<PAGE>
PIMCO Funds
Prospectus
Pacific LONG-TERM BOND FUNDS
Investment
Management Long-Term U.S. Government Fund
Series
March 5, 1997
INTERMEDIATE-TERM BOND FUNDS
Foreign Bond Fund
Global Bond Fund II
High Yield Fund
Total Return Fund
Real Return Bond Fund
--------------------------------------------------------------
SHORTER-TERM BOND FUNDS
Low Duration Fund
Short-Term Fund
Money Market Fund
EQUITY FUNDS
StocksPLUS Fund
P I M C O
<PAGE>
PIMCO Funds: Pacific Investment Management Series
Prospectus
March 5, 1997
PIMCO Funds (the "Trust") is an open-end series management invest-
ment company consisting of twenty separate investment portfolios,
each with different investment objectives and strategies. Ten of
the twenty portfolios (each a "Fund") are described herein. The
Trust is designed to provide access to the professional investment
management services offered by Pacific Investment Management Com-
pany ("Pacific Investment Management"), which serves as investment
adviser (the "Advisor") 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, certain Funds and other
series of the Trust offer up to two additional classes of shares,
Institutional Class shares and Administrative Class shares. See
"Description of the Trust--Multiple Classes of Shares."
EACH OF THE FUNDS, EXCEPT THE MONEY MARKET FUND, MAY INVEST ALL OF
ITS ASSETS IN DERIVATIVE INSTRUMENTS, SOME OF WHICH MAY BE PARTIC-
ULARLY SENSITIVE TO CHANGES IN PREVAILING INTEREST RATES. UNEX-
PECTED 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, 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 each Fund's investments
will change, the investment returns and net asset value per share
of each Fund will vary.
A Statement of Additional Information, dated January 14, 1997, as
amended or supplemented from time to time, is available free of
charge by writing to PIMCO Funds Distribution Company (the "Dis-
tributor"), 2187 Atlantic Street, Stamford, Connecticut 06902, or
by telephoning 800-426-0107. The Statement of Additional Informa-
tion, which contains more detailed information about the Trust,
has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SE-
CURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION, 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 OF-
FENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, AND THE SHARES ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORA-
TION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENT IN THE MONEY MARKET FUND (OR IN ANY OTHER FUND) IS NEI-
THER 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 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 THE HIGH YIELD
FUND. SEE "CHARACTERISTICS AND RISKS OF SECURITIES AND INVESTMENT
TECHNIQUES--HIGH YIELD SECURITIES ("JUNK BONDS")."
TABLE OF CONTENTS
<TABLE>
<S> <C>
PIMCO Funds Overview.......... 3
Schedule of Fees.............. 4
Financial Highlights.......... 7
Investment Objectives and
Policies...................... 8
Investment Risks and
Considerations................ 14
Characteristics and Risks of
Securities
and Investment Techniques.... 15
Performance Information....... 27
How to Buy Shares............. 28
Alternative Purchase
Arrangements.................. 31
Exchange Privilege............ 40
</TABLE>
<TABLE>
<S> <C>
How to Redeem..................... 41
Distributor and Distribution and
Servicing Plans................... 45
How Net Asset Value Is Determined
.................................. 48
Distributions..................... 49
Taxes............................. 49
Management of the Trust........... 50
Description of the Trust.......... 53
Mailings to Shareholders.......... 54
Appendix A -- Description of
Duration.......................... 55
Appendix B -- Description of
Securities Ratings................ 56
</TABLE>
PIMCO Funds: Pacific Investment Management Series
2
<PAGE>
PIMCO Funds Overview
Pacific Investment Management, a subsidiary partnership of PIMCO
Advisors L.P., is the investment adviser of all of the Funds. Pa-
cific Investment Management is one of the premier fixed income in-
vestment management firms in the U.S. As of November 30, 1996, Pa-
cific Investment Management had over $88 billion in assets under
management. Pacific Investment Management invests in all sectors
of the fixed income market, using its total return philosophy--
seeking capital appreciation as well as yield.
<TABLE>
<CAPTION>
PIMCO PRIMARY
FUND NAME OBJECTIVE DURATION CREDIT QUALITY/(1)/
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM BOND Long-Term U.S. Government Maximum total return, consistent greater than A to Aaa
FUND FUNDS with preservation of capital or equal to
PROFILES and prudent investment management 8 years
------------------------------------------------------------------------------------------------------------------
INTERMEDIATE- Foreign Bond Maximum total return, consistent 3-6 years B to Aaa; max
TERM with preservation of capital 10% below Baa
BOND FUNDS and prudent investment management
(non-U.S.)
-------------------------------------------------------------------------------------------------
Global Bond II Maximum total return, consistent 3-6 years B to Aaa; max
with preservation of capital (U.S. 10% below Baa
and non-U.S.)
-------------------------------------------------------------------------------------------------
High Yield Maximum total return, consistent 2-6 years B to Aaa; min
with preservation of capital 65% below Baa
and prudent investment management
-------------------------------------------------------------------------------------------------
Total Return Maximum total return, consistent 3-6 years B to Aaa; max
with preservation of capital 10% below Baa
and prudent investment management
-------------------------------------------------------------------------------------------------
Real Return Bond Maximum real return, consistent Not applicable, A to Aaa
with preservation of real capital but see Fund
and prudent investment management description
------------------------------------------------------------------------------------------------------------------
SHORTER-TERM Low Duration Maximum total return, consistent 1-3 years B to Aaa; max
BOND FUNDS with preservation of capital 10% below Baa
and prudent investment management
-------------------------------------------------------------------------------------------------
Short-Term Maximum current income, consistent 0-1 year B to Aaa; max
with preservation of capital and 10% below Baa
daily liquidity
-------------------------------------------------------------------------------------------------
Money Market Maximum current income, consistent less than or Min 95% Aaa or
with preservation of capital and equal to Prime 1; less
daily liquidity 90 days dollar- than or equal
weighted average to 5% Aa
maturity or Prime 2
------------------------------------------------------------------------------------------------------------------
EQUITY FUNDS StocksPLUS/(2)/ Total return which exceeds that of the 0-1 year B to Aaa; max
S&P 500 10% below Baa
</TABLE>
1. As rated by Moody's Investors Services, Inc., or if unrated,
determined to be of comparable quality. For specific information
concerning the credit quality of the securities in each Fund's
portfolio, see "Investment Objectives and Policies."
2. The StocksPLUS Fund may invest all of its assets in stock index
futures backed by short-term bonds.
March 5, 1997 Prospectus
3
<PAGE>
Schedule of Fees
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
---------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER MAXIMUM INITIAL SALES
TRANSACTION CHARGE IMPOSED ON
EXPENSES PURCHASES
(as a percentage of
offering price at time of
purchase)
LONG-TERM U.S.
GOVERNMENT, FOREIGN
BOND, GLOBAL BOND II,
HIGH YIELD AND TOTAL
RETURN FUNDS 4.50% None None
REAL RETURN BOND, LOW
DURATION AND STOCKSPLUS
FUNDS 3.00% None None
SHORT-TERM FUND 2.00% 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)/
---------------------------------------------------------------
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 pur-
chase) are exchanged for shares of any other Fund.
2. Imposed only in certain circumstances where Class A shares are
purchased without a front-end sales charge at the time of pur-
chase. 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 ac-
cording to the schedule set forth under "Alternative Purchase Ar-
rangements--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.
<TABLE>
<CAPTION>
EXAMPLE: You EXAMPLE: You
would pay the would pay the
following following
expenses on a expenses on a
$1,000 investment $1,000 investment
assuming (1) 5% assuming (1) 5%
annual return and annual return and
(2) redemption at (2) no
ANNUAL FUND OPERATING EXPENSES the end of each redemption:
(As a percentage of average net assets): time period:
TOTAL
ADMINI- FUND
ADVISORY STRATIVE 12B-1 OPERATING YEAR YEAR
FUND FEE FEE FEES/(1)/ EXPENSES 1 3 5 10 1 3 5 10
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A LONG-TERM U.S.
SHARES GOVERNMENT .25% .40% .25% .90% $54 $72 $93 $151 $54 $72 $93 $151
-----------------------------------------------------------------------------------------------
FOREIGN BOND .25 .45 .25 .95 54 74 95 156 54 74 95 156
-----------------------------------------------------------------------------------------------
GLOBAL BOND II .25 .45 .25 .95 54 74 95 156 54 74 95 156
-----------------------------------------------------------------------------------------------
HIGH YIELD .25 .40 .25 .90 54 72 93 151 54 72 93 151
-----------------------------------------------------------------------------------------------
TOTAL RETURN .25 .40 .25 .90 54 72 93 151 54 72 93 151
-----------------------------------------------------------------------------------------------
REAL RETURN BOND .25 ,40 .25 .90 39 58 78 137 39 58 78 137
-----------------------------------------------------------------------------------------------
LOW DURATION .25 .40 .25 .90 39 58 78 137 39 58 78 137
-----------------------------------------------------------------------------------------------
SHORT-TERM .25 .35 .25 .85 29 47 66 123 29 47 66 123
-----------------------------------------------------------------------------------------------
MONEY MARKET .15 .35 .10(2) .60(3) 6 19 33 75 6 19 33 75
-----------------------------------------------------------------------------------------------
STOCKSPLUS .40 .40 .25 1.05 40 62 86 154 40 62 86 154
-----------------------------------------------------------------------------------------------
</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 Distribu-
tion 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 aver-
age daily net assets.
3. Absent the undertaking noted, the "Total Fund Operating Ex-
penses" for the Money Market Fund would be .70% of the Fund's av-
erage daily net assets.
PIMCO Funds: Pacific Investment Management Series
4
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: You would EXAMPLE: You
pay the following would pay the
expenses on a following
$1,000 investment expenses on a
assuming (1) 5% $1,000 investment
annual return and assuming (1) 5%
(2) redemption at annual return and
ANNUAL FUND OPERATING EXPENSES the end of each (2) no
(As a percentage of average net assets): time period: redemption:
TOTAL
ADMINI- FUND
ADVISORY STRATIVE 12B-1 OPERATING YEAR YEAR
FUND FEE FEE FEES/(1)/ EXPENSES 1 3 5 10 1 3 5 10
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM U.S.
GOVERNMENT .25% .40% 1.00% 1.65% $67 $82 $110 $166 $17 $52 $90 $166
-------------------------------------------------------------------------------------------------
FOREIGN BOND .25 .45 1.00 1.70 67 84 112 171 17 54 92 171
-------------------------------------------------------------------------------------------------
CLASS B GLOBAL BOND II .25 .45 1.00 1.70 67 84 112 171 17 54 92 171
SHARES -------------------------------------------------------------------------------------------------
HIGH YIELD .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
-------------------------------------------------------------------------------------------------
TOTAL RETURN .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
-------------------------------------------------------------------------------------------------
REAL RETURN BOND .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
-------------------------------------------------------------------------------------------------
LOW DURATION .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
-------------------------------------------------------------------------------------------------
SHORT-TERM .25 .35 1.00 1.60 66 80 107 160 16 50 87 160
-------------------------------------------------------------------------------------------------
MONEY MARKET .15 .35 1.00 1.50 65 77 102 143 15 47 82 143
-------------------------------------------------------------------------------------------------
STOCKSPLUS .40 .40 1.00 1.80 68 87 117 182 18 57 97 182
-------------------------------------------------------------------------------------------------
</TABLE>
1. 12b-1 fees which equal or are less than .25% represent servic-
ing fees which are paid annually to the Distributor and repaid to
participating brokers, certain banks and other financial interme-
diaries. 12b-1 fees which exceed .25% represent aggregate distri-
bution and servicing fees. See "Distributor and Distribution and
Servicing Plans."
March 5, 1997 Prospectus
5
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: You EXAMPLE: You
would pay the would pay the
following following
expenses on a expenses on a
$1,000 investment $1,000 investment
assuming (1) 5% assuming (1) 5%
annual return and annual return and
(2) redemption at (2) no
ANNUAL FUND OPERATING EXPENSES the end of each redemption:
(As a percentage of average net assets): time period:
TOTAL
ADMINI- FUND
ADVISORY STRATIVE 12B-1 OPERATING YEAR YEAR
FUND FEE FEE FEES/(1)/ EXPENSES 1 3 5 10 1 3 5 10
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS C LONG-TERM U.S.
SHARES GOVERNMENT .25% .40% 1.00% 1.65% $27 $52 $90 $195 $17 $52 $90 $195
-----------------------------------------------------------------------------------------------------------
FOREIGN BOND .25 .45 1.00 1.70 27 54 92 201 17 54 92 201
-----------------------------------------------------------------------------------------------------------
GLOBAL BOND II .25 .45 1.00 1.70 27 54 92 201 17 54 92 201
-----------------------------------------------------------------------------------------------------------
HIGH YIELD .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
-----------------------------------------------------------------------------------------------------------
REAL RETURN BOND .25 .40 .75/(2)/ 1.40/(3)/ 24 44 77 168 14 44 77 168
-----------------------------------------------------------------------------------------------------------
LOW DURATION .25 .40 .75 1.40 24 44 77 168 14 44 77 168
-----------------------------------------------------------------------------------------------------------
SHORT-TERM .25 .35 .55/(2)/ 1.15/(3)/ 22 37 63 140 12 37 63 140
-----------------------------------------------------------------------------------------------------------
MONEY MARKET .15 .35 .10/(2)/ .60/(3)/ 16 19 33 75 6 19 33 75
-----------------------------------------------------------------------------------------------------------
STOCKSPLUS .40 .40 .75/(2)/ 1.55/(3)/ 26 49 84 185 16 49 84 185
-----------------------------------------------------------------------------------------------------------
</TABLE>
1. 12b-1 fees which equal or are less than .25% represent servic-
ing fees which are paid annually to the Distributor and repaid to
participating brokers, certain banks and other financial interme-
diaries. 12b-1 fees which exceed .25% represent aggregate distri-
bution and servicing fees. See "Distributor and Distribution and
Servicing Plans."
2. The Distributor has voluntarily undertaken to reduce the 12b-1
fee it may receive with respect to each of the Real Return Bond,
Short-Term, Money Market and StocksPLUS Funds to the following an-
nual rates based on the Fund's average daily net assets until fur-
ther notice: Real Return Bond--.75%; Short-Term--.55%; Money Mar-
ket--.10%; and StocksPLUS--.75%. Absent such undertakings, the
12b-1 fee for each such Fund would be as follows: Real Return
Bond--1.00%; Short-Term--1.00%; Money Market--.20%; and
StocksPLUS--1.00%.
3. Absent the undertakings noted, the "Total Fund Operating Ex-
penses" for the Real Return Bond, Short-Term, Money Market and
StocksPLUS Funds would be as follows (based on average daily net
assets): Real Return Bond--1.65%; Short-Term--1.60%; Money Mar-
ket--.70%; and StocksPLUS--1.80%.
The purpose of the foregoing tables is to assist investors in un-
derstanding 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 the predecessor of
the Global Bond Fund II, which was a series of PIMCO Advisors
Funds that reorganized as a series of the Trust on January 17,
1997, were previously offered. The information for the Global Bond
Fund II reflects the Fund's current fees and expenses and not the
fees and expenses of its predecessor. 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 Securi-
ties Dealers, Inc.
NOTE: THE FIGURES SHOWN IN THE EXAMPLES ARE ENTIRELY HYPOTHETICAL.
THEY ARE NOT REPRESENTATIONS OF PAST OR FUTURE PERFORMANCE OR EX-
PENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS
THAN SHOWN.
PIMCO Funds: Pacific Investment Management Series
6
<PAGE>
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 series of PIMCO Advisors Funds during the
period listed. The Global Income Fund reorganized as a series of
the Trust on January 17, 1997. The expense ratio of the Fund shown
below represents the fee arrangement in effect for the Global In-
come Fund which differs from the fee arrangement of the Global
Bond Fund II. The information provided below, which is included in
the PIMCO Advisors Funds' Annual Report dated September 30, 1996,
has been audited by the former independent accountants for the
Global Income Fund for the period listed whose report thereon is
also included in such Annual Report. PIMCO Advisors Funds' Annual
Report is incorporated by reference in the Statement of Additional
Information and may be obtained from the Distributor without
charge. Financial Statements and related Notes are also incorpo-
rated by reference in the Statement of Additional Information. 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 (AS OF 9/30/96)
<TABLE>
<CAPTION>
Class A/(1)/ Class B/(1)/ Class C/(1)/
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.00 $ 10.00 $ 10.00
------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income 0.32/(2)/ 0.30/(2)/ 0.30/(2)/
Net Gains or Losses on
Securities (both
realized and unrealized) 0.95 0.92 0.92
------------ ------------ ------------
Total From Investment
Operations 1.27 1.22 1.22
------------ ------------ ------------
Less Distributions:
Dividends (from net
investment income) (0.31) (0.26) (0.26)
------------ ------------ ------------
Net Asset Value, End of
Period $ 10.96 $ 10.96 $ 10.96
============ ============ ============
TOTAL RETURN (without
sales charge) 15.01% 14.54% 14.54%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(in 000s) $ 7,360 $ 3,240 $ 3,459
Ratio of Expenses to
Average Net Assets:
With Waiver 1.27% 2.49% 2.49%
Without Waiver 1.57% 2.49% 2.49%
Ratio of Net Investment
Income to Average Net
Assets:
With Waiver 4.88% 4.09% 4.09%
Without Waiver 4.58% 4.09% 4.09%
Portfolio Turnover Rate 1,245.62% 1,245.62% 1,245.62%
</TABLE>
1. The Fund commenced operations as a series of PIMCO Advisors
Funds on October 2, 1995.
2. Reflecting voluntary waiver of investment advisory fee of
$12,041 (0.01 per share) by PIMCO Advisors L.P. (the Global Income
Fund's investment adviser for the period listed), as more fully
described in Note 3(a) to the Financial Statements in the PIMCO
Advisors Funds' 1996 Annual Report.
March 5, 1997 Prospectus
7
<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 in-
vestment 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. Con-
sequently, the net asset value per share of each Fund will vary,
except that the Money Market Fund will 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 investment objective of the Global Bond Fund II described
in this Prospectus may be changed by the Board of Trustees without
shareholder approval. The investment objective of each other Fund
is fundamental and may not be changed without shareholder approval
by vote of a majority of the outstanding shares of that Fund. If
there is a change in a Fund's investment objective, including a
change approved by a shareholder vote, shareholders should con-
sider whether the Fund remains an appropriate investment in light
of their then current financial position and needs.
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 de-
scribed more fully under "Characteristics and Risks of Securities
and Investment Techniques" in this Prospectus and "Investment Ob-
jectives and Policies" in the Statement of Additional Information.
FIXED With the exception of the StocksPLUS Fund, each remaining Fund
INCOME FUND (together, the "Fixed Income Funds") differs from the others pri-
DESCRIPTIONSmarily 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--Descrip-
tion of Duration."
The investment objective of the Global Bond Fund II is to seek
maximum total return, consistent with the preservation of capital.
The investment objective of the Real Return Bond Fund is to seek
to realize maximum real return, consistent with the preservation
of real capital and prudent investment management. For a discus-
sion of "real return," see "Total Return and Real Return," below.
The investment objective of the Short-Term Fund and the Money Mar-
ket 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 suc-
cessful in doing so. 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 Advisor
utilizes economic forecasting, interest rate anticipation, credit
and call risk analysis, foreign currency exchange rate forecast-
ing, and other security selection techniques. The proportion of
each Fund's assets committed to investment in securities with par-
ticular characteristics (such as maturity, type and coupon rate)
will vary based on the Advisor'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 specif-
ically provided otherwise in the descriptions of the Funds that
follow, may be issued by domestic or foreign entities and denomi-
nated in U.S. dollars or foreign currencies: securities issued or
guaranteed by the U.S. Government, its agencies or instrumentali-
ties ("U.S. Government securities"); corporate debt securities,
including convertible securities and corporate commercial paper;
mortgage-backed and other asset-backed securities; inflation-in-
dexed bonds issued by both governments and corporations; struc-
tured notes and loan participations; bank certificates of deposit,
fixed time deposits and bankers' acceptances; repurchase agree-
ments and reverse repurchase agreements; obligations of foreign
governments or their subdivisions, agencies and instrumentalities;
and obligations of international agencies or supranational enti-
ties. Fixed income securities may have fixed, variable, or float-
ing rates of interest, including rates of interest that vary in-
versely 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.
Each of the Foreign Bond, Global Bond II and and Real Return
Bond Funds will 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
PIMCO Funds: Pacific Investment Management Series
8
<PAGE>
securities in which it invests, as specifically described else-
where 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 Advisor 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 denominated in currencies other than the U.S. dollar. There
can be no assurance that the Advisor will be successful in doing
so. The active use of currency derivatives involves transaction
costs which may adversely effect yield and return.
The compositions of the Fixed Income Funds differ as follows:
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 Advisor
deems it appropriate to do so. The Fund will have a minimum aver-
age 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 associ-
ated with longer duration investments. The Long-Term U.S. Govern-
ment Fund's investments in fixed income securities are limited to
those of U.S. dollar-denominated securities of domestic and for-
eign issuers that are rated at least A by Moody's Investors Serv-
ice, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P")
(or, if unrated, determined by the Advisor 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 in-
vested 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 securi-
ties primarily denominated in major foreign currencies and baskets
of foreign currencies (such as the European Currency Unit, or
"ECU"). The Advisor 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 con-
tracts (including related options) with respect to such securi-
ties, and options on such securities, when the Advisor 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, deter-
mined by the Advisor 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 invest-
ments in securities rated below investment grade, see "Appendix
B--Description of Securities Ratings." The average portfolio dura-
tion of this Fund will normally vary within a three- to six-year
time frame.
GLOBAL BOND FUND II invests in a portfolio of fixed income securi-
ties denominated in major currencies, baskets of foreign curren-
cies (such as the ECU), and the U.S. dollar. Under normal circum-
stances, at least 65% of the Fund's assets will be invested in
fixed income securities of issuers located in at least three coun-
tries (one of which may be the United States), which may be repre-
sented by futures contracts (including related options) with re-
spect to such securities, and options on such securities, when the
Advisor deems it appropriate to do so. Depending on the Advisor's
current opinion as to the proper allocation of assets among domes-
tic 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, de-
termined by the Advisor to be of comparable quality). For informa-
tion 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 nor-
mally vary within a three- to six-year time frame.
March 5, 1997 Prospectus
9
<PAGE>
The Foreign Bond Fund differs from the Global Bond Fund II primar-
ily in the extent to which assets are invested in the securities
of issuers located outside the United States. The Advisor will se-
lect these Funds' foreign country and currency compositions based
on an evaluation of relative interest rates, exchange rates, mone-
tary and fiscal policies, trade and current account balances, and
any other specific factors the Advisor believes to be relevant.
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
Advisor to be of comparable quality). 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 Advisor 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 Advisor's
view of the potential for total return offered by a particular du-
ration strategy. The Fund may invest in securities of foreign is-
suers, 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 Advisor 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 Securi-
ties 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 securi-
ties of varying maturities. The average portfolio duration of this
Fund will normally vary within a three- to six-year time frame
based on the Advisor'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 Advisor to be of comparable
quality). For information on the risks associated with investments
in securities rated below investment grade, see "Appendix B--De-
scription 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 secu-
rities of foreign issuers. Portfolio holdings will be concentrated
in areas of the bond market (based on quality, sector, coupon or
maturity) which the Advisor 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.
REAL RETURN BOND FUND invests under normal circumstances at least
65% of its total assets, measured at the time of investment, in
inflation-indexed bonds issued by U.S. and foreign governments,
their agencies or instrumentalities. All securities purchased by
the Fund must be rated at least A by Moody's or S&P (or, if
unrated, determined by the Advisor to be of comparable quality),
and the Fund will maintain a minimum average quality of Aa. The
Fund may invest up to 35% of its assets in other types of fixed
income instruments, including securities denominated in foreign
currencies, (and the Fund may also invest beyond this limit in
U.S. dollar-denominated securities of foreign issuers).
Inflation-indexed bonds are fixed income securities whose prin-
cipal value is periodically adjusted according to the rate of in-
flation. Such bonds generally are issued at an interest rate lower
than non-inflation related bonds, but are expected to retain their
value against inflation over time. For a more complete discussion
of inflation-indexed bonds, including the risks associated with
investing in such securities, see "Characteristics and Risks of
Securities and Investment Techniques--Inflation-Indexed Bonds."
See "Taxes" for information about the possible tax consequences of
investing in the Fund and in inflation-indexed bonds.
10
PIMCO Funds: Pacific Investment Management Series
<PAGE>
In managing fixed income securities, one of the principal tools
generally used by the Advisor is "duration," which is a measure of
the expected life of a fixed income security on a present value
basis, incorporating a bond's yield, coupon interest payments, fi-
nal maturity and call features. See "Appendix A--Description of
Duration." Because of the unique features of inflation-indexed
bonds, the Advisor utilizes a modified form of duration for the
Real Return Bond Fund ("modified real duration") which measures
price changes in such bonds as a result of changes in real, rather
than nominal, interest rates. Although there is no limit on the
modified real duration of the Real Return Bond Fund, it is ex-
pected that the average modified real duration of the Fund will
normally vary approximately with the range of the average modified
real duration of all inflation-indexed bonds issued by the U.S.
Treasury in the aggregate.
LOW DURATION FUND invests in a diversified portfolio of fixed in-
come securities of varying maturities. The average portfolio dura-
tion of this Fund will normally vary within a one- to three-year
time frame based on the Advisor'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 Advisor to be of
comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Ap-
pendix B--Description of Securities Ratings." The Fund may invest
up to 20% of its assets in securities denominated in foreign cur-
rencies, and may invest beyond this limit in U.S. dollar-denomi-
nated 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 be shorter.
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 in-
vest 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, de-
termined by the Advisor to be of comparable quality). For informa-
tion 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.
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 as-
sets, measured at the time of investment, in a diversified portfo-
lio 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 in-
vestments in securities will be limited to U.S. dollar-denominated
securities that mature in 397 days or less from the date of pur-
chase. The Fund may invest in the following: obligations of the
U.S. Government (including its agencies and instrumentalities);
short-term corporate debt securities of domestic and foreign cor-
porations; 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-denomi-
nated 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 Advi-
sor 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 organiza-
tions ("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 Trust-
ees; (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
March 5, 1997 Prospectus
11
<PAGE>
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 Advisor and whose acquisition is ap-
proved or ratified by the Board of Trustees. With respect to no
more than 5% of its total assets, measured at the time of invest-
ment, the Fund may also invest in money market instruments that
are in the second-highest rating category for short-term debt ob-
ligations (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 quali-
ty, as applied to instruments in the second-highest rating catego-
ry. See "Appendix B--Description of Securities Ratings" for a de-
scription 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 accor-
dance with this exception, and (2) this limitation shall not apply
to U.S. Government securities and repurchase agreements with re-
spect 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 invest-
ment, in securities of any one issuer that are in the second-high-
est rating category, except that this limitation shall not apply
to U.S. Government securities. In the event that an instrument ac-
quired by the Fund is downgraded or otherwise ceases to be of the
quality that is required for securities purchased by the Fund, the
Advisor, under procedures approved by the Board of Trustees (or
the Board of Trustees itself if the Advisor becomes aware an
unrated security is downgraded below high quality and the Advisor
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 re-
tain the instrument.
EQUITY FUND STOCKSPLUS FUND, as its investment objective, seeks to achieve to-
DESCRIPTION tal return which exceeds the total return performance of the Stan-
dard & Poor's Composite Stock Price Index ("S&P 500"). The 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 deriva-
tives"). StocksPLUS is the name of a proprietary portfolio manage-
ment 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 di-
rectly in S&P 500 stocks will vary depending primarily on whether
S&P 500 derivatives appear, in the Advisor's opinion, overvalued
or undervalued with respect to the stocks underlying the S&P 500.
The Advisor expects that under normal market conditions, the Fund
will invest 100% of its assets in S&P 500 derivatives, backed by a
portfolio of fixed income securities. The Fund will maintain a
segregated account consisting of assets determined to be liquid by
the Advisor 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 Advisor will ac-
tively manage the fixed income assets serving as cover for deriva-
tives, 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--De-
scription of Duration."
The S&P 500 is composed of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. S&P chooses the
stocks to be included in the S&P 500 solely on a statistical ba-
sis. 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.
12
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 Advisor
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 par-
ticular weighting in the S&P 500.
Positions in S&P 500 futures and options on futures will be en-
tered into only to the extent they constitute permissible posi-
tions for the Fund according to applicable rules of the Commodity
Futures Trading Commission ("CFTC"). From time to time, the Advi-
sor may be constrained in its ability to use S&P 500 derivatives
either by requirements of the Internal Revenue Code or by an unan-
ticipated inability to close out positions when it would be most
advantageous to do so. A large number of investors use S&P 500 de-
rivatives for both hedging and speculative purposes, and although
generally this helps guarantee a liquid market in those instru-
ments, at times liquidity may be
limited. For more information about S&P 500 derivatives, see
"Characteristics and Risks of Securities and Investment Tech-
niques--Derivative Instruments."
Assets of the StocksPLUS Fund not invested in equity securities
may be invested in securities eligible for purchase by the Fixed
Income Funds. The Fund 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 Advisor to be of comparable quality).
For information on the risks associated with investments in secu-
rities rated below investment grade, see "Appendix B--Description
of Securities Ratings." In addition, the StocksPLUS Fund may lend
its portfolio securities to brokers, dealers and other financial
institutions in order to earn income. The Fund may also invest all
of its assets in derivative instruments, as described below and
under "Characteristics of Securities and Investment Techniques--
Derivative Instruments." In addition, the Fund 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.
TOTAL The "total return" sought by certain of the Funds will consist of
RETURN AND interest and dividends from underlying securities, capital appre-
REAL RETURN ciation 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 port-
folio 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 in-
come securities (and therefore their capital appreciation or de-
preciation) is largely a function of changes in the current level
of interest rates. Generally, when interest rates are falling, a
portfolio with a shorter duration will not generate as high a
level of total return as a portfolio with a longer duration. Con-
versely, when interest rates are rising, a portfolio with a
shorter duration will generally outperform longer duration portfo-
lios. 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 composi-
tion 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 num-
ber of factors, including: conditions in the securities markets,
the business success of the security's issuer, changing interest
rates, real or perceived economic and competitive industry condi-
tions, and foreign currency
13
March 5, 1997 Prospectus
<PAGE>
exchange rates. Historically, the total return performance of eq-
uity-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.
"Real Return," or "Inflation Adjusted Return," as referenced in
the name and investment objective of the Real Return Bond Fund, is
a measure of the change in purchasing power of money invested in a
particular instrument after adjusting for inflation. An investment
in a security generating a high nominal return (such as a typical
U.S. Government Treasury bond) may not generate a high real return
once inflation is considered. For example, an instrument generat-
ing a 9% nominal return at a time when inflation is 6% has a real
return of approximately 3%; that is, the purchasing power of the
money invested in that instrument would only increase by approxi-
mately 3%. On the other hand, an inflation-indexed instrument gen-
erating a 5% real return would generate a 5% increase in purchas-
ing power regardless of the rate of inflation. As stated above,
the investment objective of the Fund is to seek to achieve maximum
real return. The total return (not adjusted for inflation) at-
tained by this Fund may be less than the total return attained by
other of the Funds that do not invest primarily in inflation-in-
dexed securities.
In the case of inflation-indexed bonds, changes in market value
are tied to the relationship between nominal interest rates and
the rate of inflation. If inflation were to rise at a faster rate
than nominal interest rates, real interest rates might decline,
leading to an increase in value of inflation-indexed bonds. In
contrast, if nominal interest rates increase at a faster rate than
inflation, real interest rates might increase, leading to a de-
crease in value of inflation-indexed bonds.
Investment Risks and Considerations
The following are some of the principal risks of investing in the
Funds. Investors should read this Prospectus carefully for a more
complete discussion of the risks relating to an investment in the
Funds. 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. Gen-
erally, 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, although this may not be true in the case of inflation-
indexed bonds. In addition, certain of the Funds may invest in se-
curities rated lower than Baa by Moody's or 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 posi-
tions 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 in-
struments, consisting of futures, options, options on futures, and
swap agreements, for hedging purposes or as part of their invest-
ment 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 securi-
ties being hedged and the value of the particular derivative in-
strument, and the risk that unexpected changes in interest rates
may adversely affect the value of a Fund's investments in particu-
lar derivative instruments. Unless otherwise indicated, all limi-
tations applicable to Fund investments (as stated in this Prospec-
tus 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 invest-
ment portfolio, resulting from market fluctuations or other
changes in a Fund's total assets, will not require a Fund to dis-
pose of an investment until the Advisor determines
14
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 Advisor 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.
Investors should carefully consider the possible tax conse-
quences from investing in the Real Return Bond Fund. The Fund in-
vests primarily in securities that for tax purposes may be consid-
ered to have been issued originally at a discount. Accordingly,
the Fund may be required to make annual distributions to share-
holders in excess of the cash received by the Fund in a given pe-
riod from those investments. See "Characteristics and Risks of Se-
curities and Investment Techniques--Inflation-Indexed Bonds" and
"Taxes" for additional information.
The Foreign Bond, Global Bond II and Real Return Bond Funds are
"non-diversified" for purposes of the Investment Company Act of
1940 ("1940 Act"), meaning that they may invest a greater percent-
age 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.
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 Advisor to liquidate portfolio positions when it is not most
desirable to do so. Liquidation of portfolio holdings also may
cause a Fund to realize taxable capital gains.
Characteristics and Risks of Securities and Investment Techniques
The following describes in greater detail different types of secu-
rities 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. U.S. Government securities are obligations of, or guaranteed by,
GOVERNMENT the U.S. Government, its agencies or instrumentalities. The U.S.
SECURITIES 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 Na-
tional 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 is-
suer 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 pur-
chased 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 securi-
ties of similar maturities. Custodial receipts issued in connec-
tion 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 secu-
rities (STRIPs and CUBEs) are direct obligations of the U.S. Gov-
ernment. The U.S. Treasury has recently begun issuing inflation-
indexed bonds. These securities are described below under "Infla-
tion-Indexed Bonds."
March 5, 1997 Prospectus
15
<PAGE>
CORPORATE Corporate debt securities include corporate bonds, debentures,
DEBT notes and other similar corporate debt instruments, including con-
SECURITIES vertible 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 de-
scribed 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 securi-
ties rated Baa as having speculative characteristics. The Advisor
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 Secu-
rities Ratings." Investments in high yield securities are dis-
cussed separately below under "High Yield Securities ("Junk
Bonds")."
VARIABLE Variable and floating rate securities provide for a periodic ad-
AND justment in the interest rate paid on the obligations. The terms
FLOATING of such obligations must provide that interest rates are adjusted
RATE periodically based upon an interest rate adjustment index as pro-
SECURITIES vided 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. The Money Mar-
ket Fund may invest in a variable rate security having a stated
maturity in excess of 397 calendar days if the interest rate will
be adjusted, and the Fund may demand payment of principal from the
issuer, within the period.
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 ("in-
verse 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 se-
curity may exhibit greater price volatility than a fixed rate ob-
ligation of similar credit quality. The Funds have adopted a pol-
icy 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.
INFLATION- Inflation-indexed bonds are fixed income securities whose princi-
INDEXED pal value is periodically adjusted according to the rate of infla-
BONDS tion. The interest rate on these bonds is generally fixed at issu-
ance at a rate lower than typical bonds. Over the life of an in-
flation-indexed bond, however, interest will be paid based on a
principal value which is adjusted for inflation.
Inflation-indexed securities issued by the U.S. Treasury will
initially have maturities of ten years, although it is anticipated
that securities with other maturities will be issued in the fu-
ture. The securities will pay interest on a semi-annual basis,
equal to a fixed percentage of the inflation-adjusted principal
amount. For example, if an investor purchased an inflation-indexed
bond with a par value of $1,000 and a 3% real rate of return cou-
pon (payable 1.5% semi-annually), and inflation over the first six
months were 1%, the mid-year par value of the bond would be $1,010
and the first semi-annual interest payment would be $15.15 ($1,010
times 1.5%). If inflation during the second half of the year
reached 3%, the end-of-year par value of the bond would be $1,030
and the second semi-annual interest payment would be $15.45
($1,030 times 1.5%).
16
PIMCO Funds: Pacific Investment Management Series
<PAGE>
If the periodic adjustment rate measuring inflation falls, the
principal value of inflation-indexed bonds will be adjusted down-
ward, and consequently the interest payable on these securities
(calculated with respect to a smaller principal amount) will be
reduced. Repayment of the original bond principal upon maturity
(as adjusted for inflation) is guaranteed in the case of U.S.
Treasury inflation-indexed bonds, even during a period of defla-
tion. However, the current market value of the bonds is not guar-
anteed, and will fluctuate. The Funds may also invest in other in-
flation related bonds which may or may not provide a similar guar-
antee. If such a guarantee of principal is not provided, the ad-
justed principal value of the bond repaid at maturity may be less
than the original principal.
The value of inflation-indexed bonds is expected to change in
response to changes in real interest rates. Real interest rates in
turn are tied to the relationship between nominal interest rates
and the rate of inflation. Therefore, if inflation were to rise at
a faster rate than nominal interest rates, real interest rates
might decline, leading to an increase in value of inflation-in-
dexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, lead-
ing to a decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-
term inflationary trends, short-term increases in inflation may
lead to a decline in value. If interest rates rise due to reasons
other than inflation (for example, due to changes in currency ex-
change rates), investors in these securities may not be protected
to the extent that the increase is not reflected in the bond's in-
flation measure.
The U.S. Treasury has only recently begun issuing inflation-in-
dexed bonds. As such, there is no trading history of these securi-
ties, and there can be no assurance that a liquid market in these
instruments will develop, although one is expected. Lack of a liq-
uid market may impose the risk of higher transaction costs and the
possibility the Real Return Bond Fund may be forced to liquidate
positions when it would not be advantageous to do so. There also
can be no assurance that the U.S. Treasury will issue any particu-
lar amount of inflation-indexed bonds. Certain foreign govern-
ments, such as the United Kingdom, Canada and Australia, have a
longer history of issuing inflation-indexed bonds, and there may
be a more liquid market in certain of these countries for these
securities.
The periodic adjustment of U.S. inflation-indexed bonds is tied
to the Consumer Price Index for Urban Consumers ("CPI-U"), which
is calculated monthly by the U.S. Bureau of Labor Statistics. The
CPI-U is a measurement of changes in the cost of living, made up
of components such as housing, food, transportation and energy.
Inflation-indexed bonds issued by a foreign government are gener-
ally adjusted to reflect a comparable inflation index, calculated
by that government. There can be no assurance that the CPI-U or
any foreign inflation index will accurately measure the real rate
of inflation in the prices of goods and services. Moreover, there
can be no assurance that the rate of inflation in a foreign coun-
try will be correlated to the rate of inflation in the United
States.
Any increase in the principal amount of an inflation-indexed
bond will be considered taxable ordinary income, even though in-
vestors do not receive their principal until maturity. See "Taxes"
for information about the possible tax consequences of investing
in the Real Return Bond Fund and in inflation-indexed bonds.
MORTGAGE- Each of the Funds (except the Money Market Fund) may invest all of
RELATED AND its assets in mortgage- or other asset-backed securities. The
OTHER value of some mortgage- or asset-backed securities in which the
ASSET- Funds invest may be particularly sensitive to changes in prevail-
BACKED ing interest rates, and, like the other investments of the Funds,
SECURITIES the ability of a Fund to successfully utilize these instruments
may depend in part upon the ability of the Advisor to forecast in-
terest rates and other economic factors correctly.
MORTGAGE-PASS-THROUGH SECURITIES are securities representing in-
terests 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 borrow-
ers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early re-
payment of principal on some mortgage-related securities (arising
from prepayments of principal due to sale of the underlying prop-
erty, refinancing, or foreclosure, net of fees and costs which may
be incurred) may expose a Fund to a lower rate of return upon re-
investment 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 securi-
ties, when interest rates rise, the
March 5, 1997 Prospectus
17
<PAGE>
value of a mortgage-related security generally will decline; how-
ever, when interest rates are declining, the value of mortgage-re-
lated securities with prepayment features may not increase as much
as other fixed income securities. The rate of prepayments on un-
derlying mortgages will affect the price and volatility of a mort-
gage-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 unantici-
pated rates of prepayment on underlying mortgages increase the ef-
fective 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. Govern-
ment (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 bank-
ers and other secondary market issuers) may be supported by vari-
ous 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 mort-
gage 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 typi-
cally collateralized by portfolios of mortgage pass-through secu-
rities 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 prin-
cipal only after the first class has been retired. CMOs that are
issued or guaranteed by the U.S. Government or by any of its agen-
cies or instrumentalities will be considered U.S. Government secu-
rities 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 di-
versification tests.
COMMERCIAL MORTGAGE-BACKED SECURITIES include securities that re-
flect an interest in, and are secured by, mortgage loans on com-
mercial real property. The market for commercial mortgage-backed
securities developed more recently and in terms of total outstand-
ing 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 secu-
rities reflect the risks of investing in the real estate securing
the underlying mortgage loans. These risks reflect the effects of
local and other economic conditions on real estate markets, the
ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility
than other types of mortgage-related or asset-backed securities.
MORTGAGE-RELATED SECURITIES include securities other than those
described above that directly or indirectly represent a participa-
tion 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 remain-
der of the principal. In the most extreme case, one class will re-
ceive all of the interest (the interest-only, or "IO" class),
while the other class will receive all of the principal (the prin-
cipal-only, or "PO" class). The yield to maturity on an IO class
is extremely sensitive to the rate of principal payments (includ-
ing prepayments) on the related underlying mortgage assets, and a
rapid rate of principal payments may have a material adverse ef-
fect 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
18
PIMCO Funds: Pacific Investment Management Series
<PAGE>
inverse floater securities. The Funds may invest in other asset-
backed securities that have been offered to investors. For a dis-
cussion of the characteristics of some of these instruments, see
the Statement of Additional Information.
REPURCHASE For the purpose of achieving income, each of the Funds may enter
AGREEMENTS into repurchase agreements, which entail the purchase of a portfo-
lio-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 repur-
chase 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 A reverse repurchase agreement may for some purposes be considered
REPURCHASE borrowing that involves the sale of a security by a Fund and its
AGREEMENTS, agreement to repurchase the instrument at a specified time and
DOLLAR price. The Fund will maintain a segregated account consisting of
ROLLS, AND assets determined to be liquid by the Advisor in accordance with
OTHER procedures established by the Board of Trustees to cover its obli-
BORROWINGS gations 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 simi-
lar 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 pur-
chase as well as by any interest earned on the proceeds of the se-
curities sold. The Fund also could be compensated through the re-
ceipt 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 Advisor in accordance with procedures estab-
lished 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 extraor-
dinary or emergency purposes.
LOANS OF For the purpose of achieving income, each Fund may lend its port-
PORTFOLIO folio securities to brokers, dealers, and other financial institu-
SECURITIES tions, provided: (i) the loan is secured continuously by collat-
eral consisting of U.S. Government securities, cash or cash equiv-
alents (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 se-
curities 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. Each Fund's performance
will continue to reflect changes in the value of the securities
loaned and will also reflect the receipt of either interest,
through investment of cash collateral by the Fund in permissible
investments, or a fee, if the collateral is U.S. Government secu-
rities. Securities lending involves the risk of loss of rights in
the collateral or delay in recovery of the collateral should the
borrower fail to return the security loaned or become insolvent.
The Funds may pay lending fees to the party arranging the loan.
March 5, 1997 Prospectus
19
<PAGE>
WHEN- Each of the Funds may purchase or sell securities on a when-is-
ISSUED, sued, delayed delivery, or forward commitment basis. These trans-
DELAYED actions involve a commitment by the Fund to purchase or sell secu-
DELIVERY rities for a predetermined price or yield, with payment and deliv-
AND FORWARD ery taking place more than seven days in the future, or after a
COMMITMENT period longer than the customary settlement period for that type
TRANSACTIONSof 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 Advisor in accor-
dance 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 ac-
count. When purchasing a security on a when-issued, delayed deliv-
ery, 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 re-
quired 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 in-
vested 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 de-
livered, which may result in a capital gain or loss. There is no
percentage limitation on the extent to which the Funds may pur-
chase or sell securities on a when-issued, delayed delivery, or
forward commitment basis.
SHORT SALES Each of the Funds (except the High Yield and StocksPLUS Funds) 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 po-
sitions 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 as-
set coverage in the form of assets determined to be liquid by the
Advisor 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 Each of the Funds may invest directly in fixed income securities
SECURITIES of non-U.S. issuers. The Long-Term U.S. Government, High Yield and
Money Market Funds may only invest in U.S. dollar-denominated
fixed income securities of non-U.S. issuers. The StockPLUS Fund
may invest directly in foreign equity securities.
Each of the Funds will limit its foreign investments to securi-
ties of issuers based in developed countries (including Newly In-
dustrialized Countries ("NICs"), such as Taiwan, South Korea and
Mexico). The Low Duration and Short-Term Funds limit their invest-
ments in securities of issuers based in NICs to 5% of their as-
sets, and the remaining Fixed Income Funds (except the Foreign
Bond and Global Bond II Funds) limit their investments in securi-
ties of issuers based in NICs to 10% of their assets. For purposes
of this restriction, the term "NIC" is not meant to include a de-
fined set of countries selected according to specific criteria,
but rather is a broadly defined term which includes countries
which are considered by the Advisor to have sound economies and
the potential for positive growth. In determining which countries
will be considered NICs, the Advisor will not be limited by any
determination made by any other investment adviser, institution,
government or supranational agency regarding which countries are
considered to be developing or emerging markets by such entities.
As such, the Funds may invest in securities issued in countries
which may be considered by other advisers or analysts to be devel-
oping or emerging markets.
20
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 securi-
ties 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, expro-
priation 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 coun-
tries. Additionally, foreign securities and dividends and interest
payable on those securities may be subject to foreign taxes, in-
cluding taxes withheld from payments on those securities. Foreign
securities often trade with less frequency and volume than domes-
tic securities and therefore may exhibit greater price volatility.
Additional costs associated with an investment in foreign securi-
ties may include higher custodial fees than apply to domestic cus-
todial arrangements and transaction costs of foreign currency con-
versions. 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 may invest in Brady Bonds. Brady
Bonds are securities created through the exchange of existing com-
mercial 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 col-
lateralized 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 arrange-
ments 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 Foreign currency exchange rates may fluctuate significantly over
CURRENCY short periods of time. They generally are determined by the forces
TRANSACTIONSof supply and demand in the foreign exchange markets and the rela-
tive merits of investments in different countries, actual or per-
ceived 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 de-
valued 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 for-
ward basis to reduce the risks of adverse changes in foreign ex-
change rates. A forward foreign currency exchange contract in-
volves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the
time of the contract. By entering into a forward foreign currency
exchange contract, the Fund "locks in" the exchange rate between
the currency it will deliver and the currency it will receive for
the duration of the contract. As a result, a Fund reduces its ex-
posure 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 cur-
rency would limit any potential gain which might be realized by a
Fund if the value of the hedged currency increases. A Fund may en-
ter into these contracts for the purpose of hedging against for-
eign exchange risk arising from the Fund's investment or antici-
pated investment in securities denominated in foreign currencies.
A Fund also may enter into these contracts for purposes of in-
creasing 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.
March 5, 1997 Prospectus
21
<PAGE>
Each Fund will segregate assets determined to be liquid by the Ad-
visor in accordance with procedures established by the Board of
Trustees, in a segregated account to cover its obligations under
forward foreign currency exchange 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 cur-
rency warrants and other instruments whose return is linked to
foreign currency exchange rates. Each Fund that may invest in se-
curities denominated in foreign currencies will use these tech-
niques to hedge at least 75% of its exposure to foreign currency.
For a description of these instruments, see "Derivative Instru-
ments" below and the Statement of Additional Information.
HIGH YIELD The High Yield Fund invests at least 65% of its assets in fixed
SECURITIES income securities rated lower than Baa by Moody's or lower than
("JUNK BBB by S&P but rated at least B by Moody's or S&P (or, if not rat-
BONDS") ed, of comparable quality). In addition, each of the Foreign Bond,
Global Bond II, Total Return, Low Duration, Short-Term and
StocksPLUS Funds may invest up to 10% of its assets in such secu-
rities. 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 follow-
ing 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 per-
ceived 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 ex-
ample, 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 periodi-
cally 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
Advisor does not rely solely on credit ratings when selecting se-
curities 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 Advisor deems it in the best inter-
est of shareholders.
During the year ended March 31, 1996 (September 30, 1996 for
the predecessor to the Global Bond Fund II), based upon the dol-
lar-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
22
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 Advisor to be of comparable
quality). See "Appendix B--Description of Securities Ratings," for
further information.
FIXED INCOME SECURITIES RATINGS
<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 II* 0.00 78.68 15.49 1.59 0.00 2.42 1.82 0.00 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
--------------------------------------------------------------------------------
LOW DURATION 9.65 58.17 2.80 10.10 0.00 8.02 10.71 0.54 0.00
--------------------------------------------------------------------------------
SHORT-TERM 12.89 46.13 2.85 17.35 0.00 10.96 6.63 2.87 0.31
--------------------------------------------------------------------------------
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 In-
come Fund reorganized as the Trust's Global Bond Fund II on Janu-
ary 17, 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 approxi-
mately 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 Advisor may not necessarily agree
with a rating assigned by any credit rating agency.
DERIVATIVE To the extent permitted by the investment objectives and policies
INSTRUMENTS of the Funds, the Funds may (except the Money Market Fund) pur-
chase and write call and put options on securities, securities in-
dexes 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 strat-
egies. 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 a segregated account consisting of assets de-
termined to be liquid by the Advisor in accordance with procedures
established by the Board of Trustees (or, as permitted by applica-
ble 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 securi-
ties 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-related
or asset-backed securities. Each Fund (except the Money Market
Fund) may invest all of its assets in derivative instruments, sub-
ject 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 Advisor to forecast interest rates and
other economic factors correctly. If the Advisor incorrectly fore-
casts such factors and has taken positions in derivative instru-
ments contrary to prevailing market trends, the Funds could be ex-
posed to the risk of loss.
The Funds might not employ any of the strategies described be-
low, and no assurance can be given that any strategy used will
succeed. If the Advisor incorrectly forecasts interest rates, mar-
ket 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
March 5, 1997 Prospectus
23
<PAGE>
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 in-
ability of a Fund to close out or to liquidate its derivatives po-
sitions.
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 substan-
tial increases in prices of securities the Fund intends to pur-
chase pending its ability to invest in such securities in an or-
derly 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 op-
tion (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 op-
tion to deliver the underlying security upon payment of the exer-
cise price or to pay the exercise price upon delivery of the un-
derlying 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 mul-
tiplier 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 pur-
chased, 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 under-
lying 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 combina-
tion 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 ex-
ercise 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 security above the exer-
cise 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 no-
tice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the un-
derlying security at the exercise price. If a put or call option
purchased by the Fund is not sold when it has remaining value, and
if the market price of the underlying security remains equal to or
greater than the exercise price (in the case of a put), or remains
less than or equal to the exercise price (in the case of a call),
the Fund will lose its entire investment in the option. Also,
where a put or call option on a particular security is purchased
to hedge against price movements in a related security, the price
of the put or call option may move more or less than the price of
the related security. There can be no assurance that a liquid mar-
ket will exist when a Fund seeks to close out an option position.
24
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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. Cur-
rency 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, eq-
uity and currency exchange rate swap agreements. These transac-
tions 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 in-
vestors for periods ranging from a few weeks to more than one
year. In a standard swap transaction, two parties agree to ex-
change 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 calcu-
lated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a par-
ticular 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 in-
terest rates fall below a specified level, or "floor"; and inter-
est rate collars, under which a party sells a cap and purchases a
floor or vice versa in an attempt to protect itself against inter-
est rate movements exceeding given minimum or maximum levels.
Most swap agreements entered into by the Funds calculate the
obligations of the parties to the agreement on a "net basis." Con-
sequently, 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 con-
sisting of assets determined to be liquid by the Advisor in accor-
dance with procedures established by the Board of Trustees, to
limit any potential leveraging of the Fund's portfolio. Obliga-
tions under swap agreements so covered will not be construed to be
"senior securities" for purposes of the Funds' investment restric-
tion 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 Advisor's
ability to predict correctly whether certain types of investments
are likely to produce greater returns than other investments. Be-
cause 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 In-
ternal 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.
March 5, 1997 Prospectus
25
<PAGE>
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 op-
tions"), and to the extent it may invest in foreign currency-de-
nominated securities, may also invest in foreign currency futures
contracts and options thereon. The StocksPLUS 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 portfo-
lio 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 con-
tract 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 in-
struments are relatively new and without a significant trading
history. As a result, there is no assurance that an active second-
ary market will develop or continue to exist. Lack of a liquid
market for any reason may prevent a Fund from liquidating an unfa-
vorable position, and the Fund would remain obligated to meet mar-
gin 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 as-
sets 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 op-
tions which are standardized and traded on a U.S. or foreign ex-
change or board of trade, or similar entity, or quoted on an auto-
mated quotation system. Each Fund will use financial futures con-
tracts and related options only for "bona fide hedging" purposes,
as such term is defined in applicable regulations of the 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 posi-
tions, less the amount by which any such positions are "in-the-
money," would not exceed 5% of the Fund's net assets.
PORTFOLIO The length of time a Fund has held a particular security is not
TURNOVER generally a consideration in investment decisions. The investment
policies of a Fund may lead to frequent changes in the Fund's in-
vestments, particularly in periods of volatile market movements. A
change in the securities held by a Fund is known as "portfolio
turnover." High portfolio turnover (e.g., over 100%) involves cor-
respondingly greater expenses to a Fund, including brokerage com-
missions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestments in other securities. Such
sales may result in realization of taxable capital gains. See
"Taxes." The portfolio turnover rate for the Global Bond Fund II
is set forth under "Financial Highlights." Portfolio turnover for
the remaining Funds which offered Institutional or Administrative
Class shares prior to the date of this Prospectus is incorporated
by reference in the Statement of Additional Information.
ILLIQUID Each of the Funds may invest up to 15% of its net assets in illiq-
SECURITIES uid securities (10% in the case of the Money Market Fund). Certain
illiquid securities may require pricing at fair value as deter-
mined in good faith under the supervision of the Board of Trust-
ees. The Advisor 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 pur-
pose 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
26
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 yield and the level of per-
formance of a Fund's Class B and Class C shares will be lower than
that of the Fund's Class A shares although an investment in Class
B or Class C shares is not reduced by the front-end sales charge
generally applicable to an investment in Class A shares.
From time to time, the yield and total return for each class of
shares of the Funds may be included 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 sev-
en-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 cal-
culate current yield, but reflects the compounding effect on earn-
ings of reinvested dividends. For the remaining Funds, quotations
of yield for a Fund or class will be based on the investment in-
come per share (as defined by the Securities and Exchange Commis-
sion) 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.
The total return of Class A, Class B and/or Class C shares of
all Funds may be included in advertisements or other written mate-
rial. When a Fund's total return is advertised with respect to its
Class A, Class B and Class C shares, it will be calculated for the
past year, the past five years, and the past ten years (or if the
Fund has been offered for a period shorter than one, five or ten
years, that period will be substituted) since the establishment of
the Fund (or its predecessor series of PIMCO Advisors Funds for
the Global Bond Fund II), as more fully described in the Statement
of Additional Information. Consistent with Securities and Exchange
Commission rules and informal guidance, for periods prior to the
initial offering date of a particular class, total return presen-
tations for the class will be based on the historical performance
of an older class of the Fund (the older class to be used in each
case is set forth in the Statement of Additional Information) re-
stated to reflect current sales charges (if any) of the newer
class, but not reflecting any higher operating expenses (such as
12b-1 distribution and servicing fees and administrative fee
charges) associated with the newer class. All other things being
equal, such higher expenses would have adversely affected (i.e.,
reduced) total return for a newer class (i.e., if the newer class
had been issued since the inception of the Fund) by the amount of
such higher expenses, compounded over the relevant period. Total
return for each class is measured by comparing the value of an in-
vestment in the Fund at the beginning of the relevant period (in
the case of Class A shares, giving effect to the maximum initial
sales charge) to the redemption value of the investment in the
Fund at the end of the period (assuming immediate reinvestment of
any dividends or capital gains distributions at net asset value
and giving effect to the deduction of the maximum CDSC which would
be payable). Total return may be advertised using alternative
methods that reflect all elements of return, but that may be ad-
justed to reflect the cumulative impact of alternative fee and ex-
pense structures, such as the currently effective advisory and ad-
ministrative fees for the Funds.
27
March 5, 1997 Prospectus
<PAGE>
Current distribution information may also be provided to the
Trust's 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 in-
come), 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 in-
vestment income for that period.
Performance information for the Trust may also be compared to
various unmanaged indices, such as the Standard & Poor's 500 Com-
posite Stock Price Index, the Lehman Brothers Aggregate Bond In-
dex, the Merrill Lynch 1 to 3 Year Treasury Index, the Lehman In-
termediate and 20+ Year Treasury Blend Index, the Lehman BB Inter-
mediate 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. Mor-
gan Government Bond Index Non U.S.-Dollar Hedged, and other enti-
ties 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 administra-
tive and management costs and expenses. The Advisor may also re-
port to shareholders or to the public in advertisements concerning
the performance of the Advisor as adviser to clients other than
the Trust, and on the comparative performance or standing of the
Advisor in relation to other money managers. Such comparative in-
formation may be compiled or provided by independent ratings serv-
ices or by news organizations. Any performance information,
whether related to the Funds or to the Advisor, should be consid-
ered in light of a Fund's investment objectives and policies,
characteristics and quality of the portfolio, and the market con-
ditions during the time period indicated, and should not be con-
sidered to be representative of what may be achieved in the fu-
ture. For a description of the methods used to determine yield and
total return for the Funds, see the Statement of Additional Infor-
mation.
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 in-
vestor's total return or yield may be in any future period.
How to Buy Shares
Class A, Class B and Class 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 introduc-
ing brokers for the Distributor ("introducing brokers").
There are two ways to purchase Class A, Class B or Class C
shares: either 1) through your dealer or broker which has a dealer
agreement with the Distributor; or 2) directly by mailing a PIMCO
Funds Account Application (the "Account Application") with pay-
ment, as described below under the heading Direct Investment, to
the Distributor (if no dealer is named in the Account Application,
the Distributor may act as dealer).
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 certain 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 alterna-
tive"), 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
28
PIMCO Funds: Pacific Investment Management Series
<PAGE>
are also subject to a CDSC. See "Alternative Purchase Arrange-
ments." 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 ap-
plicable sales charge, are invested at the net asset value next
determined after acceptance of the trade.
All purchase orders received by the Distributor prior to the
close of regular trading (normally 4:00 p.m. Eastern time) on the
New York Stock Exchange (the "Exchange"), on a regular business
day, are processed at that day's offering price. However, orders
received by the Distributor from dealers or brokers after the of-
fering 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 dis-
cretion, may accept or reject any order for purchase of Fund
shares. The sale of shares will be suspended during any period in
which the Exchange is closed for other than weekends or holidays,
or if permitted by the rules of the Securities and Exchange Com-
mission, 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 as-
sets, or during any other period as permitted by the Securities
and Exchange Commission for the protection of investors.
Except for gifts to minors or purchases through the PIMCO Auto
Invest plan, the PIMCO Auto Exchange plan and tax-qualified pro-
grams referred to below, the minimum initial investment in Class
A, Class B or Class C shares of the Trust and series of PIMCO
Funds: Multi-Manager Series is $1,000 and in any Fund is $250, and
the minimum additional investment is $100 per Fund. The minimum
initial investment for gifts to minors is $250 per Fund. For in-
formation about dealer commissions, see "Alternative Purchase Ar-
rangements" below. Persons selling Fund shares may receive differ-
ent compensation for selling Class A, Class B or Class C shares.
Normally, Fund shares purchased through participating brokers are
held in the investor's account with that broker. No share certifi-
cates will be issued unless specifically requested in writing by
an investor or broker-dealer.
DIRECT Investors who wish to invest in Class A, Class B or Class C shares
INVESTMENT 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. All
shareholders who open direct accounts with the Distributor will
receive from the Distributor individual confirmations of each pur-
chase, 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 fea-
tures or plans offered by the Trust may be obtained by calling the
Distributor at 800-426-0107 or by calling your broker.
PURCHASE BY Investors who wish to invest directly may send a check payable to
MAIL PIMCO Funds Distribution Company, along with a completed applica-
tion 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 con-
verted into federal funds within two
March 5, 1997 Prospectus
29
<PAGE>
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 Subsequent purchases of Class A, Class B or Class C shares can be
PURCHASES made as indicated above by mailing a check with a letter describ-
OF SHARES ing 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 ex-
cept during periods when an Automatic Withdrawal plan is in ef-
fect, the minimum subsequent purchase is $100 in any Fund. All
payments should be made payable to PIMCO Funds Distribution Com-
pany and should clearly indicate the shareholder's account number.
Checks should be mailed to the address above under "Purchase by
Mail."
TAX- The Distributor makes available retirement plan services and docu-
QUALIFIED ments for Individual Retirement Accounts (IRAs) for which First
RETIREMENT National Bank of Boston serves as trustee and for IRA accounts es-
PLANS tablished with Form 5305-SIMPLE under the Internal Revenue Code.
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 re-
tirement plan. Investors who maintain their accounts with partici-
pating brokers should consult their broker about similar types of
accounts that may be offered through the broker. The minimum ini-
tial and subsequent investment in any Fund for tax-qualified plans
is $25.
PIMCO AUTO The PIMCO Auto Invest plan provides for periodic investments into
INVEST the shareholder's account with the Trust by means of automatic
transfers of a designated amount from the shareholder's bank ac-
count. 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 com-
pleting the appropriate section on the Account Application, or you
may obtain an Auto Invest Application by calling the Distributor
or your broker.
PIMCO AUTO The PIMCO Auto Exchange plan establishes regular, periodic ex-
EXCHANGE changes from one Fund to another Fund or a series of PIMCO Funds:
Multi-Manager Series which offers Class A, Class B or Class C
shares. The plan provides for regular investments into a share-
holder's account in a specific Fund by means of automatic ex-
changes 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 tele-
phone request at 800-426-0107. For more information on exchanges,
see "Exchange Privilege."
PIMCO FUND PIMCO Fund Link ("Fund Link") connects your Fund account with a
LINK bank account. Fund Link may be used for subsequent purchases and
for redemptions and other transactions described under "How to Re-
deem." 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
30
PIMCO Funds: Pacific Investment Management Series
<PAGE>
purchases of shares in amounts from $50 to $10,000. To initiate
such purchases, call 800-852-8457. All such calls will be record-
ed. Fund Link is normally established within 45 days of receipt of
a Fund Link Application by Shareholder Services, Inc. (the "Trans-
fer Agent"). The minimum investment by Fund Link is $50 per Fund.
Shares will be purchased on the regular business day the Distribu-
tor receives the funds through the ACH system, provided the funds
are received before the close of regular trading on the Exchange.
If the funds are received after the close of regular trading, the
shares will be purchased on the next regular business day.
Fund Link privileges must be requested on the Account Applica-
tion. To establish Fund Link on an existing account, complete a
Fund Link Application, which is available from the Distributor or
your broker, with signatures guaranteed from all shareholders of
record for the account. See "Signature Guarantee" below. Such
privileges apply to each shareholder of record for the account un-
less 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 Ap-
plication signed by all owners of record of the account, with all
signatures guaranteed. The Distributor, the Transfer Agent and the
Fund may rely on any telephone instructions believed to be genuine
and will not be responsible to shareholders for any damage, loss
or expenses arising out of such instructions. The Fund reserves
the right to amend, suspend or discontinue Fund Link privileges at
any time without prior notice. Fund Link does not apply to shares
held in broker "street name" accounts.
SIGNATURE When a signature guarantee is called for, the shareholder should
GUARANTEE have "Signature Guaranteed" stamped under his signature and guar-
anteed by any of the following entities: U.S. banks, foreign banks
having a U.S. correspondent bank, credit unions, savings associa-
tions, 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 guaran-
tee pursuant to its written signature guarantee standards or pro-
cedures, 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 require-
ments from time to time upon notice to shareholders, which may be
given by means of a new or supplemented Prospectus.
ACCOUNT Changes in registration or account privileges may be made in writ-
REGISTRATIONing to the Transfer Agent. Signature guarantees may be required.
CHANGES See "Signature Guarantee" above. All correspondence must include
the account number and must be sent to:
PIMCO Funds Distribution Company
P.O. Box 5866
Denver, CO 80217-5866
Alternative Purchase Arrangements
The Trust offers investors three classes of shares in this Pro-
spectus (Class A, Class B and Class C) which bear sales charges in
different forms and amounts and which bear different levels of ex-
penses. Through a separate prospectus, certain of the Funds offer
up to two additional classes of shares, Institutional Class shares
and Administrative Class shares, to pension and profit sharing
plans, employee benefit plans, endowments, foundations, corpora-
tions and other high net worth individuals. 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, Ad-
ministrative Class and Institutional Class shares are generally
expected to achieve a higher investment
March 5, 1997 Prospectus
31
<PAGE>
return than Class A, Class B or Class C shares. To obtain more in-
formation about Institutional Class or Administrative Class
shares, please call the Distributor at 800-426-0107.
The alternative purchase arrangements offered in this Prospec-
tus 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, in-
vestors should consider the anticipated life of an intended in-
vestment in the Funds, the accumulated distribution and servicing
fees plus CDSCs on Class B or Class C shares, the initial sales
charge plus accumulated servicing fees on Class A shares (plus a
CDSC in certain circumstances), the possibility that the antici-
pated 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 CDSCs applicable to Class A, Class B and
Class C shares.
CLASS A The initial sales charge alternative (Class A) might be
preferred by investors purchasing shares of sufficient aggregate
value to qualify for reductions in the initial sales charge appli-
cable to such shares. Similar reductions are not available on the
contingent deferred sales charge alternative (Class B) or the as-
set 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 correspond-
ingly higher dividends on a per share basis. However, because ini-
tial sales charges are deducted at the time of purchase, not all
of the purchase payment for Class A shares is invested initially.
Class B and Class C shares might be preferable to investors who
wish to have all purchase payments invested initially, although
remaining subject to higher distribution and servicing fees and,
for certain periods, being subject to a CDSC. An investor who
qualifies for an elimination of the Class A initial sales charge
should also consider whether he or she anticipates redeeming
shares in a time period which will subject such shares to a CDSC
as described below. See "Initial Sales Charge Alternative--Class A
Shares--Class A Deferred Sales Charge" below.
CLASS B Class B shares might be preferred by investors who intend
to invest in the Funds for longer periods and who do not intend to
purchase shares of sufficient aggregate value to qualify for sales
charge reductions applicable to Class A shares. Both Class B and
Class C shares can be purchased at net asset value without an ini-
tial sales charge. However, unlike Class C shares, Class B shares
convert into Class A shares after the shares have been held for
seven years. After the conversion takes place, the shares will no
longer be subject to a CDSC, and will be subject to the servicing
fees charged for Class A shares which are lower than the distribu-
tion 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 CDSC after they have been held for one year and are
subject to only a 1% CDSC during the first year. However, because
Class C shares do not convert into Class A shares, Class B shares
are preferable to Class C shares for investors who intend to main-
tain their investment in the Funds for long periods. See "Asset
Based Sales Charge Alternative--Class C Shares" below.
In determining which class of shares to purchase, an investor
should always consider whether any waiver or reduction of a sales
charge or a CDSC is available. See generally "Initial Sales Charge
Alternative--Class A Shares" and "Waiver of Contingent Deferred
Sales Charges" below.
The maximum single purchase of Class B shares of the Trust and
series of PIMCO Funds: Multi-Manager Series accepted is $249,999.
The maximum single purchase of Class C shares of the Trust and se-
ries of PIMCO Funds: Multi-Manager Series accepted is $999,999.
The Funds may refuse any order to purchase shares.
32
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 Distri-
bution and Servicing Plans" below.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES The CDSC applicable to
Class A and Class C shares is currently waived for (i) any partial
or complete redemption in connection with a 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 separa-
tion from service and attaining age 55; (ii) any partial or com-
plete 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 qual-
ified 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 com-
plete 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 de-
ceased or disabled is named, provided the redemption is requested
within one year of the death or initial determination of disabili-
ty; (v) any redemption resulting from a return of an excess con-
tribution to a qualified employer retirement plan or an IRA; (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 em-
ployees of the Trust, and by directors, officers and employees of
the Distributor and the Advisor; (viii) redemptions effected pur-
suant 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 account is less than a minimum account size speci-
fied 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 per-
sonal holding company by virtue of a merger, acquisition or other
similar reorganization transaction; (xi) redemptions by a share-
holder who is a participant making periodic purchases of not less
than $50 through certain employer sponsored savings plans that are
clients of a broker-dealer with which the Distributor has an
agreement with respect to such purchases; (xii) redemptions ef-
fected by trustees or other fiduciaries who have purchased shares
for employer sponsored plans, the trustee, administrator, fiducia-
ry, broker, trust company or registered investment adviser for
which has an agreement with the Distributor with respect to such
purchases; or (xiii) redemptions in connection with IRA accounts
established with Form 5305-SIMPLE under the Code for which the
Trust is the designated financial institution.
The CDSC applicable to Class B shares is currently waived for
any partial or complete redemption (a) in connection with a dis-
tribution without penalty under Section 72(t) of the Code from a
403(b)(7) plan or an IRA upon attaining age 59 1/2; (b) following
death or disability (as defined in the Code) of a shareholder (in-
cluding one who owns the shares as joint tenant with his or her
spouse) from an account in which the deceased or disabled is
named, provided the redemption is requested within one year of the
death or initial determination of disability; and (c) of up to 10%
per year of the value of an account subject to an Automatic With-
drawal Plan. See "How to Redeem--Automatic Withdrawal Plan."
The Distributor may require documentation prior to waiver of
the CDSC for any class, including distribution letters, certifica-
tion by plan administrators, applicable tax forms, death certifi-
cates, physicians' certificates, etc.
March 5, 1997 Prospectus
33
<PAGE>
INITIAL
SALES
CHARGE
ALTERNATIVE --
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
CLASS A shares (and thus pay no initial sales charge) may be subject to a
SHARES 1% CDSC if they redeem such shares during the first 18 months af-
ter their purchase.
LONG-TERM U.S. GOVERNMENT, FOREIGN BOND, GLOBAL BOND II, HIGH
YIELD AND TOTAL RETURN FUNDS
<TABLE>
<CAPTION>
SALES CHARGE DISCOUNT OR
AS % OF NET SALES CHARGE COMMISSION TO
AMOUNT OF AMOUNT AS % OF THE PUBLIC DEALERS AS % OF
PURCHASE INVESTED OFFERING PRICE PUBLIC OFFERING PRICE
-----------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 4.71% 4.50% 4.00%
-----------------------------------------------------------------------
$50,000 - $99,999 4.17% 4.00% 3.50%
-----------------------------------------------------------------------
$100,000 - $249,999 3.63% 3.50% 3.00%
-----------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
-----------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
-----------------------------------------------------------------------
$1,000,000+ 0.00%(/1/) 0.00%(/1/) 0.50%(/2/)
</TABLE>
REAL RETURN BOND, LOW DURATION AND STOCKSPLUS FUNDS
<TABLE>
<CAPTION>
SALES CHARGE DISCOUNT OR
AS % OF NET SALES CHARGE COMMISSION TO
AMOUNT OF AMOUNT AS % OF THE PUBLIC DEALERS AS % OF
PURCHASE INVESTED OFFERING PRICE PUBLIC OFFERING PRICE
-----------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 3.09% 3.00% 2.50%
-----------------------------------------------------------------------
$50,000 - $99,999 2.56% 2.50% 2.00%
-----------------------------------------------------------------------
$100,000 - $249,999 2.04% 2.00% 1.75%
-----------------------------------------------------------------------
$250,000 - $499,999 1.52% 1.50% 1.25%
-----------------------------------------------------------------------
$500,000 - $999,999 1.27% 1.25% 1.00%
-----------------------------------------------------------------------
$1,000,000+ 0.00%(/1/) 0.00%(/1/) 0.50%(/2/)
</TABLE>
SHORT-TERM FUND
<TABLE>
<CAPTION>
SALES CHARGE DISCOUNT OR
AS % OF NET SALES CHARGE COMMISSION TO
AMOUNT OF AMOUNT AS % OF THE PUBLIC DEALERS AS % OF
PURCHASE INVESTED OFFERING PRICE PUBLIC OFFERING PRICE
-----------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 2.04% 2.00% 1.75%
-----------------------------------------------------------------------
$50,000 - $99,999 1.78% 1.75% 1.50%
-----------------------------------------------------------------------
$100,000 - $249,999 1.52% 1.50% 1.25%
-----------------------------------------------------------------------
$250,000 - $499,999 1.27% 1.25% 1.00%
-----------------------------------------------------------------------
$500,000 - $999,999 1.01% 1.00% 0.75%
-----------------------------------------------------------------------
$1,000,000+ 0.00%(/1/) 0.00%(/1/) 0.25%(/2/)
</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 purchasers described below un-
der "Sales at Net Asset Value" where no commission is paid) will
be subject to a CDSC of 1% if such shares are redeemed during the
first 18 months after such shares are purchased unless such pur-
chaser is eligible for a waiver of the CDSC as described under
"Waiver of Contingent Deferred Sales Charges" above. See "Class A
Deferred Sales Charge" below.
2. The Distributor will pay a commission to dealers who sell
amounts of $1,000,000 or more of Class A shares (or who sell Class
A shares at net asset value to certain employer-sponsored plans as
outlined in "Sales at Net Asset Value") of each of the Funds ex-
cept for the Money Market Fund (for which no payment is made) and
the Short-Term Fund, according to the following schedule: 0.50% of
the first $2,000,000 and 0.25% of amounts over $2,000,000; and
0.25% of sales of Class A shares of the Short-Term Fund in excess
of $1,000,000.
34
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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. During such peri-
ods as may from time to time be designated by the Distributor, the
Distributor will pay an additional amount of up to .50% of the
purchase price on sales of Class A shares of all or selected Funds
purchased to each participating broker which obtains purchase or-
ders in amounts exceeding thresholds established from time to time
by the Distributor. From time to time, the Distributor, its parent
and/or its affiliates may make additional payments to one or more
participating brokers based upon factors such as the level of
sales or the length of time clients' assets have remained in the
Trust.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are issued at net asset
value and are not subject to any sales charges.
Under the circumstances described below, investors may be enti-
tled 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 or series of PIMCO Funds: Multi-Manager Series which
offer Class A shares (together, "eligible PIMCO Funds") into a
"single purchase," if the resulting purchase totals at least
$50,000. The term single purchase refers to: (i) a single purchase
by an individual, or concurrent purchases, which in the aggregate
are at least equal to the prescribed amounts, by an individual,
his or her spouse and their children under the age of 21 years
purchasing Class A shares of the eligible PIMCO Funds for his, her
or their own account; (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or fidu-
ciary account although more than one beneficiary is involved; or
(iii) a single purchase for the employee benefit plans of a single
employer. For further information, call the Distributor at 800-
426-0107 or your broker.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION) A purchase of
additional Class A shares of any eligible PIMCO Fund may qualify
for a Cumulative Quantity Discount at the rate applicable to the
discount bracket obtained by adding:
(i) the investor's current purchase;
(ii) the value (at the close of business on the day of the
current purchase) of all Class A shares of any eligible PIMCO
Fund (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 II worth
an additional $30,000, the sales charge for the $30,000 purchase
would be at the 4.00% rate applicable to a single $55,000 purchase
of shares of the Global Bond Fund II, rather than the 4.50% rate.
LETTER OF INTENT An investor may also obtain a reduced sales
charge by means of a written Letter of Intent, which expresses an
intention to invest not less than $50,000 within a period of 13
months in Class A shares of any eligible PIMCO Fund(s) (other than
the Money Market Fund). Each purchase of shares under a Letter of
Intent will be made at the public offering price or prices appli-
cable at the time of such purchase to a single transaction of the
dollar amount
March 5, 1997 Prospectus
35
<PAGE>
indicated in the Letter. At the investor's option, a Letter of In-
tent may include purchases of Class A shares of any eligible PIMCO
Fund (other than the Money Market Fund) made not more than 90 days
prior to the date the Letter of Intent is signed; however, the 13-
month period during which the Letter is in effect will begin on
the date of the earliest purchase to be included and the sales
charge on any purchases prior to the Letter will not be adjusted.
Investors qualifying for the Combined Purchase Privilege de-
scribed above may purchase shares of the eligible PIMCO Funds un-
der a single Letter of Intent. For example, if at the time you
sign a Letter of Intent to invest at least $100,000 in Class A
shares of any Fund (other than the Money Market Fund), you and
your spouse each purchase Class A shares of the Global Bond Fund
II worth $30,000 (for a total of $60,000), it will only be neces-
sary to invest a total of $40,000 during the following 13 months
in Class A shares of any of the Funds (other than the Money Market
Fund) to qualify for the 3.50% sales charge on the total amount
being invested (the sales charge applicable to an investment of
$100,000 in any of the Funds other than the Real Return Bond, Low
Duration, Short-Term, Money Market and StocksPLUS Funds).
A Letter of Intent is not a binding obligation to purchase the
full amount indicated. The minimum initial investment under a Let-
ter 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 in-
dicated is not purchased, a sufficient amount of such escrowed
shares will be involuntarily redeemed to pay the additional sales
charge applicable to the amount actually purchased, if necessary.
Dividends on escrowed shares, whether paid in cash or reinvested
in additional eligible PIMCO Fund shares, are not subject to es-
crow. When the full amount indicated has been purchased, the es-
crow 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 Applica-
tion. If you are a current Class A shareholder desiring to do so
you can obtain a form of Letter of Intent by contacting the Dis-
tributor at 800-426-0107 or any broker participating in this pro-
gram.
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 pro-
ceeds in Class A shares of any eligible PIMCO Fund at net asset
value without any sales charge, provided that such reinvestment is
made within 120 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net as-
set value next determined. See "How Net Asset Value is Deter-
mined." 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 rein-
vested in shares of the same Fund within 30 days. The reinstate-
ment privilege may be utilized by a shareholder only once, irre-
spective of the number of shares redeemed, except that the privi-
lege 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 re-
tirement plan account. An investor may exercise the reinstatement
privilege by written request sent to the Distributor or to the in-
vestor'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 Advi-
sor or the Distributor, a parent, brother or sister of any such
officer, trustee, director or employee or to a spouse or child of
any of the foregoing persons, or to any trust, profit sharing or
pension plan for the benefit of any such person, (b) current or
retired trustees of PIMCO Funds: Multi-Manager Series or Cash Ac-
cumulation Trust, registered investment companies for which PIMCO
Advisors L.P., an affiliate of the Advisor, acts as investment ad-
viser, (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 em-
ployer sponsored plans that have at least 100 eligible partici-
pants or at least $1 million in total plan assets,
36
PIMCO Funds: Pacific Investment Management Series
<PAGE>
(e) trustees or other fiduciaries purchasing shares for certain
employer-sponsored plans, the trustee, administrator, fiduciary,
broker, trust company or registered investment adviser for which
has an agreement with the Distributor with respect to such pur-
chases, (f) participants investing through accounts known as "wrap
accounts" established with brokers or dealers approved by the Dis-
tributor where such brokers or dealers are paid a single, inclu-
sive 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 Advisor serve as trust-
ee. As described above, the Distributor will not pay any initial
commission to dealers upon the sale of Class A shares to the pur-
chasers described in this paragraph except for sales to purchasers
described under (d) or (e) in this paragraph.
In addition, the Short-Term Fund may (subject to appropriate
documentation) sell its Class A shares without a sales charge
where the amount invested represents proceeds of a redemption from
a mutual fund not distributed by PIMCO Funds Distribution Company
if such redemption occurred no more than 60 days prior to the pur-
chase of the Short-Term Fund's Class A shares and the shareholder
either (i) paid an initial sales charge on the redeemed shares (or
was entitled to a waiver of the initial sales charge) or (ii) was
at some time subject to a deferred sales charge with respect to
the redemption proceeds, whether or not a deferred sales charge
was in fact paid.
NOTIFICATION OF DISTRIBUTOR An investor or participating broker
must notify the Distributor whenever a quantity discount or re-
duced sales charge is applicable to a purchase and must provide
the Distributor with sufficient information at the time of pur-
chase to verify that each purchase qualifies for the privilege or
discount. Upon such notification, the investor will receive the
lowest applicable sales charge. The quantity discounts described
above may be modified or terminated at any time.
CLASS A DEFERRED SALES CHARGE For all Funds except the Money Mar-
ket 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% CDSC (the "Class A CDSC") if such
shares are redeemed within 18 months of their purchase. The
Class A CDSC does not apply to investors purchasing $1,000,000 or
more of any Fund's Class A shares if such investors are otherwise
eligible to purchase Class A shares without any sales charge be-
cause 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 de-
rived 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 re-
deemed 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 Ar-
rangements--Waiver of Contingent Deferred Sales Charges." For more
information about the Class A CDSC, call the Distributor at 800-
426-0107.
PARTICIPATING BROKERS Investment dealers and other financial in-
termediaries 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 cli-
ents' return.
37
March 5, 1997 Prospectus
<PAGE>
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 rein-
vestment 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 limita-
tion, transfers of registration and dividend payee changes; and
may perform functions such as generation of confirmation state-
ments 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 pur-
chase payment will be invested in shares of the Fund(s) selected.
A CDSC will be imposed on Class B shares of all Funds if an in-
vestor redeems an amount which causes the current value of the in-
vestor'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 re-
investment of dividends or capital gains distributions or if the
amount redeemed is derived from increases in the value of the ac-
count above the amount of purchase payments subject to the CDSC.
Class B shares of the Short-Term Fund and the Money Market Fund
are not offered for initial purchase but may be obtained through
exchanges of Class B shares of other Funds. See "Exchange Privi-
lege" below. Class B shares are not available for purchase by em-
ployer sponsored retirement plans.
Whether a CDSC is imposed and the amount of the CDSC will de-
pend on the number of years since the investor made a purchase
payment from which an amount is being redeemed. Purchases are sub-
ject to the CDSC according to the following schedule:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PERCENTAGE CONTINGENT
PAYMENT WAS MADE DEFERRED SALES CHARGE
-------------------------------------------
<S> <C>
First 5%
-------------------------------------------
Second 4
-------------------------------------------
Third 3
-------------------------------------------
Fourth 3
-------------------------------------------
Fifth 2
-------------------------------------------
Sixth 1
-------------------------------------------
Seventh 0*
</TABLE>
*After the seventh year,
Class B shares convert into
Class A shares as described
below.
In determining whether a CDSC is payable, it is assumed that
the purchase payment from which a redemption is made is the earli-
est purchase payment from which a redemption or exchange has not
already been fully effected.
The following example will illustrate the operation of the
Class B CDSC:
Assume that an individual opens an account and makes a purchase
payment of $10,000 for Class B shares of a Fund (except the Money
Market and Short-Term Funds) and that six months later the value
of the investor's account for that Fund has grown through invest-
ment performance and reinvestment of distributions to $11,000. The
investor then may redeem up to $1,000 from that Fund ($11,000 mi-
nus $10,000) without incurring a CDSC. If the investor should re-
deem $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 re-
duced below the amount of the purchase payment). At the rate of
5%, the Class B CDSC would be $100.
38
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 aggregat-
ed. 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 par-
ticipating 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 Dis-
tributor, the Distributor will pay selected participating brokers
an additional amount of up to .50% of the purchase price on sales
of Class B shares of all or selected Funds purchased to each par-
ticipating broker which obtains purchase orders in amounts exceed-
ing 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 Ar-
rangements--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 of
all Funds if an investor redeems an amount which causes the cur-
rent value of the investor's account for a Fund to fall below the
total dollar amount of purchase payments subject to the CDSC, ex-
cept that no CDSC is imposed if the shares redeemed have been ac-
quired through the reinvestment of dividends or capital gains dis-
tributions 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 de-
pend on the number of years since the investor made a purchase
payment from which an amount is being redeemed. Purchases are sub-
ject to the CDSC according to the following schedule:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PERCENTAGE CONTINGENT
PAYMENT WAS MADE DEFERRED SALES CHARGE
-------------------------------------------
<S> <C>
First 1
-------------------------------------------
Thereafter 0
</TABLE>
In determining whether a CDSC is payable, it is assumed that
the purchase payment from which the redemption is made is the ear-
liest purchase payment (from which a redemption or exchange has
not already been effected).
The following example will illustrate the operation of the
Class C CDSC:
Assume that an individual opens 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 distribu-
tions 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 Class C CDSC would be $20.
In determining whether an amount is available for redemption
without incurring a CDSC, the purchase payments made for all Class
C shares in the shareholder's account with the particular Fund are
aggregated, and the current value of all such shares is aggregat-
ed. Any CDSC imposed on a redemption of Class C shares is paid to
the Distributor. Unlike Class B shares, Class C shares do not au-
tomatically convert to any other class of shares of the Funds.
March 5, 1997 Prospectus
39
<PAGE>
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 share-
holder purchases Class C shares, of 1.00% (representing .75% dis-
tribution fees and .25% servicing fees) of the purchase amount for
all Funds except the Real Return Bond, Low Duration, Short-Term,
Money Market and StocksPLUS Funds. For the Real Return Bond, Low
Duration and StocksPLUS Funds, the Distributor expects to make
payments of .75% (representing .50% distribution fees and .25%
service fees); for the Short-Term Fund, the Distributor expects to
make payments of .55% (representing .30% distribution fees and
.25% service fees); and for the Money Market Fund, the Distributor
expects to make no payment. For sales of Class C shares made to
participants making periodic purchases of not less than $50
through certain employer sponsored savings plans which are clients
of a broker-dealer with which the Distributor has an agreement
with respect to such purchases, no payments are made at the time
of purchase. During such periods as may from time to time be des-
ignated by the Distributor, the Distributor will pay an additional
amount of up to .50% of the purchase price on sales of Class C
shares of all or selected Funds purchased to each participating
broker which obtains purchase orders in amounts exceeding thresh-
olds 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 Ar-
rangements--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 ac-
count with identical registration on the basis of their respective
net asset values (except that a sales charge will apply on ex-
changes of Class A shares of the Money Market Fund on which no
sales charge was paid at the time of purchase). Class A, Class B
and Class C shares of each Fund may also be exchanged for shares
of the same class of a series which offers such classes (except
for the Opportunity Fund if a restriction applies) of PIMCO Funds:
Multi-Manager Series, an affiliated mutual fund family comprised
primarily of equity portfolios managed by the subsidiary partner-
ships 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. Ex-
cept with respect to tax- qualified programs and exchanges ef-
fected 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, un-
less 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 Trans-
fer Agent at 800-852-8457. The Trust will employ reasonable proce-
dures 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 act-
ing on a caller's telephone instructions, will provide written
confirmations of such transactions and will record telephone in-
structions. 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 regis-
tration information or account 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 avail-
able from the Distributor. A signature guarantee is required. See
"How to Buy Shares--Signature Guarantee." Telephone exchanges may
be made between 9:00 a.m. Eastern time and the close of regular
trading (normally 4:00 p.m. Eastern time) on the Exchange on any
day the Exchange is open (generally weekdays other than normal
holidays). The Trust reserves the right to refuse exchange
40
PIMCO Funds: Pacific Investment Management Series
<PAGE>
purchases if, in the judgment of the Advisor, 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 Advisor to be detrimental to the Trust or a
particular 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 Secu-
rities and Exchange Commission regulations, the Trust will give 60
days' advance notice to shareholders of any termination or mate-
rial modification of the exchange privilege. For further informa-
tion 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 capi-
tal appreciation and/or reinvested dividends or capital gains dis-
tributions 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.
Investors may also select the PIMCO Auto Exchange plan which
establishes automatic periodic exchanges. For further information
on automatic exchanges see "How to Buy Shares--PIMCO Auto Ex-
change" above.
How to Redeem
Class A, Class B or Class C shares may be redeemed through a par-
ticipating broker, by telephone, by submitting a written redemp-
tion request directly to the Transfer Agent (for non-broker ac-
counts), 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.
There is no charge by the Distributor (other than an applicable
CDSC) with respect to a redemption; however, a participating bro-
ker who processes a redemption for an investor may charge custom-
ary 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 (normally 4:00 p.m. Eastern time) on the
Exchange on a regular business day and received by the Distributor
prior to the close of the Distributor's business day will be con-
firmed at the net asset value effective as of the closing of the
Exchange on that day, less any applicable CDSC.
DIRECT A shareholder's original Account Application permits the share-
REDEMPTION holder to redeem by written request and by telephone (unless the
shareholder specifically elects not to utilize telephone redemp-
tions) and to elect one or more of the additional redemption pro-
cedures described below. A shareholder may change the instructions
indicated on his original Account Application, or may request ad-
ditional redemption options, only by transmitting a written direc-
tion 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
41
March 5, 1997 Prospectus
<PAGE>
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 To redeem shares in writing (whether or not represented by certif-
REQUESTS icates), a shareholder must send the following items to the Trans-
fer Agent, Shareholder Services, Inc., P.O. Box 5866, Denver, Col-
orado 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 be-
low, a guarantee of all signatures on the written request or on
the share certificate or accompanying stock power, if required, as
described under "How to Buy Shares--Signature Guarantee"; (3) any
share certificates issued for any of the shares to be redeemed
(see "Certificated Shares" below); and (4) any additional docu-
ments 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 re-
demption 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 ac-
count. To avoid delay in redemption or transfer, shareholders hav-
ing any questions about these requirements should contact the
Transfer Agent in writing or by calling 1-800-426-0107 before sub-
mitting a request. Redemption or transfer requests will not be
honored until all required documents in the proper form have been
received by the Transfer Agent. This redemption option does not
apply to shares held in broker "street name" accounts.
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 redemp-
tion 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 adminis-
trator for which has an agreement with the Distributor.
TELEPHONE The Trust accepts telephone requests for redemption of shares for
REDEMPTIONS 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 redemp-
tion will be sent to the record shareholder at his record address.
Changes in account information must be made in a written authori-
zation with a signature guarantee. See "How to Buy Shares--Signa-
ture Guarantee". Telephone redemptions will not be accepted during
the 30-day period following any change in an account's record ad-
dress. This redemption option does not apply to shares held in
broker "street name" accounts.
By completing an Account Application, an investor agrees that
the Trust, the Distributor and the Transfer Agent shall not be li-
able for any loss incurred by the investor by reason of the Trust
accepting unauthorized telephone redemption requests for his ac-
count if the Trust reasonably believes the instructions to be gen-
uine. 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 him-
self 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 instruc-
tions 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 transac-
tions 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 with-
drawn and (iv) the name of the person requesting the redemption.
Usually the proceeds are sent to
42
PIMCO Funds: Pacific Investment Management Series
<PAGE>
the investor on the next Trust business day after the redemption
is effected, provided the redemption request is received prior to
the close of regular trading (normally 4:00 p.m. Eastern time) on
the Exchange that day. If the redemption request is received after
the close of the Exchange, the redemption is effected on the fol-
lowing 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 If a shareholder has established Fund Link, the shareholder may
REDEMPTIONS redeem shares by telephone and have the redemption proceeds sent
to a designated account at a financial institution. Fund Link is
normally established within 45 days of receipt of a Fund Link Ap-
plication by the Transfer Agent. To use Fund Link for redemptions,
call the Transfer Agent at 800-852-8457. Subject to the limita-
tions set forth above under "Telephone Redemptions," the Distribu-
tor, the Trust and the Transfer Agent may rely on instructions by
any registered owner believed to be genuine and will not be re-
sponsible to any shareholder for any loss, damage or expense aris-
ing out of such instructions. Requests received by the Transfer
Agent prior to the close of regular trading (normally 4:00 p.m.
Eastern time) on the Exchange on a business day will be processed
at the net asset value on that day and the proceeds (less any
CDSC) will normally be sent to the designated bank account on the
following business day and received by the bank on the second or
third business day. If the redemption request is received after
the close of regular trading on the Exchange, the redemption is
effected on the following business day. Shares purchased by check
may not be redeemed through Fund Link until such shares have been
owned (i.e., paid for) for at least 15 days. Fund Link may not be
used to redeem shares held in certificated form. Changes in bank
account information must be made by completing a new Fund Link Ap-
plication, signed by all owners of record of the account, with all
signatures guaranteed. See "How to Buy Shares--Signature Guaran-
tee." See "How to Buy Shares-- PIMCO Fund Link" for information on
establishing the Fund Link privilege. The Trust may terminate the
Fund Link program at any time without notice to shareholders. This
redemption option does not apply to shares held in broker "street
name" accounts.
EXPEDITED If a shareholder has given authorization for expedited wire re-
WIRE demption, shares can be redeemed and the proceeds sent by federal
TRANSFER wire transfer to a single previously designated bank account. Re-
REDEMPTIONS quests received by the Trust prior to the close of the Exchange
will result in shares being redeemed that day at the next deter-
mined 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 de-
layed by the Trust for up to 7 days if the Distributor deems it
appropriate under then current market conditions. Once authoriza-
tion is on file, the Trust will honor requests by any person iden-
tifying 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 cur-
rently charge for wire transfers. The
shareholder is responsible for any charges imposed by the share-
holder'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 re-
demptions 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 ac-
count designated to receive wire redemption proceeds, it is neces-
sary to send a written request with signatures guaranteed to PIMCO
Funds Distribution Company, P.O. Box 5866, Denver, CO 80217-5866.
See "How to Buy Shares -- Signature Guarantee." This redemption
option does not apply to shares held in broker "street name" ac-
counts.
43
March 5, 1997 Prospectus
<PAGE>
CERTIFICATEDTo redeem shares for which certificates have been issued, the cer-
SHARES tificates must be mailed to or deposited with the Trust, duly en-
dorsed or accompanied by a duly endorsed stock power or by a writ-
ten request for redemption. Signatures must be guaranteed as de-
scribed under "How to Buy Shares--Signature Guarantee." Further
documentation may be requested from institutions or fiduciary ac-
counts, such as corporations, custodians (e.g., under the Uniform
Gifts to Minors Act), executors, administrators, trustees or
guardians ("institutional account owners"). The redemption request
and stock power must be signed exactly as the account is regis-
tered, including indication of any special capacity of the regis-
tered owner.
AUTOMATIC An investor who owns or buys shares of a Fund having a net asset
WITHDRAWAL value of $10,000 or more may open an Automatic Withdrawal Plan and
PLAN have a designated sum of money (not less than $100 per Fund) paid
monthly (or quarterly) to the investor or another person. Such a
plan may be established by completing the appropriate section of
the Account Application or you may obtain an Automatic Withdrawal
Plan Application from the Distributor or your broker. If an Auto-
matic Withdrawal Plan is set up after the account is established
providing for payment to a person other than the record share-
holder or to an address other than the address of record, a signa-
ture guarantee is required. See "How to Buy Shares--Signature
Guarantee." Class A, Class B, and Class C shares 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 Au-
tomatic Withdrawal Plan. See "Alternative Purchase Arrangements--
Waiver of Contingent Deferred Sales Charges."
Redemptions for the purpose of withdrawals are ordinarily made
on the business day preceding the day of payment at that day's
closing net asset value and checks are mailed on the day of pay-
ment selected by the shareholder. The Transfer Agent may acceler-
ate 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 fidu-
ciary, 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 disadvanta-
geous 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 rein-
vestment 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 finan-
cial 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.
44
PIMCO Funds: Pacific Investment Management Series
<PAGE>
Distributor and Distribution and Servicing Plans
PIMCO Funds Distribution Company (the "Distributor"), a wholly
owned subsidiary of PIMCO Advisors L.P., is the principal under-
writer of the Trust's shares and in that connection makes distri-
bution and servicing payments to participating brokers and servic-
ing payments to certain banks and other financial intermediaries
in connection with the sale of Class B and Class C shares and ser-
vicing payments to participating brokers, certain banks and other
financial intermediaries in connection with the sale of Class A
shares. In the case of Class A shares, these parties are also com-
pensated 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 Dis-
tributor. 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,
with respect to each Fund's Class A, Class B, and Class C shares,
the Distributor bears various other promotional and sales related
expenses, including the cost of printing and mailing prospectuses
to persons other than current shareholders.
CLASS A SERVICING FEES As compensation for services rendered and
expenses borne by the Distributor in connection with personal
services rendered to Class A shareholders of the Trust and the
maintenance of Class A shareholder accounts, the Trust pays the
Distributor servicing fees up to the annual rates set forth below
(calculated as a percentage of each Fund's average daily net as-
sets attributable to Class A shares):
<TABLE>
<CAPTION>
SERVICING
FUND FEE
--------------------------------
<S> <C>
All Funds except the
Money Market Fund .25%
--------------------------------
Money Market Fund* .10%
</TABLE>
*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 .20% if the Distributor ceases to voluntarily waive
any portion of the fee.
CLASS B DISTRIBUTION AND SERVICING FEES As compensation for serv-
ices rendered and expenses borne by the Distributor in connection
with the distribution of Class B shares of the Trust and, in con-
nection with personal services rendered to Class B shareholders of
the Trust and the maintenance of Class B shareholder accounts, the
Trust pays the Distributor servicing fees and distribution 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>
SERVICING DISTRIBUTION
FUND FEE FEE
---------------------------------
<S> <C> <C>
All Funds .25% .75%
</TABLE>
March 5, 1997 Prospectus
45
<PAGE>
CLASS C DISTRIBUTION AND SERVICING FEES As compensation for serv-
ices rendered and expenses borne by the Distributor in connection
with the distribution of Class C shares of the Trust and, in con-
nection with personal services rendered to Class C shareholders of
the Trust and the maintenance of Class C shareholder accounts, the
Trust pays the Distributor servicing fees and distribution fees up
to the annual rates set forth below (calculated as a percentage of
each Fund's average daily net assets attributable to Class C
shares):
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FUND FEE FEE
----------------------------------------
<S> <C> <C>
Long-Term U.S.
Government,
Foreign Bond,
Global Bond II,
High Yield and
Total Return
Funds .25% .75%
----------------------------------------
Real Return
Bond, Low
Duration and
StocksPLUS
Funds* .25% .50%
----------------------------------------
Short-Term Fund* .25% .30%
----------------------------------------
Money Market
Fund* .10% .00%
</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
on shares of the Low Duration and Money Market Funds, and .25% per
annum with respect to the servicing fee on shares of the Money
Market Fund. 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. With respect to the distribution fee on shares of each of
the Real Return Bond, Short-Term and StocksPLUS Funds, such fee is
subject to an increase to a rate of .75% if the Distributor ceases
to voluntarily waive any portion of the fee.
The Class A servicing fees and Class B and Class C distribution
and servicing fees paid to the Distributor are made under Distri-
bution and Servicing Plans adopted pursuant to Rule 12b-l under
the 1940 Act and are of the type known as "compensation" plans.
This means that, although the Trustees of the Trust are expected
to take into account the expenses of the Distributor and its pred-
ecessors in their periodic review of the Distribution and Servic-
ing Plans, the fees are payable to compensate the Distributor for
services rendered even if the amount paid exceeds the Distribu-
tor's expenses.
The distribution fee applicable to Class B and Class C shares
may be spent by the Distributor on any activities or expenses pri-
marily intended to result in the sale of Class B or Class C
shares, respectively, including compensation to, and expenses (in-
cluding overhead and telephone expenses) of, financial consultants
or other employees of the Distributor or of participating or in-
troducing brokers who engage in distribution of Class B or Class C
shares, printing of prospectuses and reports for other than exist-
ing Class B or Class 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 ac-
counts, including compensation to, and expenses (including tele-
phone and overhead expenses) of, financial consultants or other
employees of participating or introducing brokers, certain banks
and other financial intermediaries who aid in the processing of
purchase or redemption requests or the processing of dividend pay-
ments, who provide information periodically to shareholders show-
ing their positions in a Fund's shares, who forward communications
from the Trust to shareholders, who render ongoing advice concern-
ing the suitability of particular investment opportunities offered
by the Trust in light of the shareholders' needs, who respond to
inquiries from shareholders relating to such services, or who
train personnel in the provision of such services. Distribution
and servicing fees may also be spent on interest relating to
unreimbursed distribution or servicing expenses from prior years.
Many of the Distributor's sales and servicing efforts involve
the Trust as a whole, so that fees paid by Class A, Class B or
Class C shares of any Fund may indirectly support sales and ser-
vicing 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 annu-
ally based on
46
PIMCO Funds: Pacific Investment Management Series
<PAGE>
the relative sales of each class, except for any expenses that re-
late only to the sale or servicing of a single class. The Distrib-
utor 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
<TABLE>
<CAPTION>
SERVICING
FEE/(1)/
--------------------------------
<S> <C>
All Funds except the
Money Market Fund .25%
--------------------------------
Money Market Fund .10%
</TABLE>
CLASS B SHARES/(2)/
<TABLE>
<CAPTION>
SERVICING
FEE/(1)/
--------------------
<S> <C>
All Funds .25%
</TABLE>
CLASS C SHARES--
PURCHASED ON OR AFTER
7/1/91/(3)/
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FEE/(1)/ FEE/(1)/
---------------------------------------
<S> <C> <C>
Long-Term U.S.
Government,
Foreign Bond,
Global Bond II,
High Yield and
Total Return
Funds .25% .65%
---------------------------------------
Real Return
Bond, Low
Duration and
StocksPLUS
Funds .25% .45%
---------------------------------------
Short-Term Fund .25% .25%
---------------------------------------
Money Market
Fund .10% .00%
</TABLE>
CLASS C SHARES--
PURCHASED BEFORE 7/1/91
<TABLE>
<CAPTION>
SERVICING
FEE/(1)/
--------------------------------
<S> <C>
All Funds except the
Money Market Fund .25%
--------------------------------
Money Market Fund .10%
</TABLE>
1. Applies, in part, to Class A, Class B and Class C shares of the
Trust issued to former shareholders of PIMCO Advisors Funds in
connection with the reorganizations/mergers of series of PIMCO Ad-
visors Funds as/with Funds of the Trust in a transaction which
took place on January 17, 1997.
2. Payable only with respect to shares outstanding for one year or
more.
3. Payable only with respect to shares outstanding for one year or
more except in the case of shares for which no payment is made to
the party at the time of sale.
The Distributor may from time to time pay additional cash bo-
nuses or other incentives to selected participating brokers in
connection with the sale or servicing of Class A, Class B and
Class C shares of the Funds. 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 to-
gether 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 .50% of the amount of any
sale. Pacific Investment Management (in its capacity as adminis-
trator) may also pay participating brokers and other intermediar-
ies for transfer agency and other services.
March 5, 1997 Prospectus
47
<PAGE>
If in any year the Distributor's expenses incurred in connec-
tion with the distribution of Class B and Class C shares and, for
Class A, Class B and Class C Shares, in connection with the ser-
vicing of shareholders and the maintenance of shareholder ac-
counts, exceed the distribution and/or servicing fees paid by the
Trust, the Distributor would recover such excess only if the Dis-
tribution 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 Class B and Class
C shareholder accounts, may exceed the distribution and servicing
fees collected by the Distributor. Class B and Class C Distribu-
tion and Servicing Plans, which are similar to the Trust's current
Plans, were in effect prior to the date of this Prospectus for the
Global Income Fund, a series of PIMCO Advisors Funds which reorga-
nized as the Global Bond Fund II of the Trust. 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 approxi-
mately $11,408,000 in excess of payments under the PIMCO Advisors
Funds' Class B Distribution and Servicing Plan and $2,822,000 in
excess of payments under the PIMCO Advisors Funds' Class C Distri-
bution and Servicing Plan. The allocation of such excess (on a pro
rata basis) as of September 30, 1996 to the Global Income Fund was
approximately $128,000 in excess of payments under the PIMCO Advi-
sors Funds' Class B Distribution and Servicing Plan (3.96% of net
assets) and $2,000 in excess of payments under the PIMCO Advisors
Funds' Class C Distribution and Servicing Plan (.06% of net as-
sets).
How Net Asset Value Is Determined
The net asset value per share of Class A, Class B and Class C
shares of each Fund is determined as of the close of trading (nor-
mally 4:00 p.m., Eastern time) on the Exchange by dividing the to-
tal market value of a Fund's portfolio investments and other as-
sets attributable to that class, less any liabilities, by the num-
ber of total outstanding shares of that class. Net asset value
will not be determined on days on which the 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 assum-
ing a constant accretion of a discount or amortization of a pre-
mium 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 val-
ue. Market value is determined on the basis of last reported sales
prices, or if no sales are reported, as is the case for most secu-
rities traded over-the-counter, at the mean between representative
bid and asked quotations obtained from a quotation reporting sys-
tem 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 appropri-
ate factors such as institutional-sized trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of is-
sue, trading characteristics, and other market data.
Quotations of foreign securities in foreign currency are con-
verted to U.S. dollar equivalents using foreign exchange quota-
tions 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 quota-
tions are not readily available are valued at fair value as deter-
mined in good faith by the Board of Trustees.
48
PIMCO Funds: Pacific Investment Management Series
<PAGE>
Each Fund's liabilities are allocated among its classes. The
total of such liabilities allocated to a class plus that class's
distribution and/or servicing fees and any other expenses spe-
cially allocated to that class are then deducted from the class's
proportionate interest in the Fund's assets, and the resulting
amount for each class is divided by the number of shares of that
class outstanding to produce the class's "net asset value" per
share. Under certain circumstances, the per share net asset value
of 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 ap-
proximately the amount of the expense accrual differential between
a particular Fund's classes.
Distributions
Each Fund pays out as dividends substantially all of its net in-
vestment income (which comes from dividends and interest it re-
ceives or is deemed to receive from its investments) and net real-
ized short-term capital gains. For these purposes and for federal
income tax purposes, a portion of the premiums from certain ex-
pired call or put options written by the Fund, net gains from
closing purchase and sale transactions with respect to such op-
tions, 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 pur-
chase, which is the date that funds are received by the Trust for
the purchase of shares. For the Fixed Income Funds, dividends are
declared daily from net investment income to shareholders of rec-
ord at the close of the previous business day, and distributed to
shareholders monthly. The StocksPLUS Fund intends to declare and
pay as a dividend substantially all of its 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
sales 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 Ac-
count Application, on a form provided for that purpose or by a
telephone request to the Transfer Agent at 800-426-0107. For fur-
ther 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 an-
nually and to elect to be treated as a regulated investment com-
pany 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.
March 5, 1997 Prospectus
49
<PAGE>
Distributions received by tax-exempt shareholders will not be
subject to federal income tax to the extent permitted under appli-
cable 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 Octo-
ber, November or December of a calendar year are taxable to share-
holders (who otherwise are subject to tax on dividends) as though
received on December 31 of that year if paid to shareholders dur-
ing 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 divi-
dends paid to them.
Coupon payments received by a Fund from inflation-indexed bonds
will be includable in the Fund's gross income in the period in
which they accrue. Periodic adjustments for inflation in the prin-
cipal value of these securities also may give rise to original is-
sue discount, which, likewise, will be includable in the Fund's
gross income on a current basis. See "Taxation--Original Issue
Discount" in the Statement of Additional Information. Amounts
includable in a Fund's gross income become subject to tax-related
distribution requirements. Accordingly, a Fund may be required to
make annual distributions to shareholders in excess of the cash
received in a given period from these investments. As a result,
the Fund may be required to liquidate certain investments at a
time when it is not advantageous to do so. If the principal value
of an inflation-indexed bond is adjusted downward in any period as
a result of deflation, the reduction may be treated as a loss to
the extent the reduction exceeds coupon payments received in that
period; in that case, the amount distributable by the Fund may be
reduced and amounts distributed previously in the taxable year may
be characterized in some circumstances as a return of capital.
Taxable shareholders should note that the timing of their in-
vestment could have undesirable tax consequences. If shares are
purchased on or just before the record date of 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.
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 In-
formation under the heading "Management--Trustees and Officers."
INVESTMENT Pacific Investment Management serves as investment adviser ("Advi-
ADVISOR sor") to the Funds pursuant to an investment advisory contract.
The Advisor is an investment counseling firm founded in 1971, and
had approximately $88 billion in assets under management as of No-
vember 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 gen-
eral partnership between Pacific Investment Management Company, a
California corporation and indirect wholly owned subsidiary of Pa-
cific Mutual Life Insurance Company ("Pacific Mutual"), and PIMCO
Partners, LLC, a limited
50
PIMCO Funds: Pacific Investment Management Series
<PAGE>
liability company controlled by the PIMCO Managing Directors. Pa-
cific 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 Securi-
ties and Exchange Commission and as a commodity trading advisor
with the CFTC.
The Advisor manages the investment and reinvestment of the as-
sets of each Fund. The Advisor 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 "Portfo-
lio Transactions" in the Statement of Additional Information.
Information about the individual portfolio managers responsible
for management of the Trust's currently operational Funds offered
in this Prospectus, including their occupations for the past five
years, is provided below.
<TABLE>
<CAPTION>
PORTFOLIO MANAGER AND BUSINESS
FUND EXPERIENCE (PAST FIVE YEARS)
--------------------------------------------------------------------
<C> <S>
TOTAL RETURN FUND William H. Gross, Managing Director,
LOW DURATION FUND Pacific Investment Management. A
Fixed Income Portfolio Manager, Mr.
Gross is one of the founders of Pa-
cific Investment Management and has
managed the Total Return and Low Du-
ration Funds since their inception,
May 11, 1987.
--------------------------------------------------------------------
LONG-TERM U.S. GOVERNMENT FUND Frank B. Rabinovitch, Managing Direc-
tor, Pacific Investment Management. A
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
GLOBAL BOND FUND II President and Senior International
Portfolio Manager, Pacific Investment
Management. A Fixed Income Portfolio
Manager, Mr. Thomas has managed the
Foreign Bond Fund since July 13,
1995, and the Global Bond Fund II
since October 1, 1995. Prior to join-
ing Pacific Investment Management in
1995, Mr. Thomas was associated with
Investcorp as a member of the manage-
ment committee responsible for global
securities and foreign exchange trad-
ing. Prior to Investcorp, he was as-
sociated with Goldman Sachs as an Ex-
ecutive Director in foreign fixed in-
come.
--------------------------------------------------------------------
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 incep-
tion, December 16, 1992.
--------------------------------------------------------------------
REAL RETURN BOND FUND John Brynjolfsson, Vice President,
Pacific Investment Management. A
Fixed Income Portfolio Manager, Mr.
Brynjolfsson joined Pacific Invest-
ment Management in 1989, and has man-
aged the Real Return Bond Fund since
its inception, January 29, 1997.
--------------------------------------------------------------------
SHORT-TERM FUND David H. Edington, Managing Director,
STOCKSPLUS FUND Pacific Investment Management. A
Fixed Income Portfolio Manager, Mr.
Edington joined Pacific Investment
Management in 1987 and has managed
the Short-Term and StocksPLUS Funds
since their inception, October 7,
1987 and May 14, 1993, respectively.
--------------------------------------------------------------------
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.
</TABLE>
March 5, 1997 Prospectus
51
<PAGE>
FUND
ADMINISTRATOR
Pacific Investment Management also serves as administrator to the
Funds pursuant to an administration agreement with the Trust. Pa-
cific Investment Management provides administrative services to
the Funds, which include clerical help and accounting, bookkeep-
ing, internal audit services, and certain other services required
by the Funds, preparation of reports to the Funds' shareholders
and regulatory filings. Pacific Investment Management may also re-
tain certain of its affiliates to provide certain of these servic-
es. In addition, Pacific Investment Management, at its own
expense, arranges for the provision of legal, audit, custody,
transfer agency (including sub-transfer agency and other adminis-
trative services) and other services for the Funds, and is respon-
sible for the costs of registration of the Trust's shares and the
printing of prospectuses and shareholder reports for current
shareholders.
The Funds (and not Pacific Investment Management) are responsi-
ble for the following expenses: (i) salaries and other compensa-
tion 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 bor-
rowing money, including interest expenses; (v) fees and expenses
of the Trustees who are not "interested persons" of Pacific In-
vestment Management or the Trust, and any counsel retained exclu-
sively for their benefit; (vi) extraordinary expenses, including
costs of litigation and indemnification expenses; (vii) expenses,
such as organizational expenses, which are capitalized in accor-
dance 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, subject to review and approval by
the Trustees.
ADVISORY
AND
ADMINISTRATIVE
FEES
The 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 (i) based on the av-
erage daily net assets of the Fund for advisory fees and, (ii) at-
tributable in the aggregate to the Fund's Class A, Class B and
Class C shares for administrative fees, as follows:
<TABLE>
<CAPTION>
ADVISORY
FUND FEE RATE
-----------------------------------------------------
<S> <C>
Money Market Fund .15%
-----------------------------------------------------
StocksPLUS Fund .40%
-----------------------------------------------------
All other Funds .25%
<CAPTION>
ADMINISTRATIVE
FUND FEE RATE
-----------------------------------------------------
<S> <C>
Short-Term and Money Market Funds .35%
-----------------------------------------------------
Foreign Bond and Global Bond II Funds .45%
-----------------------------------------------------
All other Funds .40%
</TABLE>
Both the investment advisory contract and administration agree-
ment 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. Fol-
lowing 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 advi-
sory 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.
52
PIMCO Funds: Pacific Investment Management Series
<PAGE>
PORTFOLIO Pursuant to the advisory contract, the Advisor places orders for
TRANSACTIONSthe purchase and sale of portfolio investments for the Funds' ac-
counts 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 Advisor will seek the best price and ex-
ecution of the Funds' orders. In doing so, a Fund may pay higher
commission rates than the lowest available when the Advisor be-
lieves it is reasonable to do so in light of the value of the bro-
kerage and research services provided by the broker effecting the
transaction. The Advisor 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.
Some securities considered for investments by the Funds may
also be appropriate for other clients served by the Advisor. If a
purchase or sale of securities consistent with the investment pol-
icies of a Fund and one or more of these clients served by the Ad-
visor 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 Advisor.
Description of the Trust
The Trust was organized as a Massachusetts business trust on Feb-
ruary 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.
CAPITALIZATION
Under Massachusetts law, shareholders could, under certain cir-
cumstances, 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 also pro-
vides for indemnification out of Trust property for all loss and
expense of any shareholder held personally liable for the obliga-
tions of the Trust. The risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circum-
stances in which such disclaimer is inoperative or the Trust it-
self is unable to meet its obligations, and thus should be consid-
ered remote.
MULTIPLE In addition to Class A, Class B, and Class C shares, each Fund of-
CLASSES OF fers Institutional Class and Administrative Class shares. These
SHARES other classes of the Funds may have different sales charges and
expense levels, which will affect performance accordingly. Invest-
ors may contact the Distributor at 800-426-0107 for more informa-
tion concerning other classes of shares of the Funds. This Pro-
spectus 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 re-
quired to hold regular annual meetings of Trust shareholders and
does not intend to do so. Shareholders of a class of shares or
Fund have separate voting rights with respect to matters that only
affect that class or Fund. 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 pro-
portionate voting for fractional shares). As of December 17, 1996,
the following were shareholders of record of at least 25% of the
outstanding voting securities of the indicated Fund: California
Community Foundation (Los Angeles, California) and Marin Community
Foundation (Larkspur, California) with respect to the Money Market
Fund; Wendel & Co. (New York, New York) with respect to
53
March 5, 1997 Prospectus
<PAGE>
the Long-Term U.S. Government Fund; Donaldson, Lufkin & Jenrette
(Jersey City, New Jersey) and Charles Schwab & Co., Inc. (San
Francisco, California) with respect to the Foreign Bond Fund; and
Pacific Financial Asset Management Corporation with respect to the
Global Income Fund (the predecessor of the Global Bond Fund II).
To the extent such shareholders are also the beneficial owners of
those shares, they may be deemed to control (as that term is de-
fined in the 1940 Act) the relevant Fund.
Mailings to Shareholders
To reduce the volume of mail shareholders receive, it is antici-
pated 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.
54
PIMCO Funds: Pacific Investment Management Series
<PAGE>
Appendix A
Description of Duration
Duration is a measure of the expected life of a fixed income secu-
rity that was developed as a more precise alternative to the con-
cept 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 securi-
ty). However, "term to maturity" measures only the time until a
fixed income security provides its final payment, taking no ac-
count 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. Dura-
tion management is one of the fundamental tools used by the Advi-
sor.
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 occur-
ring 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 dura-
tion by approximately the same amount that selling an equivalent
amount of the underlying securities would.
There are some situations where even the standard duration cal-
culation 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 inter-
est rate exposure corresponds to the frequency of the coupon re-
set. For inflation-indexed bonds, duration is calculated on the
basis of modified real duration, which measures price changes of
inflation-indexed bonds on the basis of changes in real, rather
than nominal, interest rates. Another example where the interest
rate exposure is not properly captured by duration is the case of
mortgage pass-through securities. The stated final maturity of
such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest
rate exposure. Finally, the duration of a fixed income security
may vary over time in response to changes in interest rates and
other market factors. In these and other similar situations, the
Advisor will use more sophisticated analytical techniques that in-
corporate the anticipated economic life of a security into the de-
termination of its interest rate exposure.
55
March 5, 1997 Prospectus
<PAGE>
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 Advisor's view of their com-
parability to rated securities. A Fund's use of average quality
criteria is intended to be a guide for those institutional invest-
ors 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 in-
vestments 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 Advisor to be of comparable quality).
The percentage of a Fund's assets invested in securities in a par-
ticular rating category will vary. Following is a description of
Moody's and S&P's ratings applicable to fixed income securities.
MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS
INVESTORS Aaa: Bonds which are rated Aaa are judged to be of the best
SERVICE, quality. They carry the smallest degree of investment risk and are
INC. generally referred to as "gilt edge." Interest payments are pro-
tected by a large or by an exceptionally stable margin and princi-
pal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to im-
pair 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 se-
curities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obliga-
tions. Factors giving security to principal and interest are con-
sidered adequate but elements may be present that suggest a sus-
ceptibility 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 el-
ements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very mod-
erate 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 pe-
riod of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such is-
sues 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 pros-
pects of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each ge-
neric 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 in-
dicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
56
PIMCO Funds: Pacific Investment Management Series
<PAGE>
CORPORATE SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of is-
suers 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 indem-
nity 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 em-
ployed; conservative capitalization structure with moderate reli-
ance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash genera-
tion; 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 ob-
ligations. This will normally be evidenced by many of the charac-
teristics 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 ob-
ligations. The effect of industry characteristics and market com-
positions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protec-
tion measurements and may require relatively high financial lever-
age. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of
the Prime rating categories.
STANDARD & CORPORATE AND MUNICIPAL BOND RATINGS
POOR'S
CORPORATION
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is ex-
tremely 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 ca-
pacity to pay interest and repay principal for debt in this cate-
gory than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predomi-
nantly 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 un-
certainties or exposure to adverse business, financial, or eco-
nomic 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.
March 5, 1997 Prospectus
57
<PAGE>
B: Debt rated B has a greater vulnerability to default but cur-
rently 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 re-
pay principal. The B rating category is also used for debt subor-
dinated 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 re-
payment 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 ac-
tual 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 rat-
ing. The C rating may be used to cover a situation where a bank-
ruptcy petition has been filed, but debt service payments are con-
tinued.
CI: The rating CI is reserved for income bonds on which no in-
terest 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 modi-
fied 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 com-
pletion 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 com-
pletion. The investor should exercise his own judgment with re-
spect 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 indica-
tion 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 assess-
ment of the likelihood of timely payment of debt having an origi-
nal maturity of no more than 365 days. Ratings are graded into
several categories, ranging from A for the highest quality obliga-
tions 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.
58
PIMCO Funds: Pacific Investment Management Series
<PAGE>
A-2: Capacity for timely payment on issues with this designa-
tion 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 ad-
verse effects of changes in circumstances than obligations carry-
ing the higher designations.
B: Issues rated B are regarded as having only speculative ca-
pacity 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 mar-
ket 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 informa-
tion. The ratings may be changed, suspended, or withdrawn as a re-
sult of changes in or unavailability of such information.
March 5, 1997 Prospectus
59
<PAGE>
PIMCO Funds INVESTMENT ADVISOR AND ADMINISTRATOR
Pacific Investment
Management Series Pacific Investment Management Company, 840 Newport
Center Drive, Suite 360, Newport Beach, CA 92660
-----------------------------------------------------------
DISTRIBUTOR
PIMCO Funds Distribution Company, 2187 Atlantic Street,
Stamford, CT 06902
-----------------------------------------------------------
CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street,
Kansas City, MO 64105
-----------------------------------------------------------
SHAREHOLDERS SERVICING AGENT AND TRANSFER AGENT
Shareholder Services, Inc. P.O. Box 5866, Denver, CO 80217
-----------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1055 Broadway, Kansas City, MO 64105
-----------------------------------------------------------
LEGAL COUNSEL
Dechert Price & Rhoads, 1500 K Street N.W., Washington,
D.C. 20005
-----------------------------------------------------------
For further information about the PIMCO Funds,
call 1-800-426-0107
P I M C O
