/96 1,800 1,794
Mobil Australia
5.340% due 10/16/96 1,500 1,497
National Rural Utilities Cooperative
5.350% due 10/16/96 1,800 1,796
5.280% due 10/30/96 1,800 1,792
5.350% due 11/04/96 5,000 4,975
New Center Asset Trust
5.300% due 12/06/96 1,900 1,881
Norfolk Southern Corp.
5.400% due 11/05/96 1,400 1,393
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
Shell Oil Co.
5.330% due 10/04/96 $ 2,400 $ 2,399
Western Australia Treasury Corp.
5.290% due 11/20/96 1,100 1,092
----------
69,238
==========
Repurchase Agreement - 2.1%
State Street Bank
4.750% due 10/01/96 4,545 4,545
----------
(Dated 09/30/96. Collateralized by
Federal National Mortgage Assn.
6.580% 11/15/02 valued at $4,638,991.
Repurchase proceeds are $4,545,600.)
U.S. Treasury Bills - 0.4%
5.027% due 10/17/96-11/14/96 (b)(g) 924 920
----------
Total Short-Term Instruments 74,703
==========
(Cost $74,703)
Total Investments (a) - 289.5% $ 622,154
(Cost $617,898)
Other Assets and Liabilities (Net) - (189.5%) (407,243)
----------
Net Assets - 100.0% $ 214,911
==========
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. $ 7,187
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value. (2,931)
----------
Unrealized appreciation-net $ 4,256
==========
</TABLE>
(b)Securities with an aggregate market value of $920 have been segregated with
the custodian to cover margin requirements for the following open future
contracts at September 30, 1996:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Type Contracts (Depreciation)
- ----------------------------------------------------------------------------
<S> <C> <C>
Commonwealth of Australia 3 Year Note (12/96) 39 $ 35
Commonwealth of Australia 10 Year Bond (12/96) 31 67
Republic of Germany 10 Year Bond (12/96) 67 256
U.S. Treasury 30 Year Bond (12/96) 118 (258)
----------
$ 100
==========
</TABLE>
(c)Foreign forward currency contracts outstanding
at September 30, 1996:
<TABLE>
<CAPTION>
Principal
Amount Unrealized
Covered Expiration Appreciation/
Type by Contract Month (Depreciation)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy A$ 2,470 04/97 $ (1)
Sell 4,880 10/96 (6)
Sell A$ 214 04/97 (5)
Buy AP 2,100 12/96 124
Buy BF 143 10/96 0
Sell 2,800 12/96 2
Buy BP 670 11/96 12
Sell 676 11/96 (4)
Sell 405 12/96 (3)
Buy C$ 730 10/96 3
Buy 250 12/96 1
Sell 2,491 10/96 (4)
Sell 2,162 11/96 (6)
Buy CK 234,080 11/96 42
Buy DG 742 12/96 (14)
Sell 7,685 12/96 122
Buy DK 81 12/96 0
Sell 100 12/96 0
Buy DM 20,333 11/96 (258)
Buy 66,059 12/96 (436)
Sell 64,025 12/96 2,913
Sell 6,563 01/97 252
Sell 15,763 03/97 415
Sell 21,014 04/97 418
Buy FF 33,991 12/96 (23)
Sell 82,468 12/96 240
Buy IR 4,862,000 03/97 55
Sell 48,100 03/97 0
Buy IL 14,990,177 10/96 25
Buy 3,912,312 11/96 3
Buy 3,913,340 12/96 0
Sell 6,378,500 10/96 7
Sell 16,758,600 12/96 39
Buy JY 8,579,570 10/96 (11,282)
Buy 597,000 12/96 (79)
Sell 8,297,754 10/96 12,249
Sell 443,524 12/96 103
Buy N$ 3,827 11/96 53
Sell 10,685 10/96 (113)
Sell 8,370 11/96 (109)
Buy SF 800 01/97 (26)
Sell 15,500 11/96 519
Buy SK 51,051 10/96 15
Buy 20,403 12/96 (3)
Sell 8,100 11/96 0
Sell 93,188 12/96 (2)
Buy SP 1,107,929 10/96 (134)
Buy 99,395 01/97 (8)
Sell 242,984 10/96 24
----------
$ 5,120
==========
</TABLE>
(d)Variable rate security. The rate listed is as of September 30, 1996.
(e)Principal amount denoted in the indicated currency:
A$ - Australian Dollar FF - French Franc
AP - Argentine Peso FM - Finnish Markka
BF - Belgian Franc IR - Indonesian Rupiah
BP - British Pound IL - Italian Lira
C$ - Canadian Dollar JY - Japanese Yen
CK - Czech Koruna N$ - New Zealand Dollar
DG - Dutch Guilder SF - Swiss Franc
DK - Danish Krone SK - Swedish Krona
DM - German Mark SP - Spanish Peseta
(f)Security is subject to outstanding forward sale commitment.
(g)Securities are grouped by coupon and represent a range of maturities.
See Notes to Financial Statements
65
<PAGE>
SCHEDULE OF INVESTMENTS
Global Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
Argentina (c) (e) - 2.6%
- ----------------------------------------------------------------------------
Letras Del Tesoro
7.850% due 01/17/97 $ 4,000 $ 3,897
Republic of Argentina
8.000% due 08/09/97 (d) DG 600 359
----------
Total Argentina 4,256
==========
(Cost $4,271)
- ----------------------------------------------------------------------------
Belgium (c) (e) - 3.0%
- ----------------------------------------------------------------------------
Kingdom of Belgium
5.100% due 11/21/04 (d) BF 95,900 3,174
8.500% due 10/01/07 43,800 1,629
----------
Total Belgium 4,803
==========
(Cost $4,815)
- ----------------------------------------------------------------------------
Canada (c) (e) - 27.7%
- ----------------------------------------------------------------------------
Commonwealth of Canada
9.000% due 12/01/04 C$ 7,900 6,532
8.000% due 12/01/06 43,200 33,454
Roger Cantel, Inc.
10.500% due 06/01/06 6,000 4,536
----------
Total Canada 44,522
==========
(Cost $43,871)
- ----------------------------------------------------------------------------
Czechoslovakia (c) (e) - 4.7%
- ----------------------------------------------------------------------------
Bayerische Landesbank
11.500% due 10/09/97 CK 102,000 3,783
International Bank of
Reconstruction & Development
11.500% due 10/09/97 101,000 3,747
----------
Total Czechoslovakia 7,530
==========
(Cost $7,550)
- ----------------------------------------------------------------------------
Denmark (c) (e) - 1.3%
- ----------------------------------------------------------------------------
Kingdom of Denmark
8.000% due 05/15/03 DK 11,000 2,040
----------
Total Denmark 2,040
==========
(Cost $2,016)
- ----------------------------------------------------------------------------
Finland (c) (e) - 4.0%
- ----------------------------------------------------------------------------
Republic of Finland
3.760% due 08/15/97 FM 24,000 5,101
3.600% due 09/15/97 6,000 1,271
----------
Total Finland 6,372
==========
(Cost $6,403)
- ----------------------------------------------------------------------------
France (c) (e) - 2.5%
- ----------------------------------------------------------------------------
Republic of France
7.750% due 10/25/05 FF 18,850 4,084
----------
Total France 4,084
==========
(Cost $3,996)
- ----------------------------------------------------------------------------
Germany (c) (e) - 5.1%
- ----------------------------------------------------------------------------
Republic of Germany
9.000% due 10/20/00 DM 3,500 2,646
6.875% due 06/11/03 4,600 3,214
7.375% due 01/03/05 3,200 2,285
----------
Total Germany 8,145
==========
(Cost $8,163)
- ----------------------------------------------------------------------------
Italy (c) (e) - 4.1%
- ----------------------------------------------------------------------------
Republic of Italy
9.188% due 09/01/05 IL 8,950,000 $ 6,604
----------
Total Italy 6,604
==========
(Cost $6,320)
- ----------------------------------------------------------------------------
Japan (c) (e) - 16.9%
- ----------------------------------------------------------------------------
Government of Japan
4.800% due 06/21/99 JY 945,000 9,317
6.400% due 03/20/00 1,138,000 11,931
5.500% due 03/20/02 567,000 5,970
----------
Total Japan 27,218
==========
(Cost $27,243)
- ----------------------------------------------------------------------------
Mexico (c) (e) - 2.0%
- ----------------------------------------------------------------------------
Banco Nacional de Comercio Exterior
8.000% due 05/06/98 DM 500 337
Cemex
10.000% due 11/15/96 $ 1,000 1,004
Third Mexican Acceptance Corp.
7.370% due 03/15/98 2,000 1,950
----------
Total Mexico 3,291
==========
(Cost $3,223)
- ----------------------------------------------------------------------------
Netherlands (c) (e) - 46.8%
- ----------------------------------------------------------------------------
Kingdom of Netherlands
6.250% due 07/15/98 DG 112,400 68,736
9.000% due 05/15/00 5,300 3,559
8.250% due 02/15/07 4,400 3,001
----------
Total Netherlands 75,296
==========
(Cost $76,576)
- ----------------------------------------------------------------------------
New Zealand (c) (e) - 6.7%
- ----------------------------------------------------------------------------
Commonwealth of New Zealand
10.000% due 07/15/97 N$ 5,020 3,541
6.500% due 02/15/00 6,000 3,995
10.000% due 03/15/02 1,540 1,164
8.000% due 04/15/04 1,200 833
8.000% due 11/15/06 1,860 1,293
----------
Total New Zealand 10,826
==========
(Cost $10,484)
- ----------------------------------------------------------------------------
Spain (c) (e) - 2.9%
- ----------------------------------------------------------------------------
Kingdom of Spain
10.900% due 08/30/03 SP 423,200 3,848
10.000% due 02/28/05 86,000 731
----------
Total Spain 4,579
==========
(Cost $4,454)
- ----------------------------------------------------------------------------
Sweden (c) (e) - 6.9%
- ----------------------------------------------------------------------------
Kingdom of Sweden
11.000% due 01/21/99 SK 66,500 11,116
----------
Total Sweden 11,116
==========
(Cost $10,895)
- ----------------------------------------------------------------------------
United Kingdom (c) (e) - 13.0%
- ----------------------------------------------------------------------------
United Kingdom Gilt
6.000% due 08/10/99 BP 13,610 20,977
----------
Total United Kingdom 20,977
==========
(Cost $20,775)
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
United States (c) (e) - 29.7%
- ----------------------------------------------------------------------------
Corporate Bonds and Notes - 9.9%
CMS Energy
9.500% due 10/01/97 (d) $ 750 $ 767
CTC Mansfield Funding
11.125% due 09/30/16 700 742
Dean Witter Discover
5.610% due 02/01/99 (d) 1,000 999
5.645% due 02/05/99 (d) 1,000 1,003
First USA, Inc.
5.963% due 03/24/97 (d) 2,200 2,204
General Motors Acceptance Corp.
6.500% due 05/15/97 1,000 1,005
Hewlett Packard Co.
5.625% due 11/20/00 DM 1,300 873
Kansallis-Osake
7.860% due 09/30/43 (d) $ 5,000 5,145
TCI Communications, Inc.
6.257% due 04/01/02 (d) 2,700 2,647
United Air Lines
10.670% due 05/01/04 500 580
----------
15,965
==========
Mortgage-Backed Securities - 18.9%
Countrywide
7.842% due 11/25/24 (d) 271 275
Federal Home Loan Mortgage Corp.
7.342% due 05/01/23 (d) 1,322 1,362
Federal Housing Administration
7.399% due 02/01/21 1,693 1,690
Federal National Mortgage Assn.
6.067% due 08/01/29 (d) 1,260 1,250
6.073% due 12/01/27 (d) 432 428
6.500% due 04/01/09 824 804
7.500% due 11/01/01-01/01/02 (f) 1,155 1,170
7.514% due 03/01/24 (d) 540 553
7.684% due 11/01/23 (d) 986 1,016
Government National Mortgage Assn.
6.875% due 09/20/22 (d) 448 456
7.000% due 07/20/23-10/20/24 (d)(f) 3,461 3,512
7.125% due 05/20/23-09/20/23 (d)(f) 2,953 2,995
7.250% due 07/20/22-09/20/24 (d)(f) 10,783 10,973
Residential Funding
7.876% due 03/25/25 (d) 2,827 2,887
Resolution Trust Corp.
8.000% due 04/25/25 1,000 1,003
----------
30,374
==========
Asset-Backed Securities - 0.9%
Student Loan Marketing Assn.
5.895% due 04/25/04 (d) 1,370 1,372
----------
Total United States 47,711
==========
(Cost $47,352)
- ----------------------------------------------------------------------------
Purchased OTC Call Options (e) - 9.3%
- ----------------------------------------------------------------------------
Commonwealth of Canada
8.000% due 11/01/98 (g) C$ 21,600 1,606
Strike @ 94.27 Exp. 01/15/97
8.000% due 11/01/98 (g) 21,600 1,601
Strike @ 94.32 Exp. 01/14/97
Kingdom of Denmark
8.000% due 05/15/03 (g) DK 11,000 231
Strike @ 96.25 Exp. 11/21/96
Government of Japan
6.400% due 06/21/99 (g) JY 47,000 42
Strike @ 104.93 Exp. 01/10/97
4.800% due 06/21/99 (g) JY 240,000 240
Strike @ 98.00 Exp. 11/15/96
6.400% due 03/20/00 (g) 1,091,000 1,074
Strike @ 104.45 Exp. 12/11/96
5.500% due 03/20/02 (g) 148,000 163
Strike @ 104.00 Exp. 12/03/96
5.500% due 03/20/02 (g) 32,000 30
Strike @ 105.66 Exp. 01/10/97
Kingdom of Netherlands
6.250% due 07/15/98 (g) DG 13,000 806
Strike @ 93.50 Exp. 11/19/96
6.250% due 07/15/98 (g) 49,700 3,045
Strike @ 93.50 Exp. 12/11/96
6.250% due 07/15/98 (g) 49,700 3,079
Strike @ 93.50 Exp. 12/03/96
Kingdom of Spain
10.900% due 08/30/03 (g) SP 387,000 599
Strike @ 97.10 Exp. 10/01/96
Kingdom of Sweden
11.000% due 01/21/99 (g) SK 20,500 335
Strike @ 100.00 Exp. 11/21/96
United Kingdom
6.000% due 08/10/99 (g) BP 13,220 2,103
----------
Strike @ 88.30 Exp. 10/07/96
Total Purchased OTC Call Options 14,954
==========
(Cost $14,406)
- ----------------------------------------------------------------------------
Short-Term Instruments - 46.2%
- ----------------------------------------------------------------------------
Discount Notes - 44.7%
Ameritech Corp.
5.420% due 10/28/96 $ 500 498
Caisse d'Amortissement
5.310% due 10/07/96 3,600 3,598
5.320% due 10/22/96 700 698
5.320% due 11/20/96 1,300 1,290
5.310% due 11/25/96 2,100 2,083
Canadian Wheat Board
5.270% due 11/06/96 2,400 2,387
5.250% due 11/13/96 900 894
E.I. Du Pont de Nemours
5.250% due 10/07/96 6,400 6,394
Electricite de France
5.340% due 11/18/96 5,000 4,964
Federal Home Loan Mortgage Corp.
5.200% due 11/13/96 300 298
Federal National Mortgage Assn.
5.230% due 11/21/96 1,800 1,787
5.180% due 11/27/96 5,000 4,959
Ford Motor Credit Corp.
5.440% due 10/04/96 7,300 7,297
General Electric Capital Corp.
5.320% due 10/08/96 700 699
5.420% due 03/03/97 2,700 2,638
Hewlett-Packard Co.
5.400% due 11/27/96 200 198
Minnesota Mining & Mfg. Co.
5.280% due 11/22/96 8,000 7,939
Mobil Australia
5.370% due 10/29/96 7,700 7,668
Motorola
5.300% due 10/03/96 3,500 3,499
5.340% due 10/23/96 1,200 1,196
National Rural Utilities Cooperative
5.280% due 10/28/96 2,000 1,992
5.340% due 11/13/96 1,000 994
Norfolk Southern Corp.
5.400% due 11/05/96 2,300 2,288
Proctor & Gamble Co.
5.270% due 10/08/96 2,400 2,398
</TABLE>
67
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
Global Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
Shell Oil Co.
5.330% due 10/04/96 $ 2,400 $ 2,399
Wool International
5.270% due 11/20/96 800 794
----------
71,849
==========
Repurchase Agreement - 0.8%
State Street Bank
4.750% due 10/01/96 1,352 1,352
(Dated 09/30/96. Collateralized by
U.S. Treasury Bill 02/27/97
valued at $1,380,155. Repurchase
proceeds are $1,352,178.)
U.S. Treasury Bills - 0.7%
5.037% due 10/17/96-11/21/96 (b) (f) 1,111 1,105
----------
Total Short-Term Instruments 74,306
==========
(Cost $74,306)
Total Investments (a) - 235.4% $ 378,630
(Cost $377,119)
Other Assets and Liabilities (Net) - (135.4%) (217,784)
----------
Net Assets - 100.0% $ 160,846
==========
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. $ 3,145
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value. (1,634)
----------
Unrealized appreciation-net $ 1,511
==========
</TABLE>
(b)Securities with an aggregate market value of $1,105 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 Bond (12/96) 30 $ 27
Commonwealth of Australia 10 Year Bond (12/96) 13 30
Republic of Germany 10 Year Bond (12/96) 33 132
U.S. Treasury 10 Year Bond (12/96) 296 404
----------
$ 593
==========
</TABLE>
(c)Foreign forward currency contracts outstanding at
September 30, 1996:
<TABLE>
<CAPTION>
Principal
Amount Unrealized
Covered Expiration Appreciation\
Type by Contract Month (Depreciation)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Sell A$ 2,013 10/96 $ (2)
Buy 2,529 04/97 42
Buy AP 900 12/96 53
Sell BF 71 10/96 (0)
Buy 152,800 12/96 (55)
Buy BP 890 11/96 15
Sell 341 11/96 (2)
Buy 4,674 12/96 39
Buy C$ 963 10/96 2
Sell 3,170 10/96 (5)
Buy 4,779 11/96 8
Buy 200 12/96 1
Buy 6,723 03/97 (24)
Buy CK 168,231 11/96 39
Buy DG 6,306 12/96 (138)
Sell 9,689 12/96 118
Buy DK 17,626 12/96 (22)
Buy DM 11,891 11/96 (145)
Buy 44,992 12/96 (303)
Sell 26,775 12/96 1,158
Buy 3,992 01/97 (153)
Sell 12,170 03/97 328
Sell 8,995 04/97 188
Buy FF 72,489 12/96 (190)
Sell 6,740 12/96 12
Buy FM 100 11/96 0
Buy IL 6,826,146 10/96 13
Sell 4,644,500 10/96 5
Buy 1,467,117 11/96 1
Buy 13,640,080 12/96 (32)
Sell 4,644,500 12/96 5
Buy IR 3,755,700 03/97 42
Buy JY 5,340,889 10/96 (5,253)
Sell 3,075,000 10/96 4,827
Buy 430,300 12/96 (62)
Sell 208,917 12/96 47
Sell N$ 7,773 10/96 (74)
Buy 391 11/96 5
Sell 2,520 11/96 (33)
Sell SF 11,400 11/96 380
Sell 100 01/97 3
Buy SK 20,183 10/96 6
Sell 700 11/96 0
Buy 20,162 12/96 (3)
Sell 46,961 12/96 (3)
Buy SP 892,901 10/96 (115)
Sell 58,166 10/96 1
Buy 672,546 01/97 (55)
----------
$ 669
==========
</TABLE>
(d)Variable rate security. The rate listed is as of September 30, 1996.
(e)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 IR - Indonesian Rupiah
C$ - Canadian Dollar JY - Japanese Yen
CK - Czech Koruna N$ - New Zealand Dollar
DG - Dutch Guilder SF - Swiss Franc
DK - Danish Krone SK - Swedish Krona
DM - German Mark SP - Spanish Peseta
(f)Securities are grouped by coupon and represent a range of maturities.
(g)Security subject to outstanding forward sale commitment.
See Notes to Financial Statements
68
<PAGE>
SCHEDULE OF INVESTMENTS
High Yield Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds and Notes - 79.6%
- ----------------------------------------------------------------------------
Banking and Finance - 8.0%
Americo Life, Inc.
9.250% due 06/01/05 $ 2,000 $ 1,925
Coleman Holdings
0.000% due 05/27/98 (b) 6,850 5,908
First Nationwide Holdings
12.500% due 04/15/03 9,450 10,253
10.625% due 10/01/03 2,850 2,996
Navistar Financial
8.875% due 11/15/98 4,500 4,522
Newsquest Capital
11.000% due 05/01/06 4,250 4,399
Panda Funding Corp.
11.625% due 08/20/12 3,350 3,421
Phoenix RE Corp.
9.750% due 08/15/03 6,550 6,943
Reliance Financial Services
7.866% due 12/01/00 (c) 1,000 1,013
Reliance Group Holdings
9.000% due 11/15/00 8,500 8,691
Trizec Finance
10.875% due 10/15/05 7,900 8,581
UCC Investors
10.500% due 05/01/02 1,500 1,592
----------
60,244
==========
Industrials - 60.3%
Abbey Healthcare Group
9.500% due 11/01/02 7,470 7,750
Albritton Communications
9.750% due 11/30/07 4,000 3,890
American Airlines
10.610% due 03/04/10 650 798
American Standard
9.250% due 12/01/16 6,440 6,601
Amerigas Partners L.P.
10.125% due 04/15/07 8,150 8,537
Ametek, Inc.
9.750% due 03/15/04 5,500 5,775
Atlas Air, Inc.
12.250% due 12/01/02 1,500 1,609
Bell & Howell Co.
10.750% due 10/01/02 4,000 4,270
0.000% due 03/01/05 (b) 2,100 1,481
Benedek Broadcasting Corp.
11.875% due 03/01/05 6,850 7,518
Buckeye Cellulose Corp.
8.500% due 12/15/05 2,500 2,419
Building Materials Corp.
0.000% due 07/01/04 (b) 22,470 18,088
Cablevision Systems
10.500% due 05/15/16 7,000 7,158
9.875% due 04/01/23 3,000 2,910
Century Communication
11.875% due 10/15/03 5,500 5,940
CF Cable TV, Inc.
9.125% due 07/15/07 7,000 7,175
Clark Oil Refining Corp.
10.500% due 12/01/01 1,000 1,035
Clark R & M Holdings
0.000% due 02/15/00 8,000 5,730
Clark-Schwebel
10.500% due 04/15/06 2,250 2,354
Cumberland Farms
10.500% due 10/01/03 7,208 6,956
Delta Air Lines
10.790% due 03/26/14 2,264 2,730
Dimon, Inc.
8.875% due 06/01/06 3,000 3,023
Doane Products Co.
10.625% due 03/01/06 1,500 1,568
Exide Corp.
0.000% due 12/15/04 (b) 2,250 2,031
Falcon Drilling, Inc.
9.750% due 01/15/01 3,450 3,489
Ferrell Gas
10.000% due 08/01/01 7,100 7,420
Figgie International, Inc.
9.875% due 10/01/99 3,240 3,345
Flores and Rucks
9.750% due 10/01/06 3,300 3,370
Foodmaker, Inc.
9.250% due 03/01/99 4,400 4,439
G-I Holdings, Inc.
0.000% due 10/01/98 (b) 430 375
Granite Broadcasting Corp.
10.375% due 05/15/05 3,750 3,834
Griffin Gaming
0.000% due 06/30/00 4,250 4,101
Gulf Canada Resources
9.250% due 01/15/04 9,000 9,258
HMH Properties
9.500% due 05/15/05 7,500 7,538
Hollinger International Publishing
9.250% due 02/01/06 7,400 7,234
HS Resources
9.875% due 12/01/03 3,250 3,209
IMO Industries
11.750% due 05/01/06 2,500 2,600
Integrated Health Services
9.625% due 05/31/02 3,500 3,579
10.750% due 07/15/04 3,250 3,445
10.250% due 04/30/06 2,000 2,073
J. Ray McDermott
9.375% due 07/15/06 7,900 8,038
J.Q. Hammons Hotels
8.875% due 02/15/04 7,500 7,256
Jones Intercable, Inc.
10.500% due 03/01/08 3,500 3,754
Jorgensen, Earle M. Co.
10.750% due 03/01/00 5,050 5,151
K-III Communications Co.
8.500% due 02/01/06 9,000 8,393
KCS Energy, Inc.
11.000% due 01/15/03 6,100 6,649
La Quinta Inns, Inc.
9.250% due 05/15/03 3,100 3,193
Lenfest Communications
8.375% due 11/01/05 7,500 7,088
Magnetek, Inc.
10.750% due 11/15/98 4,250 4,335
Marcus Cable
0.000% due 08/01/04 (b) 8,900 6,953
Moog, Inc.
10.000% due 05/01/06 3,250 3,348
Muzak LP/Muzak Capital
10.000% due 10/01/03 2,800 2,832
NL Industries
11.750% due 10/15/03 5,100 5,406
Nuevo Energy Co.
12.500% due 06/15/02 5,732 6,176
</TABLE>
69
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
High Yield Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
9.500% due 04/15/06 $ 2,500 $ 2,575
Owens & Minor
10.875% due 06/01/06 4,850 5,080
Owens Illinois
10.500% due 06/15/02 2,000 2,093
11.000% due 12/01/03 7,500 8,230
Pacific Lumber
10.500% due 03/01/03 7,250 7,168
Paging Network
8.875% due 02/01/06 3,500 3,404
10.125% due 08/01/07 2,500 2,600
Paracelsus Healthcare
10.000% due 08/15/06 4,500 4,652
Pathmark Stores, Inc.
9.625% due 05/01/03 6,500 6,403
Printpack, Inc.
9.875% due 08/15/04 5,950 6,121
10.625% due 08/15/06 1,250 1,291
Repap Wisconsin, Inc.
9.250% due 02/01/02 5,600 5,544
Revlon Consumer Products Corp.
9.375% due 04/01/01 6,000 6,104
10.500% due 02/15/03 2,000 2,073
Revlon Worldwide
0.000% due 03/15/98 2,000 1,758
RJR Nabisco
8.000% due 07/15/01 2,000 1,960
8.625% due 12/01/02 5,500 5,481
Rogers Cablesystems, Inc.
10.000% due 03/15/05 5,500 5,610
Rogers Cantel Mobile
11.125% due 07/15/02 2,000 2,113
9.375% due 06/01/08 12,000 11,940
SCI Television
11.000% due 06/30/05 7,675 8,211
Sequa Corp.
10.000% due 05/14/01 1,500 1,546
Showboat, Inc.
9.250% due 05/01/08 2,650 2,650
Station Casinos
9.625% due 06/01/03 4,300 4,193
Stone Consolidated
10.250% due 12/15/00 2,250 2,391
Sweetheart Cup Co.
9.625% due 09/01/00 6,000 6,180
Teekay Shipping Corp.
8.320% due 02/01/08 2,750 2,640
Teleport Communications
0.000% due 07/01/07 (b) 12,150 7,837
Telewest Communications
9.625% due 10/01/06 7,500 7,500
Tenet Healthcare
10.125% due 03/01/05 6,800 7,412
Texas Petrochemical
11.125% due 07/01/06 3,500 3,701
Transtexas Gas Corp.
11.500% due 06/15/02 2,450 2,615
Unisys Corp.
12.000% due 04/15/03 7,750 8,041
US Air, Inc.
9.625% due 09/01/03 1,740 1,714
Venture Holdings Trust
9.750% due 04/01/04 781 691
Vintage Petroleum
9.000% due 12/15/05 8,240 8,218
West Point Stevens
8.750% due 12/15/01 1,500 1,523
9.375% due 12/15/05 6,000 6,060
World Color Press, Inc.
9.125% due 03/15/03 9,085 9,040
Young Broadcasting, Inc.
9.000% due 01/15/06 7,500 7,069
----------
456,659
==========
Utilities - 11.3%
AES Corp.
10.250% due 07/15/06 9,835 10,450
Cablevision Systems
9.875% due 02/15/13 2,000 1,933
California Energy
9.875% due 06/30/03 3,000 3,120
0.000% due 01/15/04 (b) 12,490 12,771
Calpine Corp.
9.250% due 02/01/04 5,500 5,253
CMS Energy
9.875% due 10/01/99 (c) 4,950 5,148
CTC Mansfield Funding
11.125% due 09/30/16 7,000 7,421
El Paso Electric Co.
8.900% due 02/01/06 5,000 5,088
Long Island Lighting Co.
8.200% due 03/15/23 4,500 4,067
Niagara Mohawk Power
9.500% due 03/01/21 2,000 1,917
7.875% due 04/01/24 5,500 4,609
North Atlantic Energy
9.050% due 06/01/02 5,407 5,338
Triton Energy
0.000% due 11/01/97 3,950 3,659
Vanguard Cellular Systems, Inc.
8.750% due 04/15/06 7,500 7,480
Wilmington Trust Co. - Tucson Electric
10.211% due 01/01/09 500 481
10.732% due 01/01/13 6,993 6,707
----------
85,442
----------
Total Corporate Bonds and Notes 602,345
==========
(Cost $589,763)
- ----------------------------------------------------------------------------
U.S. Treasury Notes - 2.7%
- ----------------------------------------------------------------------------
5.875% due 07/31/97 20,000 20,031
----------
Total U.S. Treasury Notes 20,031
==========
(Cost $19,983)
- ----------------------------------------------------------------------------
Mortgage-Backed Securities - 5.8%
- ----------------------------------------------------------------------------
Federal Housing Administration - 0.1%
9.250% due 12/31/96 1,349 1,349
----------
Collateralized Mortgage Obligations - 2.6%
CS First Boston Mortgage Securities Corp.
7.826% due 01/25/28 (c) 2,267 1,673
Federal National Mortgage Assn.
8.122% due 05/25/28 (c) 2,835 1,907
Lennar Central Partners L.P.
9.890% due 09/15/04 1,000 1,002
LTC
9.200% due 08/04/23 2,235 2,310
Manufacturers Hanover Corp.
7.250% due 12/16/25 (c) 939 936
9.400% due 12/16/25 (c) 4,180 4,024
Red Mountain Funding Corp.
9.150% due 11/28/27 4,227 3,746
Resolution Trust Corp.
7.083% due 09/25/20 (c) 801 529
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
9.250% due 06/25/23 $ 3,500 $ 3,548
9.500% due 05/25/24 137 135
8.500% due 03/25/25 182 179
----------
19,989
==========
Other Mortgage-Backed Securities - 2.8%
Resolution Trust Corp.
8.000% due 06/25/26 11,929 10,265
6.900% due 02/25/27 8,826 7,677
Structured Asset Securities Corp.
7.050% due 11/25/02 4,000 3,190
----------
21,132
==========
Stripped Mortgage-Backed Securities - 0.2%
Federal National Mortgage Assn. (IO)
6.000% due 07/25/05 5,467 381
7.000% due 07/25/08 6,906 1,027
6.500% due 06/25/17 4,438 443
Fund America (IO)
9.590% due 10/20/21 2,178 367
----------
2,218
----------
Total Mortgage-Backed Securities 44,689
==========
(Cost $45,696)
- ----------------------------------------------------------------------------
Asset-Backed Securities - 1.1%
- ----------------------------------------------------------------------------
Airplanes Pass Through Trust
10.875% due 03/15/19 7,500 8,081
----------
Total Asset-Backed Securities 8,081
==========
(Cost $7,732)
- ----------------------------------------------------------------------------
Sovereign Issues - 2.9%
- ----------------------------------------------------------------------------
Republic of Argentina
6.625% due 03/31/05 (c) 15,435 12,907
5.000% due 03/31/23 (c) 8,000 4,670
Third Mexican Acceptance Corp.
7.370% due 03/15/98 1,000 975
United Mexican States
6.250% due 12/31/19 5,000 3,462
----------
Total Sovereign Issues 22,014
==========
(Cost $19,301)
- ----------------------------------------------------------------------------
Preferred Stock - 2.7%
- ----------------------------------------------------------------------------
<CAPTION>
Shares
<S> <C> <C>
First Nationwide Bank 8,500 965
Time Warner, Inc. 18,595 19,617
----------
Total Preferred Stock 20,582
==========
(Cost $19,217)
- ----------------------------------------------------------------------------
Short-Term Instruments - 1.7%
- ----------------------------------------------------------------------------
<CAPTION>
Principal
Amount
(000's)
<S> <C> <C>
Discount Notes - 1.4%
Caisse d'Amortissement
5.330% due 10/21/96 $ 1,100 1,097
5.320% due 11/20/96 1,400 1,390
Electricite de France
5.340% due 11/18/96 8,300 8,240
----------
10,727
==========
Repurchase Agreement - 0.3%
State Street Bank
4.750% due 10/01/96 $ 2,121 $ 2,121
----------
(Dated 09/30/96. Collateralized by
U.S. Treasury Bill 10/01/96 valued
at $2,168,115. Repurchase proceeds
are $2,121,279.)
Total Short-Term Instruments 12,848
==========
(Cost $12,848)
Total Investments (a) - 96.5% $ 730,590
(Cost $714,540)
Other Assets and Liabilities (Net) - 3.5% 26,631
----------
Net Assets - 100.0% $ 757,221
==========
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. $ 19,697
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value. (3,647)
----------
Unrealized appreciation-net $ 16,050
==========
</TABLE>
(b)Security becomes interest bearing at a future date.
(c)Variable rate security. The rate listed is as of
September 30, 1996.
See Notes to Financial Statements
71
<PAGE>
SCHEDULE OF INVESTMENTS
Money Market Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agencies - 1.6%
- ----------------------------------------------------------------------------
Federal National Mortgage Assn.
6.073% due 12/01/18 (a) $ 454 $ 456
----------
Total U.S. Government Agencies 456
==========
(Cost $456)
- ----------------------------------------------------------------------------
Short-Term Instruments - 100.4%
- ----------------------------------------------------------------------------
Discount Notes - 99.4%
Aluminum Co. of America
5.430% due 11/18/96 1,500 1,489
Avnet, Inc.
5.420% due 10/03/96 1,000 1,000
Campbell Soup Co.
5.340% due 10/10/96 1,100 1,099
Commonwealth of Canada
5.300% due 10/28/96 1,700 1,693
Dun & Bradstreet Corp.
5.280% due 10/01/96 1,000 1,000
E.I. Du Pont de Nemours
5.280% due 10/03/96 1,300 1,300
Ford Motor Credit Co.
5.390% due 10/10/96 1,000 999
5.300% due 12/12/96 500 495
Goldman Sachs & Co.
5.370% due 11/12/96 1,500 1,491
IBM Credit Corp.
5.290% due 10/31/96 1,800 1,792
International Business Machines Corp.
5.320% due 11/25/96 1,500 1,488
Illinois Tool Works, Inc.
5.340% due 11/12/96 500 497
Motorola, Inc.
5.270% due 11/04/96 1,200 1,194
National Australia Funding
5.440% due 12/19/96 1,000 988
Nynex Corp.
5.320% due 11/04/96 500 497
5.360% due 11/04/96 1,300 1,293
New York Times Co.
5.350% due 10/01/96 750 750
5.350% due 10/31/96 1,150 1,145
Philip Morris Co.
5.300% due 11/05/96 1,500 1,492
Pitney Bowes Credit Corp.
5.440% due 10/16/96 700 698
Proctor & Gamble Co.
5.400% due 12/12/96 1,000 989
Temple-Inland, Inc.
5.330% due 11/05/96 1,800 1,791
U.S. Bancorp
5.400% due 12/19/96 1,500 1,482
Xerox Corp.
5.440% due 10/17/96 1,500 1,496
----------
28,158
==========
Repurchase Agreement - 1.0%
State Street Bank
4.750% due 10/01/96 $ 269 $ 269
(Dated 09/30/96. Collateralized by
U.S. Treasury Bond 7.125% 02/15/23
valued at $275,442. Repurchase
proceeds are $269,035.)
Total Short-Term Instruments 28,427
==========
(Cost $28,427)
Total Investments - 102.0% $ 28,883
(Cost $28,883)
Other Assets and Liabilities (Net) - (2.0%) (571)
----------
Net Assets - 100.0% $ 28,312
==========
</TABLE>
Notes to Schedule of Investments:
(a)Variable rate security. The rate listed is as of
September 30, 1996.
See Notes to Financial Statements
72
<PAGE>
SCHEDULE OF INVESTMENTS
StocksPLUS Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds and Notes - 34.6%
- ----------------------------------------------------------------------------
Banking and Finance - 15.9%
Advanta Corp.
7.260% due 10/15/96 $ 1,500 $ 1,501
Banco Latino
5.919% due 03/27/97 (d) 5,000 5,000
Capital One Bank
6.313% due 03/21/97 (d) 1,000 1,001
8.125% due 02/27/98 1,000 1,021
Caterpillar Financial
5.780% due 04/01/99 (d) 2,000 1,990
Chrysler Financial Corp.
6.190% due 10/27/97 2,000 2,001
Den Danske Bank
5.875% due 06/30/00 (d) 450 453
Ford Motor Credit Corp.
6.170% due 11/09/98 (d) 500 499
6.060% due 03/30/99 (d) 250 250
5.460% due 04/05/99 (d) 340 340
General Motors Acceptance Corp.
6.170% due 03/16/99 (d) 2,000 1,998
Kansallis-Osake
7.860% due 09/30/43 (d) 1,500 1,544
Lehman Brothers
6.540% due 01/05/98 5,000 5,007
Merrill Lynch & Co.
7.000% due 10/10/00 (d) 3,000 3,022
Salomon, Inc.
6.300% due 10/21/96 (d) 500 500
5.790% due 11/26/97 2,000 1,985
7.000% due 01/20/98 250 252
5.790% due 04/05/99 (d) 500 497
----------
28,861
==========
Industrials - 10.6%
Arkla, Inc.
9.875% due 04/15/97 3,000 3,061
COFIRI International, Inc.
5.925% due 10/27/00 (d) 2,000 1,983
First Brands Corp.
9.125% due 04/01/99 1,000 1,015
G-I Holdings, Inc.
0.000% due 10/01/98 1,000 873
Merita
5.850% due 12/01/05 (d) 1,000 996
Occidental Petroleum
9.200% due 08/15/97 1,000 1,026
RJR Nabisco
8.000% due 07/15/01 500 490
TCI Communications, Inc.
6.263% due 03/11/03 (d) 4,000 4,003
Time Warner, Inc.
6.460% due 08/15/00 (d) 3,750 3,750
United Illuminating
10.240% due 01/02/20 2,000 2,093
----------
19,290
==========
Utilities - 8.1%
Beaver Valley Funding Corp.
8.250% due 06/01/03 800 786
Centerior Fuel Corp.
9.200% due 08/02/98 1,000 1,026
Cleveland Electric Illuminating Co.
8.170% due 11/30/98 1,000 1,014
El Paso Electric Co.
7.250% due 02/01/99 1,000 998
Gulf States Utilities
9.720% due 07/01/98 6,117 6,351
Hydro-Quebec
6.000% due 09/29/49 (d) 400 358
North Atlantic Energy
9.050% due 06/01/02 1,397 1,379
Texas Utilities
6.078% due 05/01/99 (d) 2,500 2,508
Transcontinental Gas Pipeline
9.000% due 11/15/96 200 201
----------
14,621
----------
Total Corporate Bonds and Notes 62,772
==========
(Cost $62,629)
- ----------------------------------------------------------------------------
Mortgage-Backed Securities - 38.6%
- ----------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation - 3.6%
6.920% due 07/01/19 (d) 2,789 2,751
7.835% due 12/01/22 (d) 1,663 1,715
8.214% due 06/01/22 (d) 1,300 1,339
8.500% due 04/01/2025-06/01/25 (e) 757 780
----------
6,585
==========
Federal National Mortgage Association - 2.5%
5.971% due 12/01/23 (d) 338 335
6.059% due 04/01/18 (d) 143 142
6.070% due 05/01/17 (d) 510 506
6.073% due 01/01/27 (d) 133 132
6.074% due 08/01/29 (d) 551 546
6.902% due 05/01/22 (d) 892 912
7.557% due 02/01/25 (d) 1,750 1,804
9.000% due 01/01/99 75 77
----------
4,454
==========
Government National Mortgage Association - 12.5%
4.500% due 04/20/26-05/20/26(e) 1,005 960
5.000% due 02/20/26-05/20/26 (d)(e) 9,983 9,624
7.000% due 11/20/24 (d) 745 756
7.125% due 09/20/22 (d) 3,389 3,437
7.250% due 07/20/24-08/20/24 (d)(e) 7,664 7,823
----------
22,600
==========
Collateralized Mortgage Obligations - 14.1%
Bank Mart
7.343% due 03/01/19 (d) 2,283 2,232
Citicorp Mortgage
9.500% due 11/25/17 1,125 1,167
7.416% due 09/25/18 (d) 112 112
Collateralized Mortgage Securities Corp.
9.250% due 12/20/04 11 11
Countrywide
6.500% due 02/25/24 1,942 1,938
Donaldson, Lufkin & Jenrette
7.580% due 10/17/20 (d) 494 494
Federal Home Loan Mortgage Corp.
5.750% due 03/15/00 193 193
Federal National Mortgage Assn.
7.340% due 04/25/20 (d) 1,216 1,223
Greenwich
7.038% due 10/25/22 (d) 65 65
Manufacturers Hanover Corp.
7.250% due 12/16/25 (d) 2,583 2,575
Paine Webber Mortgage
6.540% due 02/25/01 (d) 2,390 2,339
Prudential Home
7.050% due 05/25/24 (d) 2,852 2,858
Residential Funding
6.288% due 03/25/18 (d) 968 939
</TABLE>
73
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
StocksPLUS Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
Resolution Trust Corp.
7.400% due 01/25/20 (d) $ 1,000 $ 1,018
7.246% due 05/25/21 (d) 85 86
6.525% due 09/25/21 (d) 1,929 1,922
7.000% due 10/25/24 20 20
6.400% due 05/25/29 (d) 1,305 1,306
Salomon Mortgage
8.910% due 02/16/98 3,000 3,097
7.000% due 07/25/24 49 49
Sears Mortgage
8.601% due 05/25/32 (d) 50 50
Structured Asset Securities Corp.
7.750% due 02/25/28 1,796 1,811
----------
25,505
==========
Other Mortgage-Backed Securities - 4.5%
California Federal Savings & Loan
6.833% due 01/01/19 (d) 93 92
Fund America
7.411% due 06/25/23 (d) 275 279
Great Western Savings & Loan
6.314% due 01/25/18 (d) 118 117
J.P. Morgan & Co.
7.018% due 01/25/18 (d) 1,100 1,105
Red Mountain Funding Corp.
5.252% due 11/28/27 1,720 1,719
REIG Commercial Mortgage Funding Trust
5.842% due 04/27/98 (d) 1,200 1,201
Resolution Trust Corp.
6.889% due 12/25/23 (d) 94 94
Structured Asset Securities Corp.
6.707% due 09/25/36 (d) 1,835 1,852
Western Federal Savings & Loan
6.424% due 10/25/18 (d) 783 780
6.839% due 02/24/19 (d) 98 97
6.615% due 06/25/19 (d) 853 851
----------
8,187
==========
Stripped Mortgage-Backed Securities - 1.4%
Federal Home Loan Mortgage Corp. (IO)
7.000% due 08/15/13 349 17
Federal National Mortgage Assn. (IO)
6.000% due 11/25/00 1,391 142
6.500% due 02/25/21 (d) 11,571 1,448
7.000% due 07/25/06 1,068 138
7.000% due 07/25/21 1,934 326
7.500% due 08/25/10 219 1
Federal National Mortgage Assn. (PO)
0.000% due 01/25/20 600 593
Prudential Home (IO)
4.299% due 02/25/22 34 66
----------
2,731
----------
Total Mortgage-Backed Securities 70,062
==========
(Cost $70,258)
- ----------------------------------------------------------------------------
Asset-Backed Securities - 1.7%
- ----------------------------------------------------------------------------
LIBOR-Index Certificates
6.108% due 08/31/98 (d) 3,000 3,000
----------
Total Asset-Backed Securities 3,000
==========
(Cost $3,000)
- ----------------------------------------------------------------------------
Sovereign Issues - 2.3%
- ----------------------------------------------------------------------------
Republic of Argentina
6.625% due 03/31/05 (d) 4,998 4,180
----------
Total Sovereign Issues 4,180
==========
(Cost $3,685)
- ----------------------------------------------------------------------------
Foreign Currency-Denominated Issues (c)(g) - 1.2%
- ----------------------------------------------------------------------------
Commonwealth of Canada
4.250% due 12/01/26 C$ 3,039 $ 2,128
----------
Total Foreign Currency-Denominated Issues 2,128
==========
(Cost $2,036)
- ----------------------------------------------------------------------------
Short-Term Instruments - 20.6%
- ----------------------------------------------------------------------------
Discount Notes 17.6%
Ameritech Corp.
5.330% due 10/02/96 $ 1,100 1,100
Caisse d'Amortissement
5.340% due 10/07/96 1,500 1,498
5.330% due 10/21/96 700 698
5.350% due 10/24/96 1,300 1,296
5.310% due 12/13/96 900 890
Canadian Wheat Board
5.270% due 11/06/96 1,500 1,492
Electricite de France
5.340% due 11/18/96 3,700 3,673
5.300% due 11/25/96 3,800 3,769
Federal National Morgtgage Assn.
5.220% due 10/15/96 200 200
Ford Motor Credit Corp.
5.290% due 10/29/96 2,400 2,390
5.280% due 11/12/96 2,500 2,485
General Electric Capital Corp.
5.300% due 11/12/96 300 298
5.330% due 11/25/96 3,000 2,976
KFW International Financial
5.300% due 11/12/96 1,200 1,192
Mobil Australia
5.340% due 10/16/96 1,000 998
Motorola, Inc.
5.320% due 10/23/96 900 897
National Rural Utilities Cooperative
5.340% due 10/15/96 2,000 1,996
Proctor & Gamble Co.
5.270% due 10/08/96 400 400
5.250% due 10/17/96 2,400 2,394
Wool International
5.370% due 11/06/96 1,200 1,194
----------
31,836
==========
Repurchase Agreements - 1.1%
State Street Bank
4.750% due 10/01/96 1,956 1,956
----------
(Dated 09/30/96. Collateralized by
Federal National Mortgage Assn. 6.580%
11/15/02 valued at $1,999,848.
Repurchase proceeds are $1,956,258.)
U.S. Treasury Bills - 1.9%
5.050% due 10/17/96-01/09/97 (b)(e) 3,555 3,543
----------
Total Short-Term Instruments 37,335
==========
(Cost $37,335)
Total Investments (a) - 99.0% $ 179,477
(Cost $178,943)
Written Options (h) - (0.0%) (13)
(Premiums $31)
Other Assets and Liabilities (Net) - 1.0% 1,836
----------
Net Assets - 100.0% $ 181,300
==========
</TABLE>
74
<PAGE>
Notes to Schedule of Investments ( $in thousands):
<TABLE>
<S> <C>
(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. $ 1,029
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value. (495)
----------
Unrealized appreciation-net $ 534
==========
</TABLE>
(b)Securities with an aggregate market value of $3,543 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>
S & P 500 Index (12/96) 246 $ 3,627
</TABLE>
(c)Foreign forward currency contracts outstanding at
September 30, 1996:
<TABLE>
<CAPTION>
Principal
Amount Unrealized
Covered Expiration Appreciation/
Type by Contract Month (Depreciation)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Buy BF 144,490 06/97 $ (46)
Sell 141,036 06/97 9
Sell C$ 2,814 09/97 (13)
Buy JY 2,561 10/96 (1)
Sell 2561 10/96 (50)
----------
$ (101)
==========
</TABLE>
(d)Variable rate security. The rate listed is as of
September 30, 1996.
(e)Securities are grouped by coupon and represent a range of maturities.
(f)Swap agreements outstanding at September 30, 1996:
<TABLE>
<CAPTION>
Notional Unrealized
Type Amount Depreciation
- ----------------------------------------------------------------------------
<S> <C> <C>
Receive total return on S&P 500 Index and
pay floating rate based on 1 month LIBOR.
Broker: Deutsche Bank AG London
Exp. 12/31/96 $ 25,783 $ (639)
Broker: Lehman Brothers
Exp. 12/31/96 24,400 (600)
Broker: Morgan Stanley
Exp. 03/31/97 36,968 0
----------
$ (1,239)
==========
</TABLE>
(g)Principal amount denoted in indicated currency:
BF - Belgian Franc
C$ - Canadian Dollar
JY - Japanese Yen
(h)Premiums received on Written Put Options:
<TABLE>
<CAPTION>
Premiums Market
Type Par Received Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
CME Eurodollar June Futures
Strike @ 93.50 Exp. 06/16/97 $ 27,000 $ 31 $ 13
</TABLE>
See Notes to Financial Statements
75
<PAGE>
SCHEDULE OF INVESTMENTS
Strategic Balanced Fund
September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ----------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds and Notes - 40.2%
- ----------------------------------------------------------------------------
Banking and Finance - 23.2%
Advanta National Bank
5.980% due 05/09/97 $ 100 $ 100
AT&T Capital Corp.
6.070% due 10/24/97 300 300
Banco Latino
6.128% due 04/15/97 (d) 300 300
Capital One Bank
6.490% due 08/15/97 300 300
Lehman Brothers
9.500% due 06/15/97 300 307
6.540% due 01/05/98 500 501
Paine Webber
7.750% due 10/20/97 300 304
Salomon, Inc.
5.650% due 02/10/98 300 297
----------
2,409
==========
Industrials - 6.9%
Gulf Canada Resources
9.000% due 08/15/99 300 311
RJR Nabisco, Inc.
8.625% due 12/01/02 100 100
Sequa Corp.
9.625% due 10/15/99 300 306
----------
717
==========
Utilities - 10.1%
Consumers Power Co.
8.750% due 02/15/98 200 205
Gulf States Utilities
9.720% due 07/01/98 40 41
Long Island Lighting Co.
7.625% due 04/15/98 300 302
Philadelphia Electric
6.125% due 10/01/97 300 299
Texas Utilities
6.375% due 08/01/97 200 200
----------
1,047
----------
Total Corporate Bonds and Notes 4,173
==========
(Cost $4,158)
- ----------------------------------------------------------------------------
U.S. Treasury Notes - 9.6%
- ----------------------------------------------------------------------------
5.750% due 09/30/97 1,000 1,000
----------
Total U.S. Treasury Notes 1,000
==========
(Cost $997)
- ----------------------------------------------------------------------------
Mortgage-Backed Securities - 39.6%
- ----------------------------------------------------------------------------
Government National Mortgage Association - 16.2%
6.000% due 04/20/24 (d) 1,402 1,388
7.000% due 10/20/23 (d) 288 293
----------
1,681
==========
Collatralized Mortgage Obligations - 16.6%
Federal Home Loan Mortgage Corp.
7.000% due 05/15/23 76 66
Federal National Mortgage Assn.
8.500% due 04/25/18 183 184
6.500% due 12/25/23 120 100
Federal Home Loan Mortgage Corp.
9.000% due 06/15/15 44 44
Guardian
7.219% due 01/25/21 (d) 300 204
Merrill Lynch Mortgage
4.550% due 12/15/13 299 296
Resolution Trust Corp.
7.500% due 08/25/23 200 200
Ryland Acceptance Corp.
8.350% due 12/01/12 394 398
Structured Mortgage Asset Residential Trust
7.875% due 09/25/21 237 238
----------
1,730
==========
Other Mortgage-Backed Securities - 2.4%
Matterhorn
6.259% due 01/21/06 (d) 247 246
----------
Stripped Mortgage-Backed Securities - 4.4%
Collateralized Mortgage Obligation Trust (PO)
0.000% due 04/23/17 40 29
Federal Home Loan Mortgage Corp. (IO)
7.000% due 02/15/17 2,571 240
Federal National Mortgage Assn. (IO)
6.500% due 09/25/08 1,549 186
----------
455
----------
Total Mortgage-Backed Securities 4,112
==========
(Cost $4,087)
- ----------------------------------------------------------------------------
Asset-Backed Securities - 1.0%
- ----------------------------------------------------------------------------
Conti Mortgage Home Equity Loan Trust
6.760% due 02/15/11 97 97
----------
Total Asset-Backed Securities 97
==========
(Cost $97)
- ----------------------------------------------------------------------------
Sovereign Issues - 2.4%
- ----------------------------------------------------------------------------
Republic of Argentina
6.625% due 03/31/05 (d) 294 246
----------
Total Sovereign Issues 246
==========
(Cost $228)
- ----------------------------------------------------------------------------
Foreign Currency-Denominated Issues (c) (f) - 0.7%
- ----------------------------------------------------------------------------
Commonwealth of Canada
4.250% due 12/01/26 C$ 101 71
----------
Total Foreign Currency-Denominated Issues 71
==========
(Cost $68)
- ----------------------------------------------------------------------------
Short-Term Instruments - 8.7%
- ----------------------------------------------------------------------------
Discount Notes - 1.9%
Caisse d'Amortissement
5.420% due 10/23/96 $ 100 100
Federal Home Loan Mortgage Corp.
5.290% due 11/13/96 100 99
----------
199
==========
Repurchase Agreement - 5.2%
State Street Bank
4.750% due 10/01/96 540 540
----------
(Dated 09/30/96. Collateralized by
U.S. Treasury Note 6.000% 08/31/97
valued at $543,613. Repurchase
proceeds are $540,071.)
U.S. Treasury Bills - 1.6%
5.011% due 10/24/96-11/14/96 (b) 170 169
----------
Total Short-Term Instruments 908
==========
(Cost $908)
</TABLE>
76
<PAGE>
================================================================================
<TABLE>
<S> <C>
Total Investments (a) - 102.2% $ 10,607
(Cost $10,543)
Other Assets and Liabilities (Net) - (2.2%) (229)
----------
Net Assets - 100.0% $ 10,378
==========
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. $ 81
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value. (17)
----------
Unrealized appreciation-net $ 64
==========
</TABLE>
(b)Securities with an aggregate market value of $169 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>
S&P 500 Index (12/96) 9 $ 137
U.S. Treasury 5 Year Note (12/96) 9 11
U.S. Treasury 10 Year Note (12/96) 12 21
U.S. Treasury 30 Year Bond (12/96) 5 5
----------
$ 174
==========
</TABLE>
(c)Foreign forward currency contracts outstanding at September 30, 1996:
<TABLE>
<CAPTION>
Principal
Amount
Covered Expiration Unrealized
Type by Contract Month Appreciation
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Sell C$ 94 09/97 $ 0
</TABLE>
(d)Variable rate security. The rate listed is as of September 30, 1996.
(e)Swap agreement outstanding at September 30, 1996:
<TABLE>
<CAPTION>
Notional Unrealized
Type Amount Depreciation
- ----------------------------------------------------------------------------
<S> <C> <C>
Receive total return on S&P 500 Index
and pay floating rate based on 1 month LIBOR.
Broker: Lehman Brothers
Exp. 12/31/96 $ 3,016 $ (74)
</TABLE>
(f)Principal amount denoted in indicated currency:
C$ - Canadian Dollar
See Notes to Financial Statements
77
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1996 (unaudited)
1. Significant Accounting Policies
PIMCO Funds (the "Trust") was established as a Massachusetts business trust on
February 19, 1987. The Trust is registered under the Investment Company Act of
1940 (the "Act"), as amended, as a no-load, open-end investment management
company. The Trust currently consists of 18 separate investment funds (the
"Funds"): the Total Return Fund; the Total Return Fund II; the Total Return Fund
III; the Low Duration Fund; the Low Duration Fund II; the Low Duration Fund III;
the ShortTerm Fund; the LongTerm U.S. Government Fund; the Foreign Fund; the
Global Fund; the High Yield Fund; the Money Market Fund; the StocksPLUS Fund;
the StocksPLUS Short Strategy Fund; the Strategic Balanced Fund; the Moderate
Duration Fund; the Commercial Mortgage Securities Fund; and the International
Fund (available only to private account clients of PIMCO). The semi-annual
report for the International Fund is provided separately. Effective June 30,
1996, and July 31, 1996, respectively, two series of the Trust, the VersaSTYLE
Equity Fund II and the Growth Stock Fund were closed. The semi-annual reports
for these Funds are also provided separately. The Moderate Duration, Commercial
Mortgage Securities, Low Duration III and StocksPLUS Short Strategy Funds had
not commenced operations as of September 30, 1996. The following is a summary of
significant accounting policies consistently followed by the Trust in
preparation of its financial statements. These policies are in conformity with
generally accepted accounting principles.
Security Valuation. Portfolio securities and other financial instruments 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, 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
which mature in 60 days or less are valued at amortized cost, which approximates
market 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.
Delayed Delivery Transactions. A Fund may purchase or sell securities on a
when-issued or delayed delivery basis. These transactions involve a commitment
by a 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, a 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, a 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. A Fund may
dispose of or renegotiate a delayed delivery transaction after it is entered
into, and may sell when-issued securities before they are delivered, which may
result in a capital gain or loss. 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.
Credit Quality. The credit quality pie charts included in Investment Performance
represent the credit quality of all fixed income securities. The rating assigned
to each security is the higher of that reported by Moody's or Standard & Poor's.
If the security is not rated by either Moody's or Standard & Poor's, the Adviser
assigns a rating that is comparable in quality.
78
<PAGE>
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and includes
the accretion of discounts and amortization of premiums.
Dividends and Distributions to Shareholders. Dividends from net investment
income of each Fund except the StocksPLUS and Strategic Balanced Funds are
declared on each day the Trust is open for business and are distributed to
shareholders monthly. Dividends from net investment income of the StocksPLUS and
Strategic Balanced Funds are declared and distributed to shareholders quarterly.
Net long-term capital gains earned by a Fund, if any, will be distributed no
less frequently than once each year. 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 investments
relative to the U.S. dollar, are reported to shareholders as income 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, net
operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statement of Changes in Net Assets have been reclassified to paid
in capital. In addition, other amounts have been reclassified between
undistributed net investment income and accumulated undistributed net realized
gains in order to more appropriately conform financial accounting and tax
characterizations of dividend distributions.
Commencement of Multiclass Operations. On August 23, 1994, each Fund within the
PIMCO Funds was authorized to offer investors a choice of two classes of shares,
the Institutional Class and the Administrative Class. Each class has equal
rights as to assets and voting privileges, while each has exclusive rights with
respect to its distribution plan. The Total Return, Total Return II, Low
Duration, Short-Term, High Yield, Money Market and Global Funds commenced
multiclass operations on September 7, 1994, November 30, 1994, December 31,
1994, February 1, 1996, January 16, 1995, January 24, 1995 and August 1, 1996,
respectively. None of the other PIMCO Funds had commenced multiclass operations
as of September 30, 1996. Income and non-class specific expenses are allocated
daily to each class of shares based on the relative value of settled shares as
of the beginning of each day, adjusted for purchase orders received in Federal
Funds prior to 12:00 p.m., Eastern time. Realized and unrealized capital gains
and losses are allocated to each class of shares based on relative net assets as
of the beginning of each day adjusted for the prior day's capital share
activity.
Federal Income Taxes. Each Fund intends to qualify as a regulated investment
company and distribute all of its taxable income and net realized gains, if
applicable, to shareholders. Accordingly, no provision for Federal income taxes
has been made.
Futures and Options. Each Fund (except the Money Market 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 a 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
79
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Cont.)
September 30, 1996 (unaudited)
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 Currency Contracts. Each Fund (except the Total Return II, Low Duration
II, Long-Term U.S. Government, High Yield and Money Market Funds) 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 account, 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 Trust'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 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.
Swaps. Each Fund (except the Money Market Fund) is authorized to enter into
interest rate, index and currency exchange swap agreements. PIMCO uses these
agreements in order to obtain a desired return at a lower cost to the Fund than
if the Fund had invested directly in an instrument that yielded the desired
return. The agreements involve elements of credit risk identified as the cost of
replacing those agreements for which PIMCO is in a net receivable position in
the event of counterparty default.
At September 30, 1996, the StocksPLUS and Strategic Balanced Funds were
parties to S & P 500 Index swap agreements. The agreements involve the
contractual exchange of payments whereby the Funds will receive proceeds based
on the total return of the S & P 500 Index and pay an amount based on LIBOR. The
differential to be paid or received is recognized daily over the life of the
agreement. For the period ended September 30, 1996, net income of $3,288,674 and
$51,666, respectively, was derived from the agreements and is included in
interest income of the Funds.
Forward Sales. The following securities were subject to outstanding forward
sale commitments at September 30, 1996 (amounts in thousands):
<TABLE>
<CAPTION>
Principal
Foreign Fund Amount Value Proceeds
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commonwealth of Canada C$ 28,600 $ 22,148 $ 21,838
Government of Japan JY 5,749,000 58,256 58,138
Kingdom of Denmark DK 22,400 4,155 4,119
Kingdom of Netherlands DG 184,100 112,582 114,635
Kingdom of Spain SP 781,000 7,101 6,959
United Kingdom Gilt BP 27,500 42,385 42,076
-------------------------
$246,627 $247,765
=========================
<CAPTION>
Principal
Global Fund Amount Value Proceeds
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commonwealth of Canada C$ 43,200 $ 33,454 $ 32,994
Government of Japan JY 1,378,000 14,298 14,276
Kingdom of Denmark DK 11,000 2,040 2,023
Kingdom of Netherlands DG 112,400 68,736 70,094
Kingdom of Spain SP 387,000 3,518 3,448
Kingdom of Sweden SK 20,500 3,427 3,380
United Kingdom Gilt BP 13,220 20,376 20,227
-------------------------
$145,849 $146,442
=========================
</TABLE>
80
<PAGE>
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. PIMCO serves as investment adviser (the "Adviser") to
the Trust, pursuant to an investment advisory contract. The Adviser receives a
monthly fee from each Fund at an annual rate based on average daily net assets
of the Fund as follows: Money Market Fund - 0.15%, StocksPLUS and Strategic
Balanced Funds - 0.40% and all other Funds - 0.25%.
Administration Fee. PIMCO also serves as administrator (the "Administrator"),
and provides administrative services to the Trust for which it receives from
each Fund a monthly administrative fee based on each Fund's average daily net
assets at the annual rate of 0.18% for the Total Return and Low Duration Funds,
0.20% for the Money Market and Short-Term Funds, 0.30% for the Global Fund and
0.25% for all other Funds.
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; (vii) expenses, such as
organizational expenses, which are capitalized in accordance with generally
accepted accounting principles; and (viii) any expenses allocated or allocable
to a specific class of shares, which include service fees payable with respect
to the Administrative Class shares and may include certain other expenses as
permitted by the Trust's Dual Class Plan adopted pursuant to Rule 18f-3 under
the Act and subject to review and approval by the Trustees. Each unaffiliated
Trustee receives an annual retainer of $20,000, plus $2,500 for each Board of
Trustees meeting attended, plus reimbursement of related expenses. These
expenses are allocated to the Funds of the Trust according to their respective
net assets.
Related Party Transactions. PIMCO Advisors Distribution Company ("PADCO"), an
indirect wholly-owned subsidiary of PIMCO Advisors L.P., serves as the
distributor of the Trust's shares. Under the contract, all expenses relating to
the distribution of Trust shares will be paid by the Adviser, the Administrator
or PADCO out of past profits and resources which may include fees received by
the Adviser.
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Cont.)
September 30, 1996 (unaudited)
3. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended September 30, 1996 were as follows ($ in thousands):
<TABLE>
<CAPTION>
U.S. Government/Agency All Other
-----------------------------------------------------------------
Purchases Sales Purchases Sales
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return Fund $10,845,802 $8,541,894 $977,722 $2,124,739
Total Return Fund II 825,079 733,227 0 31,250
Total Return Fund III 114,994 77,888 1,675 15,362
Low Duration Fund 3,010,129 3,044,551 274,974 327,180
Low Duration Fund II 379,149 382,035 12,538 4,975
Short-Term Fund 27,777 26,662 45,452 28,797
Long-Term U.S. Gov't. Fund 58,558 63,009 0 1,373
Foreign Fund 0 4,470 2,527,309 2,580,715
Global Fund 0 620 1,132,733 1,036,628
High Yield Fund 31,315 9,985 350,987 166,432
StocksPLUS Fund 28,197 24,104 38,034 17,469
Strategic Balanced Fund 6,009 3,087 6,901 3
</TABLE>
4. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows ($ in thousands):
<TABLE>
<CAPTION>
Total Total Total Low Low
Return Return II Return III Duration Duration II Short-Term
---------------------------------------------------------------------------
-------------------------------- Premium ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at 3/31/96 $ 11,679 $ 233 $ 79 $ 0 $ 0 $ 0
Sales 21,817 1,576 556 3,980 312 21
Closing Buys 0 0 0 0 0 0
Expirations (1,276) 0 0 0 0 0
Exercised (11,189) (233) (79) 0 0 0
---------------------------------------------------------------------------
Balance at 9/30/96 $ 21,031 $ 1,576 $ 556 $ 3,980 $ 312 $ 21
===========================================================================
</TABLE>
<TABLE>
Long-Term Strategic
U.S. Gov't. Foreign Global StocksPLUS Balanced
--------------------------------------------------------------
----------------------------------- Premium ------------------
<S> <C> <C> <C> <C> <C>
Balance at 3/31/96 $ 4 $ 80 $ 40 $ 0 $ 0
Sales 41 0 0 31 1
Closing Buys 0 0 0 0 (1)
Expirations 0 (80) (40) 0 0
Exercised (4) 0 0 0 0
--------------------------------------------------------------
Balance at 9/30/96 $ 41 $ 0 $ 0 $ 31 $ 0
==============================================================
</TABLE>
5. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(shares in thousands):
<TABLE>
<CAPTION>
Total Total Total Total Low
Return Return Return II Return II Total Duration
Period Ended September 30, 1996 Inst'l. Admin. Inst'l. Admin. Return III Inst'l.
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 173,911 7,148 4,340 108 1,535 49,744
Issued as reinvestment of dividends 28,266 381 1,466 12 503 7,587
Shares redeemed (93,436) (4,532) (6,917) (3) (335) (56,732)
--------------------------------------------------------------------
Net increase (decrease) 108,741 2,997 (1,111) 117 1,703 599
====================================================================
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
Low Short- Short- Long-
Duration Low Term Term Term
Period Ended September 30, 1996 Admin. Duration II Inst'l. Admin. U.S. Gov't. Foreign
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 185 3,199 7,839 474 353 5,372
Issued as reinvestment of dividends 10 789 307 1 84 335
Shares redeemed (55) (3,586) (5,543) (641) (1,460) (11,440)
--------------------------------------------------------------------
Net increase (decrease) 140 402 2,603 (166) (1,023) (5,733)
====================================================================
<CAPTION>
High High Money Money
Global Global Yield Yield Market Market
Period Ended September 30, 1996 Inst'l. Admin.(a) Inst'l. Admin. Inst'l. Admin.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 2,295 2 22,333 630 26,010 4
Issued as reinvestment of dividends 287 0 2,634 7 725 0
Shares redeemed (552) 0 (6,130) (456) (24,370) (2)
--------------------------------------------------------------------
Net increase 2,030 2 18,837 181 2,365 2
====================================================================
<CAPTION>
Strategic
Period Ended September 30, 1996 StocksPLUS Balanced (b)
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 2,818 1,003
Issued as reinvestment of dividends 486 0
Shares redeemed (1,286) 0
-------------------------
Net increase 2,018 1,003
=========================
</TABLE>
(a) From commencement of operations, August 1, 1996.
(b) From commencement of operations, June 28, 1996.
<TABLE>
<CAPTION>
Total Total Total Total Low
Return Return Return II Return II Total Duration
Year Ended March 31, 1996 Inst'l. Admin. Inst'l. Admin. Return III Inst'l.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 342,019 11,183 3,595 23 4,560 141,847
Issued as reinvestment of dividends 56,475 373 1,714 12 1,000 14,360
Shares redeemed (124,938) (2,289) (2,564) (8) (1,040) (126,025)
------------------------------------------------------------------
Net increase 273,556 9,267 2,745 27 4,520 30,182
==================================================================
<CAPTION>
Low Short- Short- Long-
Duration Low Term Term Term
Year or Period Ended March 31, 1996 Admin. Duration II Inst'l. Admin.(a) U.S. Gov't. Foreign
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 267 16,787 13,481 435 2,022 7,828
Issued as reinvestment of dividends 8 1,339 498 0 372 1,752
Shares redeemed (99) (9,818) (12,924) (32) (2,415) (9,773)
-----------------------------------------------------------------------
Net increase (decrease) 176 8,308 1,055 403 (21) (193)
=======================================================================
<CAPTION>
High High Money Money
Yield Yield Market Market
Year Ended March 31, 1996 Global Inst'l. Admin. Inst'l. Admin. StocksPLUS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 5,338 27,025 90 23,183 4 10,056
Issued as reinvestment of dividends 873 3,932 2 387 0 1,556
Shares redeemed (649) (14,184) (4) (5,376) (4) (2,440)
---------------------------------------------------------------
Net increase 5,562 16,773 88 18,194 0 9,172
===============================================================
</TABLE>
(a) From commencement of operations, February 1, 1996
83
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Cont.)
September 30, 1996 (unaudited)
6. Federal Income Tax Matters
As of March 31, 1996, Low Duration Fund, Low Duration Fund II, Short-Term Fund,
and Foreign Fund have remaining capital loss carryforwards that were realized in
the prior year of $6,262,969, $469,149, $122,770 and $1,519,059, respectively.
These capital losses are available to offset future realized capital gains
through March 31, 2003. Each Fund will resume capital gains distributions in the
future to the extent gains are realized in excess of the available
carryforwards.
84
<PAGE>
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 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
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 and Rhoads
1500 K Street N.W.
Washington, D.C. 20005
Independent Accountants
Price Waterhouse LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
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.
PIMCO
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
800-927-4648
<PAGE>
PART C. OTHER INFORMATION
--------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial statements for the Trust as of March 31, 1996, and for its
fiscal year then ended, including notes thereto, and the reports of
Price Waterhouse LLP thereon, dated May 10, 1996 are incorporated by
reference from the Annual Report. Financial Statements for the Trust
as of September 30, 1996, including the notes thereto, which are
unaudited are incorporated by reference from the Semi-Annual Report.
Financial statements for the Global Bond Fund II (prior to January 17,
1997, the Global Income Fund) as of September 30, 1996, and a related
report of Coopers & Lybrand L.L.P. will be incorporated by reference
into a subsequent post-effective amendment filed pursuant to Rule
485(b) prior to the effective date of this amendment.
(b) Exhibits
(1) (i) Declaration of Trust of Registrant/1/
(ii) Establishment and Designation of Global, Foreign, Low Duration
South Africa Free and Total Return South Africa Free Portfolios
as Series of Registrant/5/
(iii) Establishment and Designation of High Yield, Low Duration II
and Total Return II Portfolios as Series of Registrant/6/
(iv) Establishment and Designation of Income and Capital Preservation
Portfolio I and Income and Capital Preservation Portfolio II as
Series of Registrant/7/
(v) Amended and Restated Establishment and Designation of Series of
Shares of Registrant/8/
(vi) Amended Designation of Two Series of Registrant/8/
(vii) Second Amended and Restated Establishment and Designation of
Series of Shares of Registrant/9/
(viii) Establishment and Designation of Moderate Duration and
VersaSTYLE Equity Funds as Series of Registrant/10/
(ix) Amended Designation of Two Series of Registrant/14/
(x) Establishment and Designation of StocksPLUS Short Strategy
Fund as Series of Registrant/15/
(xi) Redesignation of One Existing Series and Establishment and
Designation of Two New Series of Registrant/16/
(xii) Form of Redesignation of One Series of Registrant/17/
<PAGE>
(xiii) Establishment and Designation of One Additional Series of
Shares and Amended and Restated Establishment and Designation of
Series of Shares of Registrant/20/
(xiv) Amended Designation of Five Existing Series of Registrant/20/
(xv) Establishment and Designation of One Additional Series of Shares
of Registrant/20/
(2) By-laws of Registrant/1/
(3) Not applicable
(4) Not applicable
(5) (i) Investment Advisory Contract/2/
(ii) Supplements to Investment Advisory Contract Relating to Global,
Foreign, Low Duration South Africa Free and Total Return South
Africa Free Portfolios/5/
(iii) Supplements to Investment Advisory Contract Relating to
High Yield, Low Duration II and Total Return II Portfolios/6/
(iv) Supplements to Investment Advisory Contract Relating to Income
and Capital Preservation Portfolio I and Income and Capital
Preservation Portfolio II/7/
(v) Form of Supplements to Investment Advisory Contract Relating
to Moderate Duration Fund and VersaSTYLE Equity Fund/10/
(vi) Form of Amended Investment Advisory Contract/11/
(vii) Form of Supplement to Investment Advisory Contract/12/
(viii) Form of Supplement to Investment Advisory Contract Relating to
StocksPLUS Short Strategy Fund/15/
(ix) Supplements to Investment Advisory Contract/16/
(x) Form of Supplement to Investment Advisory Contract Relating to
Global Bond Fund II/20/
(xi) Form of Supplement to Investment Advisory Contract Relating to
Real Return Bond Fund/20/
(6) (i) Distribution Contract/2/
(ii) Supplement to Distribution Contract Relating to Global, Foreign,
Low Duration South Africa Free and Total Return South Africa
Free Portfolios/5/
- 2 -
<PAGE>
(iii) Supplement to Distribution Contract Relating to High Yield, Low
Duration II and Total Return II Portfolios/6/
(iv) Supplements to Distribution Contract Relating to Income and
Capital Preservation Portfolio I and Income and Capital
Preservation Portfolio II/7/
(v) Form of Distribution Contract as Amended May 31, 1994/9/
(vi) Form of Supplements to Distribution Contract Relating to
Moderate Duration Fund and VersaSTYLE Equity Fund/10/
(vii) Form of Amended Distribution Contract/11/
(viii) Form of Supplement to Distribution Contract Relating to
StocksPLUS Short Strategy Fund/15/
(ix) Supplements to Distribution Contract/16/
(x) Form of Distribution Contract/18/
(xi) Form of Supplement to Distribution Contract Relating to Real
Return Bond Fund/20/
(7) Not applicable
(8) Custodian Agreement/4/
(9) Transfer Agency Agreement/4/
(10) (i) Opinion of Counsel/13/
(ii) Consent of Counsel/3/
(11) Accountants' Consent/19/
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) (i) Form of Distribution Plan for Administrative Class Shares/9/
(ii) Administrative Services Contract/2/
(iii) Supplements to Administrative Services Contract relating to
Global, Foreign, Low Duration South Africa Free and Total Return
South Africa Free Portfolios/5/
- 3 -
<PAGE>
(iv) Supplement to Administrative Services Contract Relating to High
Yield, Low Duration II and Total Return II Portfolios/6/
(v) Supplements to Administrative Services Contract Relating to
Income and Capital Preservation Portfolio I and Income and
Capital Preservation Portfolio II/7/
(vi) Form of Administrative Services Plan for Administrative Class
Shares/9/
(vii) Form of Supplements to Administrative Services Contract Relating
to Moderate Duration Fund and VersaSTYLE Equity Fund/10/
(viii) Form of Amended Administrative Services Contract/11/
(ix) Form of Amended Administrative Services Contract/12/
(x) Form of Supplement to Administration Agreement Relating to
StocksPLUS Short Strategy Fund/16/
(xi) Supplements to Administration Agreement/16/
(xii) Form of Amendment to Administration Agreement/18/
(xiii) Form of Distribution and Servicing Plan for Class A
shares/18/
(xiv) Form of Distribution and Servicing Plan for Class B
shares/18/
(xv) Form of Distribution and Servicing Plan for Class C
shares/18/
(xvi) Form of Supplement to Administration Agreement Relating to Real
Return Bond Fund/20/
(16) Calculation of Performance/12/
(17) Financial Data Schedule/19/
(18) (i) Dual-Class Plan/12/
(ii) Amended Dual-Class Plan/16/
(iii) Amended and Restated Multi-Class Plan adopted pursuant to
Rule 18f-3/18/
- 4 -
<PAGE>
/1/ Filed with initial Registration Statement on February 19, 1987
(File No. 33-12113).
/2/ Filed with Pre-Effective Amendment No. 2 on April 21, 1987.
/3/ Filed with Pre-Effective Amendment No. 4 on May 5, 1987.
/4/ Filed with Post-Effective Amendment No. 3 on August 1, 1988.
/5/ Filed with Post-Effective Amendment No. 8 on August 3, 1990.
/6/ Filed with Post-Effective Amendment No. 10 on May 31, 1991.
/7/ Filed with Post-Effective Amendment No. 12 on August 29, 1991.
/8/ Filed with Post-Effective Amendment No. 15 on June 1, 1992.
/9/ Filed with Post-Effective Amendment No. 20 on June 1, 1994.
/10/ Filed with Post-Effective Amendment No. 21 on August 1, 1994.
/11/ Filed with Post-Effective Amendment No. 22 on November 30, 1994.
/12/ Filed with Post-Effective Amendment No. 23 on June 1, 1995.
/13/ Filed with Registrant's Rule 24f-2 Notice.
/14/ Filed with Post-Effective Amendment No. 24 on July 31, 1995.
/15/ Filed with Post-Effective Amendment No. 27 on January 16, 1996.
/16/ Filed with Post-Effective Amendment No. 28 on April 1, 1996.
/17/ Filed with Post-Effective Amendment No. 29 on June 14, 1996.
/18/ Filed with Registration Statement on Form N-14 (File No. 333-12871) on
September 27, 1996.
/19/ Filed herewith.
/20/ To be filed by post-effective amendment prior to effectiveness of this
amendment.
- 5 -
<PAGE>
Item 25. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
No person is controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
-------------------------------
As of December 13, 1996, the number of record holders of each Fund and
Class thereof of the Registrant were as follows:
<TABLE>
<CAPTION>
Class
-----
Institutional Administrative A B C
------------- -------------- - - -
Fund
----
<S> <C> <C> <C><C><C>
Money Market 185 1 0 0 0
Short-Term 108 2 0 0 0
Low Duration 549 8 0 0 0
Low Duration II 49 0 0 0 0
Low Duration III 0 0 0 0 0
Moderate Duration 0 0 0 0 0
High Yield 127 5 0 0 0
Total Return 1235 43 0 0 0
Total Return II 178 7 0 0 0
Total Return III 22 0 0 0 0
Commercial Mortgage
Securities 0 0 0 0 0
Long-Term U.S. Government 20 0 0 0 0
Foreign Bond 50 0 0 0 0
Global Bond 43 2 0 0 0
Global Bond II 0 0 0 0 0
International Bond 108 0 0 0 0
StocksPLUS 53 0 0 0 0
StocksPLUS Short Strategy 0 0 0 0 0
Strategic Balanced 4 0 0 0 0
</TABLE>
Item 27. Indemnification
---------------
Reference is made to Article IV of the Registrant's Declaration of
Trust, which was filed with the Registrant's initial Registration
Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant by the Registrant pursuant to
the Declaration of Trust or otherwise, the Registrant is aware that in
the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and,
- 6 -
<PAGE>
public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by trustees, officers or controlling persons of the
Registrant in connection with the successful defense of any act, suit
or proceeding) is asserted by such trustees, officers or controlling
persons in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
PIMCO, the investment adviser to the Trust, is a subsidiary
partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). The general
partner of PIMCO Advisors is PIMCO Partners, G.P., a general
partnership between Pacific Investment Management Company, an indirect
wholly-owned subsidiary of Pacific Mutual Life Insurance Company
("Pacific Mutual"), and PIMCO Partners LLC, a limited liability
company controlled by the PIMCO Managing Directors.
The directors and officers of PIMCO and their business and other
connections are as follow:
Name Business and Other Connections
- ---- ------------------------------
Allan, George C. Vice President, PIMCO and PIMCO Management, Inc.
Arnold, Tamara J. Vice President, PIMCO and PIMCO Management, Inc.
Barbi, Leslie A. Vice President, PIMCO and PIMCO Management, Inc.
Benz, William R. II Executive Vice President, PIMCO and PIMCO
Management, Inc.
Brynjolfsson, John B. Vice President, PIMCO and PIMCO Management, Inc.
- 7 -
<PAGE>
Name Business and Other Connections
- ---- ------------------------------
Burns, R. Wesley Executive Vice President, PIMCO and PIMCO
Management, Inc.; President of the Trust and PIMCO
Commercial Mortgage Securities Trust, Inc.; Vice
President, PIMCO Funds: Equity Advisors Series,
PIMCO Advisors Funds and Cash Accumulation
Trust.
Cupps, Wendy W. Vice President, PIMCO and PIMCO Management, Inc.
Daniels, Charles M. III Executive Vice President, PIMCO and PIMCO
Management, Inc.
Dunn, Anita Vice President, PIMCO and PIMCO Management, Inc.
Edington, David H. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Ehlert, Benjamin A. Executive Vice President, PIMCO and PIMCO
Management, Inc.
Ettl, Robert A. Vice President, PIMCO and PIMCO Management, Inc.
Fitzgerald, Robert M. Treasurer, PIMCO, Cadence Capital Management, Inc.,
NFJ Management, Inc., Parametric Management Inc., and
StocksPLUS Management Inc.; Assistant Treasurer
Cadence Capital Management; Senior Vice President,
Finance and Controller, Columbus Circle Investors and
Columbus Circle Investors Management Inc.; Chief
Financial Officer, Senior Vice President-Finance and
Controller, PIMCO Advisors and PIMCO Advisors
Distribution Company.
Gross, William H. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Senior Vice
President of the Trust; Member of Equity and
Operating Boards, PIMCO Advisors; Member of PIMCO
Partners LLC.
Hague, John L. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Hally, Gordon C. Executive Vice President, PIMCO and PIMCO
Management, Inc.
Hamalainen, Pasi M. Vice President, PIMCO and PIMCO Management, Inc.
- 8 -
<PAGE>
Name Business and Other Connections
- ---- ------------------------------
Hardaway, John P. Vice President, PIMCO and PIMCO Management, Inc.;
Treasurer of the Trust, PIMCO Commercial Mortgage
Securities Trust, Inc., PIMCO Advisors Funds and Cash
Accumulation Trust; Vice President and Treasurer,
PIMCO Funds: Equity Advisors Series.
Harris, Brent R. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Trustee and
Chairman of the Trust and PIMCO Commercial Mortgage
Securities Trust, Inc.; Member of Operating Board,
PIMCO Advisors; Member of PIMCO Partners LLC.
Hodge, Douglas M. Senior Vice President, PIMCO and PIMCO
Management, Inc.
Holden, Brent L. Executive Vice President, PIMCO and PIMCO
Management, Inc.
Holloway, Dwight F., Jr. Vice President, PIMCO and PIMCO Management, Inc.
Howe, Jane T. Vice President, PIMCO and PIMCO Management, Inc.
Isberg, Margaret E. Executive Vice President, PIMCO and PIMCO
Management, Inc.; Senior Vice President of the Trust.
Loftus, John S. Executive Vice President, PIMCO and PIMCO
Management, Inc.; Vice President and Assistant
Secretary, StocksPLUS Management, Inc.
Meiling, Dean S. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Vice President of
the Trust and PIMCO Commercial Mortgage Securities
Trust, Inc.; Member of Operating Board, PIMCO
Advisors; Member of PIMCO Partners, LLC.
Otterbein, Thomas J. Vice President, PIMCO and PIMCO Management, Inc.
Muzzy, James F. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Vice
President of the Trust; Member of Operating Board,
PIMCO Advisors; Member of PIMCO Partners LLC.
- 9 -
<PAGE>
Name Business and Other Connections
- ---- ------------------------------
Podlich, William F. III Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Vice President,
PIMCO Commercial Mortgage Securities Trust, Inc.,
Member of Equity and Operating Boards, PIMCO
Advisors; Member of PIMCO Partners LLC.
Powers, William C. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Senior Vice
President, PIMCO Commercial Mortgage Securities
Trust, Inc., Member of Operating Boards, PIMCO
Advisors; Member of PIMCO Partners LLC.
Rabinovitch, Frank B. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Rennie, Edward P. Senior Vice President, PIMCO and PIMCO Management,
Inc.
Roney, Scott L. Vice President, PIMCO and PIMCO Management, Inc.
Rosborough, Michael J. Vice President, PIMCO and PIMCO Management, Inc.
Sargent, Jeffrey M. Vice President, PIMCO, PIMCO Management, Inc., the
Trust, PIMCO Commercial Mortgage Securities Trust,
Inc. and PIMCO Funds: Equity Advisors Series.
Schmider, Ernest L. Senior Vice President, Secretary, Chief
Administrative and Legal Officer, PIMCO and PIMCO
Management, Inc.; Vice President-Legal and Assistant
Secretary, PIMCO Advisors; Director and Assistant
Secretary, Assistant Treasurer, StocksPLUS
Management, Inc.
Scholey, Leland T. Senior Vice President, PIMCO, PIMCO Management, Inc.
and the Trust.
Seliga, Denise C. Vice President, PIMCO and PIMCO Management, Inc.
Seymour, Rita J. Vice President, PIMCO and PIMCO Management, Inc.
Thomas, Lee R. Executive Vice President, PIMCO and PIMCO Management,
Inc.
- 10 -
<PAGE>
Name Business and Other Connections
- ---- ------------------------------
Thompson, William S. Chief Executive Officer and Managing Director, PIMCO;
Jr. Director, Managing Director and Chief Executive
Officer, PIMCO Management, Inc.; Director and
President, StocksPLUS Management, Inc.; Vice
President of the Trust and PIMCO Commercial Mortgage
Securities Trust, Inc.; Member of Equity Board and
Operating Committee, and Chairman and Member of
Operating Board, PIMCO Advisors; Member of PIMCO
Partners LLC.
Trosky, Benjamin L. Managing Director, PIMCO and PIMCO Management, Inc.;
Senior Vice President, PIMCO Commercial Mortgage
Securities Trust, Inc.; Member of PIMCO Partners
LLC.
Venable, Robert S. Vice President, PIMCO and PIMCO Management, Inc.
Wagner, Teresa A. Vice President, PIMCO, PIMCO Management, Inc., the
Trust, PIMCO Commercial Mortgage Securities Trust,
Inc. and PIMCO Funds: Equity Advisors Series; Vice
President and Assistant Clerk, PIMCO Advisors Funds
and Cash Accumulation Trust.
Ward, Andrew C. Vice President, PIMCO and PIMCO Management, Inc.;
Senior Vice President of the Trust.
Weil, Richard M. Assistant Secretary, PIMCO, PIMCO Management, Inc.,
Columbus Circle Investors, Columbus Circle Investors,
Inc., Cadence Capital Management, Cadence Capital
Management, Inc., NFJ Management, NFJ Management,
Inc., Parametric Management, Inc. and PIMCO Advisors
Distribution Company; Secretary, NFJ Investment
Group, Parametric Portfolio Associates, and
StocksPLUS Management, Inc.; Senior Vice President,
Lead Counsel, PIMCO.
Willner, Ram Vice President, PIMCO and PIMCO Management, Inc.
Wilsey, Kristen M. Vice President of the Trust, PIMCO and PIMCO
Management, Inc.
Wood, George H. Vice President, PIMCO and PIMCO Management, Inc.
Yetter, Michael A. Vice President, PIMCO and PIMCO Management, Inc.
The address of PIMCO is 840 Newport Center Drive, Newport Beach, CA 92260.
The address of PIMCO Advisors, L.P. is 800 Newport Center Drive, Newport Beach,
CA 92660.
The address of PIMCO Advisors Distribution Company is 2187 Atlantic Street,
Stamford, CT 06902.
- 11 -
<PAGE>
Item 29. Principal Underwriters
----------------------
(a) PIMCO Advisors Distribution Company (the "Distributor") serves as
Distributor of Shares of the Trust. The Distributor also acts as
the principal underwriter for PIMCO Funds: Equity Advisors
Series. The Distributor is a wholly-owned subsidiary of PIMCO
Advisors.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
Badgley, William D. Vice President None
Booth, Jeffrey L. Vice President None
Bosch, James D. Vice President None
Cvengros, William D. Director None
Fitzgerald, Robert M. Chief Financial Officer, None
Senior Vice President -
Finance and Controller
Gallagher, Michael J. Vice President None
Gray, Ronald H. Vice President None
Janeczek, Edward W. Vice President None
Kemraj, Jaishree B. Asst. Vice President/
Asst. Controller None
Leasure, John O. President & CEO, Director None
Lynch, William E. Regional Vice President None
McCarthy, Jacqueline A. Vice President None
McLaughlin, Richard J. Vice President None
Meyers, Andrew J. Executive Vice President None
Moody, Paul R. Regional Vice President None
Moyer, Fioja Vice President None
Pearlman, Joffrey H. Vice President None
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Pisapia, Glynne Vice President None
Russell, Matthew M. Vice President None
Schott, Newton B., Jr. Senior Vice President/ None
Secretary, Director
Stone, David P. Vice President None
Thomas, William H., Jr. Regional Vice President None
Treadway, Stephen J. Chairman and Director None
Troyer, Paul H. Regional Vice President None
Trumbore, Brian F. Senior Vice President None
Weil, Richard M. Assistant Secretary None
- -------------
</TABLE>
* The business address of all directors and officers of the Distributor is
either 2187 Atlantic Street, Stamford, CT 06902 or 800 Newport Center Drive,
Newport Beach, CA 92660.
Item 30. Location of Accounts and Records
--------------------------------
The account books and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment Company
Act of 1940 and the Rules thereunder will be maintained at the
offices of Pacific Investment Management Company, 840 Newport
Center Drive, Newport Beach, California 92660 and at the offices
of the Trust's Custodian, Investors Fiduciary Trust Company,
127 West 10th Street, Kansas City, Missouri 64105.
Item 31. Management Services
-------------------
Not applicable
Item 32. Undertakings
------------
(a) Not applicable.
- 13 -
<PAGE>
(b) Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified,
within four to six months from the effective date of
Registrant's 1933 Act registration statement, or post-
effective amendment thereto which provides for the addition
of a new series of Registrant.
(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered with a copy of Registrant's latest
annual report to shareholders upon request and without
charge.
(d) Registrant undertakes to call a meeting of shareholders for
the purpose of considering the removal of a person serving
as Trustee if requested in writing to do so by the holders
of not less than 10% of the outstanding shares of
Registrant.
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 32 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington
in the District of Columbia on the 20th day of December, 1996.
PIMCO FUNDS
(Registrant)
By:
-------------------------------------
R. Wesley Burns*++++
President
*By: /s/ Robert W. Helm
-----------------------------------
Robert W. Helm, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
- -------------------------- Trustee December 20, 1996
Guilford C. Babcock*+
- -------------------------- Trustee December 20, 1996
Thomas P. Kemp*+
- -------------------------- Trustee December 20, 1996
Brent R. Harris*+++
- -------------------------- Trustee December 20, 1996
William J. Popejoy* +++++
- -------------------------- Trustee December 20, 1996
Vern O. Curtis*++++++
- -------------------------- President December 20, 1996
R. Wesley Burns*++++ (Principal
Executive
Officer)
- -------------------------- Treasurer December 20, 1996
John P. Hardaway++* (Principal
Financial
and Accounting
Officer)
</TABLE>
*By: /s/ Robert W. Helm
-------------------
Robert W. Helm,
as attorney-in-fact
<PAGE>
-------------------
+ Pursuant to power of attorney filed with Post-Effective Amendment
No. 1 to Registration Statement No. 33-12113 on November 6, 1987.
++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 10 to Registration Statement No. 33-12113 on May 31, 1991.
+++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 14 to Registration Statement No. 33-12113 on April 28, 1992.
++++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 20 to Registration Statement No. 33-12113 on June 1, 1995.
+++++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 22 to Registration Statement No. 33-12113 on November 30, 1994.
++++++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 23 to Registration Statement No. 33-12113 on June 1, 1995.
<PAGE>
PIMCO Funds
INDEX TO EXHIBITS
FILED WITH
POST-EFFECTIVE AMENDMENT NO. 32
EXHIBIT 11 Consent of Independent Accountants (EDGAR EXHIBIT 99.B11).
EXHIBIT 17 Financial Data Schedule (EDGAR EXHIBIT 27).
<PAGE>
Exhibit 99.B11
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 32 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 10, 1996, relating to the financial
statements and financial highlights appearing in the March 31, 1996 Annual
Report to Shareholders of the PIMCO Funds; Pacific Investment Management Series,
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the heading "Financial Highlights" in
the Prospectus and under the headings "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Kansas City, Missouri
December 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 12,591,994
<INVESTMENTS-AT-VALUE> 12,659,993
<RECEIVABLES> 188,072
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 367
<TOTAL-ASSETS> 12,848,432
<PAYABLE-FOR-SECURITIES> 1,293,534
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,959
<TOTAL-LIABILITIES> 1,339,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,589,573
<SHARES-COMMON-STOCK> 1,104,903
<SHARES-COMMON-PRIOR> 996,162
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 18,844
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 219,051
<ACCUM-APPREC-OR-DEPREC> 157,261
<NET-ASSETS> 11,508,939
<DIVIDEND-INCOME> 898
<INTEREST-INCOME> 386,345
<OTHER-INCOME> 0
<EXPENSES-NET> 23,527
<NET-INVESTMENT-INCOME> 363,716
<REALIZED-GAINS-CURRENT> (234,072)
<APPREC-INCREASE-CURRENT> 248,965
<NET-CHANGE-FROM-OPS> 378,609
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 359,779
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 173,911
<NUMBER-OF-SHARES-REDEEMED> 93,436
<SHARES-REINVESTED> 28,266
<NET-CHANGE-IN-ASSETS> 1,156,716
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15,021
<OVERDISTRIB-NII-PRIOR> 18,792
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,527
<AVERAGE-NET-ASSETS> 10,684,363
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 0.0
<PER-SHARE-DIVIDEND> 0.34
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 10.29
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> TOTAL RETURN FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 12,591,994
<INVESTMENTS-AT-VALUE> 12,659,993
<RECEIVABLES> 188,072
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 367
<TOTAL-ASSETS> 12,848,432
<PAYABLE-FOR-SECURITIES> 1,293,534
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,959
<TOTAL-LIABILITIES> 1,339,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,589,573
<SHARES-COMMON-STOCK> 13,167
<SHARES-COMMON-PRIOR> 10,170
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 18,844
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 219,051
<ACCUM-APPREC-OR-DEPREC> 157,261
<NET-ASSETS> 11,508,939
<DIVIDEND-INCOME> 898
<INTEREST-INCOME> 386,345
<OTHER-INCOME> 0
<EXPENSES-NET> 23,527
<NET-INVESTMENT-INCOME> 363,716
<REALIZED-GAINS-CURRENT> (234,072)
<APPREC-INCREASE-CURRENT> 248,965
<NET-CHANGE-FROM-OPS> 378,609
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,989
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,148
<NUMBER-OF-SHARES-REDEEMED> 4,532
<SHARES-REINVESTED> 381
<NET-CHANGE-IN-ASSETS> 1,156,716
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15,021
<OVERDISTRIB-NII-PRIOR> 18,792
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,527
<AVERAGE-NET-ASSETS> 119,787
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.29
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> LONG-TERM U.S. GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 34,764
<INVESTMENTS-AT-VALUE> 34,883
<RECEIVABLES> 559
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 35,443
<PAYABLE-FOR-SECURITIES> 13,537
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 13,583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,065
<SHARES-COMMON-STOCK> 2,241
<SHARES-COMMON-PRIOR> 3,264
<ACCUMULATED-NII-CURRENT> 236
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,624
<ACCUM-APPREC-OR-DEPREC> 183
<NET-ASSETS> 21,860
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,153
<OTHER-INCOME> 0
<EXPENSES-NET> 76
<NET-INVESTMENT-INCOME> 1,077
<REALIZED-GAINS-CURRENT> (748)
<APPREC-INCREASE-CURRENT> (11)
<NET-CHANGE-FROM-OPS> 318
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,077
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 353
<NUMBER-OF-SHARES-REDEEMED> 1,460
<SHARES-REINVESTED> 84
<NET-CHANGE-IN-ASSETS> (10,651)
<ACCUMULATED-NII-PRIOR> 236
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 876
<GROSS-ADVISORY-FEES> 38
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 76
<AVERAGE-NET-ASSETS> 28,919
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> (0.23)
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.76
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> LOW DURATION FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 3,250,948
<INVESTMENTS-AT-VALUE> 3,254,779
<RECEIVABLES> 76,920
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 3,331,708
<PAYABLE-FOR-SECURITIES> 633,617
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,474
<TOTAL-LIABILITIES> 642,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,718,100
<SHARES-COMMON-STOCK> 269,729
<SHARES-COMMON-PRIOR> 269,130
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 5,121
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 31,972
<ACCUM-APPREC-OR-DEPREC> 8,610
<NET-ASSETS> 2,689,617
<DIVIDEND-INCOME> 931
<INTEREST-INCOME> 92,495
<OTHER-INCOME> 0
<EXPENSES-NET> 5,727
<NET-INVESTMENT-INCOME> 87,699
<REALIZED-GAINS-CURRENT> (24,476)
<APPREC-INCREASE-CURRENT> 27,294
<NET-CHANGE-FROM-OPS> 90,517
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 87,596
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49,744
<NUMBER-OF-SHARES-REDEEMED> 56,732
<SHARES-REINVESTED> 7,587
<NET-CHANGE-IN-ASSETS> 9,507
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 5,120
<OVERDIST-NET-GAINS-PRIOR> 7,496
<GROSS-ADVISORY-FEES> 3,325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,727
<AVERAGE-NET-ASSETS> 2,648,559
<PER-SHARE-NAV-BEGIN> 9.95
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 032
<NAME> LOW DURATION FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 3,250,948
<INVESTMENTS-AT-VALUE> 3,254,779
<RECEIVABLES> 76,920
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 3,331,708
<PAYABLE-FOR-SECURITIES> 633,617
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,474
<TOTAL-LIABILITIES> 642,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,718,100
<SHARES-COMMON-STOCK> 395
<SHARES-COMMON-PRIOR> 255
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 5,121
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 31,972
<ACCUM-APPREC-OR-DEPREC> 8,610
<NET-ASSETS> 2,689,617
<DIVIDEND-INCOME> 931
<INTEREST-INCOME> 92,495
<OTHER-INCOME> 0
<EXPENSES-NET> 5,727
<NET-INVESTMENT-INCOME> 87,699
<REALIZED-GAINS-CURRENT> (24,476)
<APPREC-INCREASE-CURRENT> 27,294
<NET-CHANGE-FROM-OPS> 90,517
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 104
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 185
<NUMBER-OF-SHARES-REDEEMED> 55
<SHARES-REINVESTED> 10
<NET-CHANGE-IN-ASSETS> 9,507
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 5,120
<OVERDIST-NET-GAINS-PRIOR> 7,496
<GROSS-ADVISORY-FEES> 3,325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,727
<AVERAGE-NET-ASSETS> 3,237
<PER-SHARE-NAV-BEGIN> 9.95
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 051
<NAME> SHORT-TERM FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 134,627
<INVESTMENTS-AT-VALUE> 134,434
<RECEIVABLES> 1,602
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 136,036
<PAYABLE-FOR-SECURITIES> 5,064
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 413
<TOTAL-LIABILITIES> 5,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130,772
<SHARES-COMMON-STOCK> 12,860
<SHARES-COMMON-PRIOR> 10,257
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 161
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 116
<ACCUM-APPREC-OR-DEPREC> 64
<NET-ASSETS> 130,559
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,799
<OTHER-INCOME> 0
<EXPENSES-NET> 263
<NET-INVESTMENT-INCOME> 3,536
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> 577
<NET-CHANGE-FROM-OPS> 4,120
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,434
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,839
<NUMBER-OF-SHARES-REDEEMED> 5,543
<SHARES-REINVESTED> 307
<NET-CHANGE-IN-ASSETS> 24,763
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 161
<OVERDIST-NET-GAINS-PRIOR> 123
<GROSS-ADVISORY-FEES> 144
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 263
<AVERAGE-NET-ASSETS> 109,088
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 052
<NAME> SHORT-TERM FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 134,627
<INVESTMENTS-AT-VALUE> 134,434
<RECEIVABLES> 1,602
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 136,036
<PAYABLE-FOR-SECURITIES> 5,064
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 413
<TOTAL-LIABILITIES> 5,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130,772
<SHARES-COMMON-STOCK> 237
<SHARES-COMMON-PRIOR> 403
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 161
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 116
<ACCUM-APPREC-OR-DEPREC> 64
<NET-ASSETS> 130,559
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,799
<OTHER-INCOME> 0
<EXPENSES-NET> 263
<NET-INVESTMENT-INCOME> 3,536
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> 577
<NET-CHANGE-FROM-OPS> 4,120
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 102
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 474
<NUMBER-OF-SHARES-REDEEMED> 641
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 24,763
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 161
<OVERDIST-NET-GAINS-PRIOR> 123
<GROSS-ADVISORY-FEES> 144
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 263
<AVERAGE-NET-ASSETS> 3,314
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 061
<NAME> STOCKSPLUS FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 178,943
<INVESTMENTS-AT-VALUE> 179,477
<RECEIVABLES> 6,011
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 185,493
<PAYABLE-FOR-SECURITIES> 3,808
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 385
<TOTAL-LIABILITIES> 4,193
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,569
<SHARES-COMMON-STOCK> 15,625
<SHARES-COMMON-PRIOR> 13,607
<ACCUMULATED-NII-CURRENT> 3,709
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,821
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,201
<NET-ASSETS> 181,300
<DIVIDEND-INCOME> 13
<INTEREST-INCOME> 8,732
<OTHER-INCOME> 0
<EXPENSES-NET> 545
<NET-INVESTMENT-INCOME> 8,200
<REALIZED-GAINS-CURRENT> 707
<APPREC-INCREASE-CURRENT> 3,999
<NET-CHANGE-FROM-OPS> 12,906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,253
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,818
<NUMBER-OF-SHARES-REDEEMED> 1,286
<SHARES-REINVESTED> 486
<NET-CHANGE-IN-ASSETS> 29,431
<ACCUMULATED-NII-PRIOR> 1,762
<ACCUMULATED-GAINS-PRIOR> 2,114
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 335
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 545
<AVERAGE-NET-ASSETS> 165,389
<PER-SHARE-NAV-BEGIN> 11.16
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.60
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 081
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 2,373,086
<INVESTMENTS-AT-VALUE> 2,380,267
<RECEIVABLES> 283,374
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,799
<TOTAL-ASSETS> 2,669,440
<PAYABLE-FOR-SECURITIES> 1,719,938
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 669
<TOTAL-LIABILITIES> 1,720,607
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 836,786
<SHARES-COMMON-STOCK> 109,033
<SHARES-COMMON-PRIOR> 282,404
<ACCUMULATED-NII-CURRENT> 42,949
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 32,493
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,605
<NET-ASSETS> 948,833
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31,556
<OTHER-INCOME> 0
<EXPENSES-NET> 3,220
<NET-INVESTMENT-INCOME> 28,336
<REALIZED-GAINS-CURRENT> 67,834
<APPREC-INCREASE-CURRENT> 11,797
<NET-CHANGE-FROM-OPS> 107,967
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,336
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,080
<NUMBER-OF-SHARES-REDEEMED> 179,008
<SHARES-REINVESTED> 1,557
<NET-CHANGE-IN-ASSETS> (1,323,107)
<ACCUMULATED-NII-PRIOR> 27,949
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 35,341
<GROSS-ADVISORY-FEES> 1,609
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,220
<AVERAGE-NET-ASSETS> 1,345,454
<PER-SHARE-NAV-BEGIN> 8.04
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.70
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 091
<NAME> TOTAL RETURN FUND III
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 169,598
<INVESTMENTS-AT-VALUE> 169,903
<RECEIVABLES> 2,746
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172,649
<PAYABLE-FOR-SECURITIES> 13,596
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 548
<TOTAL-LIABILITIES> 14,144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 160,834
<SHARES-COMMON-STOCK> 17,286
<SHARES-COMMON-PRIOR> 15,583
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 380
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3,785
<ACCUM-APPREC-OR-DEPREC> 1,836
<NET-ASSETS> 158,505
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,114
<OTHER-INCOME> 0
<EXPENSES-NET> 380
<NET-INVESTMENT-INCOME> 4,734
<REALIZED-GAINS-CURRENT> (3,568)
<APPREC-INCREASE-CURRENT> 4,469
<NET-CHANGE-FROM-OPS> 5,635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,734
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,535
<NUMBER-OF-SHARES-REDEEMED> 335
<SHARES-REINVESTED> 503
<NET-CHANGE-IN-ASSETS> 16,282
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 380
<OVERDIST-NET-GAINS-PRIOR> 217
<GROSS-ADVISORY-FEES> 190
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 380
<AVERAGE-NET-ASSETS> 150,306
<PER-SHARE-NAV-BEGIN> 9.13
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> 0.28
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.17
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> STRATEGIC BALANCED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 10,543
<INVESTMENTS-AT-VALUE> 10,607
<RECEIVABLES> 383
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 10,991
<PAYABLE-FOR-SECURITIES> 603
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10
<TOTAL-LIABILITIES> 613
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,029
<SHARES-COMMON-STOCK> 1,003
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 199
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 101
<ACCUM-APPREC-OR-DEPREC> 251
<NET-ASSETS> 10,378
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 215
<OTHER-INCOME> 0
<EXPENSES-NET> 16
<NET-INVESTMENT-INCOME> 199
<REALIZED-GAINS-CURRENT> (101)
<APPREC-INCREASE-CURRENT> 251
<NET-CHANGE-FROM-OPS> 349
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,003
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,378
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16
<AVERAGE-NET-ASSETS> 9,997
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 111
<NAME> FOREIGN FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 617,898
<INVESTMENTS-AT-VALUE> 622,154
<RECEIVABLES> 45,591
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 725
<TOTAL-ASSETS> 668,470
<PAYABLE-FOR-SECURITIES> 452,989
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 570
<TOTAL-LIABILITIES> 453,559
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 189,839
<SHARES-COMMON-STOCK> 18,879
<SHARES-COMMON-PRIOR> 24,612
<ACCUMULATED-NII-CURRENT> 3,281
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,348
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,443
<NET-ASSETS> 214,911
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,133
<OTHER-INCOME> 0
<EXPENSES-NET> 551
<NET-INVESTMENT-INCOME> 4,582
<REALIZED-GAINS-CURRENT> 13,158
<APPREC-INCREASE-CURRENT> 4,928
<NET-CHANGE-FROM-OPS> 22,668
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,582
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,372
<NUMBER-OF-SHARES-REDEEMED> 11,440
<SHARES-REINVESTED> 335
<NET-CHANGE-IN-ASSETS> (45,582)
<ACCUMULATED-NII-PRIOR> 3,281
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,810
<GROSS-ADVISORY-FEES> 276
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 551
<AVERAGE-NET-ASSETS> 228,228
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.84
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.38
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 121
<NAME> GLOBAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 377,119
<INVESTMENTS-AT-VALUE> 378,630
<RECEIVABLES> 31,367
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 404
<TOTAL-ASSETS> 410,401
<PAYABLE-FOR-SECURITIES> 249,209
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 346
<TOTAL-LIABILITIES> 249,555
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153,500
<SHARES-COMMON-STOCK> 15,343
<SHARES-COMMON-PRIOR> 13,313
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16
<ACCUMULATED-NET-GAINS> 3,362
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,000
<NET-ASSETS> 160,846
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,112
<OTHER-INCOME> 0
<EXPENSES-NET> 409
<NET-INVESTMENT-INCOME> 3,703
<REALIZED-GAINS-CURRENT> 3,807
<APPREC-INCREASE-CURRENT> 2,728
<NET-CHANGE-FROM-OPS> 10,238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,703
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,295
<NUMBER-OF-SHARES-REDEEMED> 552
<SHARES-REINVESTED> 287
<NET-CHANGE-IN-ASSETS> 27,013
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 16
<OVERDIST-NET-GAINS-PRIOR> 445
<GROSS-ADVISORY-FEES> 186
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 409
<AVERAGE-NET-ASSETS> 148,112
<PER-SHARE-NAV-BEGIN> 10.05
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.43
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 122
<NAME> GLOBAL FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 377,119
<INVESTMENTS-AT-VALUE> 378,630
<RECEIVABLES> 31,367
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 404
<TOTAL-ASSETS> 410,401
<PAYABLE-FOR-SECURITIES> 249,209
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 346
<TOTAL-LIABILITIES> 249,555
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153,500
<SHARES-COMMON-STOCK> 2
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16
<ACCUMULATED-NET-GAINS> 3,362
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,000
<NET-ASSETS> 160,846
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,112
<OTHER-INCOME> 0
<EXPENSES-NET> 409
<NET-INVESTMENT-INCOME> 3,703
<REALIZED-GAINS-CURRENT> 3,807
<APPREC-INCREASE-CURRENT> 2,728
<NET-CHANGE-FROM-OPS> 10,238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 27,013
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 16
<OVERDIST-NET-GAINS-PRIOR> 445
<GROSS-ADVISORY-FEES> 186
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 409
<AVERAGE-NET-ASSETS> 8
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.20
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 141
<NAME> LOW DURATION FUND II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 297,893
<INVESTMENTS-AT-VALUE> 297,713
<RECEIVABLES> 11,850
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 309,564
<PAYABLE-FOR-SECURITIES> 52,416
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 428
<TOTAL-LIABILITIES> 52,844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 261,571
<SHARES-COMMON-STOCK> 26,207
<SHARES-COMMON-PRIOR> 25,805
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,363
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3,572
<ACCUM-APPREC-OR-DEPREC> 84
<NET-ASSETS> 256,720
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,763
<OTHER-INCOME> 0
<EXPENSES-NET> 634
<NET-INVESTMENT-INCOME> 8,129
<REALIZED-GAINS-CURRENT> (2,673)
<APPREC-INCREASE-CURRENT> 2,058
<NET-CHANGE-FROM-OPS> 7,514
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,130
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,199
<NUMBER-OF-SHARES-REDEEMED> 3,586
<SHARES-REINVESTED> 789
<NET-CHANGE-IN-ASSETS> 3,421
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 1,362
<OVERDIST-NET-GAINS-PRIOR> 899
<GROSS-ADVISORY-FEES> 317
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 634
<AVERAGE-NET-ASSETS> 252,354
<PER-SHARE-NAV-BEGIN> 9.82
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.80
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 151
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 28,883
<INVESTMENTS-AT-VALUE> 28,883
<RECEIVABLES> 54
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 28,938
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 626
<TOTAL-LIABILITIES> 626
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,312
<SHARES-COMMON-STOCK> 28,300
<SHARES-COMMON-PRIOR> 25,935
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 28,312
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 827
<OTHER-INCOME> 0
<EXPENSES-NET> 53
<NET-INVESTMENT-INCOME> 774
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 774
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 774
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,010
<NUMBER-OF-SHARES-REDEEMED> 24,370
<SHARES-REINVESTED> 725
<NET-CHANGE-IN-ASSETS> 2,367
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 53
<AVERAGE-NET-ASSETS> 29,958
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 152
<NAME> MONEY MARKET FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 28,883
<INVESTMENTS-AT-VALUE> 28,883
<RECEIVABLES> 54
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 28,938
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 626
<TOTAL-LIABILITIES> 626
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,312
<SHARES-COMMON-STOCK> 12
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 28,312
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 827
<OTHER-INCOME> 0
<EXPENSES-NET> 53
<NET-INVESTMENT-INCOME> 774
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 774
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4
<NUMBER-OF-SHARES-REDEEMED> 2
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,367
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 53
<AVERAGE-NET-ASSETS> 11
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 161
<NAME> TOTAL RETURN FUND II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 550,483
<INVESTMENTS-AT-VALUE> 552,429
<RECEIVABLES> 13,305
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 546
<TOTAL-ASSETS> 566,280
<PAYABLE-FOR-SECURITIES> 117,401
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,580
<TOTAL-LIABILITIES> 118,981
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 453,942
<SHARES-COMMON-STOCK> 44,943
<SHARES-COMMON-PRIOR> 46,054
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 329
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 10,518
<ACCUM-APPREC-OR-DEPREC> 4,204
<NET-ASSETS> 447,299
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,146
<OTHER-INCOME> 0
<EXPENSES-NET> 1,167
<NET-INVESTMENT-INCOME> 14,979
<REALIZED-GAINS-CURRENT> (8,538)
<APPREC-INCREASE-CURRENT> 5,929
<NET-CHANGE-FROM-OPS> 12,370
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,854
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,340
<NUMBER-OF-SHARES-REDEEMED> 6,917
<SHARES-REINVESTED> 1,466
<NET-CHANGE-IN-ASSETS> (11,604)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 329
<OVERDIST-NET-GAINS-PRIOR> 1,980
<GROSS-ADVISORY-FEES> 581
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,167
<AVERAGE-NET-ASSETS> 460,457
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> 0.31
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 162
<NAME> TOTAL RETURN FUND II-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 550,483
<INVESTMENTS-AT-VALUE> 552,429
<RECEIVABLES> 13,305
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 546
<TOTAL-ASSETS> 566,280
<PAYABLE-FOR-SECURITIES> 117,401
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,580
<TOTAL-LIABILITIES> 118,981
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 453,942
<SHARES-COMMON-STOCK> 453
<SHARES-COMMON-PRIOR> 336
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 329
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 10,518
<ACCUM-APPREC-OR-DEPREC> 4,204
<NET-ASSETS> 447,299
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,146
<OTHER-INCOME> 0
<EXPENSES-NET> 1,167
<NET-INVESTMENT-INCOME> 14,979
<REALIZED-GAINS-CURRENT> (8,538)
<APPREC-INCREASE-CURRENT> 5,929
<NET-CHANGE-FROM-OPS> 12,370
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 125
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 108
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> (11,604)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 329
<OVERDIST-NET-GAINS-PRIOR> 1,980
<GROSS-ADVISORY-FEES> 581
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,167
<AVERAGE-NET-ASSETS> 4,037
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 171
<NAME> HIGH YIELD FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 714,540
<INVESTMENTS-AT-VALUE> 730,590
<RECEIVABLES> 33,661
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 764,254
<PAYABLE-FOR-SECURITIES> 6,325
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 708
<TOTAL-LIABILITIES> 7,033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 732,838
<SHARES-COMMON-STOCK> 67,899
<SHARES-COMMON-PRIOR> 49,062
<ACCUMULATED-NII-CURRENT> 3,597
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,661
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,125
<NET-ASSETS> 757,221
<DIVIDEND-INCOME> 27
<INTEREST-INCOME> 31,499
<OTHER-INCOME> 0
<EXPENSES-NET> 1,677
<NET-INVESTMENT-INCOME> 29,849
<REALIZED-GAINS-CURRENT> 3,979
<APPREC-INCREASE-CURRENT> 7,810
<NET-CHANGE-FROM-OPS> 41,638
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29,747
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,333
<NUMBER-OF-SHARES-REDEEMED> 6,130
<SHARES-REINVESTED> 2,634
<NET-CHANGE-IN-ASSETS> 219,231
<ACCUMULATED-NII-PRIOR> 3,604
<ACCUMULATED-GAINS-PRIOR> 682
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 836
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,677
<AVERAGE-NET-ASSETS> 659,412
<PER-SHARE-NAV-BEGIN> 10.94
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.11
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 172
<NAME> HIGH YIELD FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 714,540
<INVESTMENTS-AT-VALUE> 730,590
<RECEIVABLES> 33,661
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 764,254
<PAYABLE-FOR-SECURITIES> 6,325
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 708
<TOTAL-LIABILITIES> 7,033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 732,838
<SHARES-COMMON-STOCK> 273
<SHARES-COMMON-PRIOR> 92
<ACCUMULATED-NII-CURRENT> 3,597
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,661
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,125
<NET-ASSETS> 757,221
<DIVIDEND-INCOME> 27
<INTEREST-INCOME> 31,499
<OTHER-INCOME> 0
<EXPENSES-NET> 1,677
<NET-INVESTMENT-INCOME> 29,849
<REALIZED-GAINS-CURRENT> 3,979
<APPREC-INCREASE-CURRENT> 7,810
<NET-CHANGE-FROM-OPS> 41,638
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 109
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 630
<NUMBER-OF-SHARES-REDEEMED> 456
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 219,231
<ACCUMULATED-NII-PRIOR> 3,604
<ACCUMULATED-GAINS-PRIOR> 682
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 836
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,677
<AVERAGE-NET-ASSETS> 2,209
<PER-SHARE-NAV-BEGIN> 10.94
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> 0.47
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.11
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
