<PAGE>
Semiannual Report September 30, 1997
P I M C O
I N T E R N A T I O N A L
B O N D F U N D
<PAGE>
CHAIRMAN'S MESSAGE
Dear Client:
The first six months of the PIMCO International Bond Fund's current fiscal year
marked a successful period for fixed income investors as interest rates declined
in the world's major bond markets. Yield declines were generally driven by the
combined influence of benign inflation and only modest economic growth, both of
which argued in favor of lower interest rates.
Country selection benefited the Fund during the period, boosted by significant
allocations to the dollar bloc nations of Australia, Canada and New Zealand,
three of the world's top performing markets. These markets experienced
substantial yield declines as inflation remained dormant and central bank rate
postures were less restrictive than market expectations. European market
exposure focused on short-intermediate Swedish bonds. Like the dollar bloc
issues, these securities benefited when the market recognized that it had
overestimated the amount of probable future central bank tightening.
The favorable impact of dollar bloc and Swedish exposure was somewhat mitigated,
however, by an underweighted allocation to Japan, which also rallied strongly.
With 10-year bond yields hovering around 2.5% at the beginning of the period,
and with emergent signals of improving growth, we assessed the Japanese market's
risks to outweigh its potential gains. In retrospect, Japan's April consumption
tax hike had a strong negative impact on the economy, driving nearly all major
indicators of consumer strength below expectations, and sending interest rates
considerably lower.
The Fund's six-month return of 8.11% led its two performance benchmarks as shown
below. I am pleased to report that longer-term performance continues to be
strong, particularly relative to the domestic Lehman Aggregate Index. This
consistent record of outperformance highlights the potential gains available to
a domestic-benchmarked account through selective investments in foreign
securities.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
INTERNATIONAL SALOMON
UNIT FOREIGN
MONTH VALUE HEDGED LBAG
============== ================ =============== ===============
<S> <C> <C> <C>
12/31/89 $ 5,000,000.00 $5,000,000.00 $5,000,000.00
01/31/90 4,944,944.94 4,900,984.30 4,940,584.09
02/28/90 4,859,859.86 4,827,958.60 4,956,571.00
03/31/90 4,924,924.92 4,825,551.51 4,960,221.55
04/30/90 4,894,710.66 4,821,680.66 4,914,778.45
05/31/90 4,980,317.74 4,942,717.92 5,060,297.08
06/30/90 5,060,889.11 4,968,415.16 5,141,490.43
07/31/90 5,189,338.07 4,987,801.94 5,212,613.29
08/31/90 5,101,992.78 4,920,468.67 5,143,001.01
09/30/90 5,096,854.82 4,892,917.32 5,185,548.84
10/31/90 5,191,047.21 5,033,341.36 5,251,384.69
11/30/90 5,295,705.42 5,115,897.81 5,364,425.98
12/31/90 5,353,790.72 5,167,064.59 5,448,011.08
01/31/91 5,461,621.35 5,265,237.81 5,515,357.50
02/28/91 5,537,102.79 5,342,635.30 5,562,437.06
03/31/91 5,493,970.54 5,345,842.58 5,600,704.93
04/30/91 5,571,350.41 5,372,037.50 5,661,379.66
05/31/91 5,598,986.08 5,403,732.93 5,694,486.40
06/30/91 5,576,877.54 5,374,551.92 5,691,591.14
07/31/91 5,627,372.41 5,423,461.26 5,770,518.63
08/31/91 5,756,414.85 5,493,422.81 5,895,392.75
09/30/91 5,868,625.66 5,582,966.31 6,014,853.98
10/31/91 5,919,954.75 5,622,605.11 6,081,822.76
11/30/91 5,937,064.45 5,640,596.44 6,137,588.12
12/31/91 6,117,563.28 5,741,001.09 6,319,864.05
01/31/92 6,123,555.02 5,789,224.07 6,233,887.21
02/29/92 6,153,513.70 5,808,327.86 6,274,420.95
03/31/92 6,096,592.20 5,775,220.70 6,239,048.34
04/30/92 6,127,014.32 5,793,124.20 6,284,113.80
05/31/92 6,212,196.25 5,855,688.85 6,402,693.86
06/30/92 6,193,942.98 5,879,697.88 6,490,810.67
07/31/92 6,193,942.98 5,920,855.75 6,623,237.66
08/31/92 6,193,942.98 5,939,803.40 6,690,332.33
09/30/92 6,298,508.05 6,037,215.46 6,769,637.46
10/31/92 6,465,396.88 6,136,224.65 6,679,884.19
11/30/92 6,465,396.88 6,128,248.75 6,681,394.76
12/31/92 6,545,750.76 6,190,758.10 6,787,638.47
01/31/93 6,570,431.77 6,252,047.65 6,917,799.60
02/28/93 6,704,914.29 6,386,466.99 7,038,897.28
03/31/93 6,743,337.87 6,366,029.55 7,068,227.59
04/30/93 6,717,722.15 6,350,113.52 7,117,447.13
05/31/93 6,763,199.96 6,361,543.92 7,126,510.57
06/30/93 6,912,627.05 6,470,327.82 7,255,664.65
07/31/93 6,997,085.83 6,542,794.04 7,296,701.91
08/31/93 7,128,240.21 6,662,526.92 7,424,597.18
09/30/93 7,141,355.65 6,719,825.26 7,444,989.93
10/31/93 7,252,836.86 6,806,509.53 7,472,809.67
11/30/93 7,292,542.17 6,890,230.49 7,409,239.68
12/31/93 7,480,183.96 7,002,540.45 7,449,395.77
01/31/94 7,466,521.52 6,923,412.46 7,549,974.82
02/28/94 7,271,176.48 6,796,715.31 7,418,806.65
03/31/94 7,184,356.46 6,746,420.28 7,235,901.31
04/30/94 7,133,711.45 6,711,338.66 7,178,121.85
05/31/94 6,943,674.06 6,671,742.14 7,177,114.80
06/30/94 6,768,254.92 6,605,690.48 7,161,253.78
07/31/94 6,804,800.58 6,669,764.43 7,303,499.50
08/31/94 6,723,527.17 6,615,738.42 7,312,562.94
09/30/94 6,686,584.71 6,626,323.08 7,204,934.54
10/31/94 6,716,138.68 6,641,562.52 7,198,514.60
11/30/94 6,775,246.61 6,733,217.10 7,182,527.69
12/31/94 6,768,742.45 6,742,643.76 7,232,124.87
01/31/95 6,845,009.97 6,814,791.20 7,375,251.76
02/28/95 6,940,344.37 6,919,736.78 7,550,604.23
03/31/95 7,092,879.41 7,113,490.73 7,596,928.50
04/30/95 7,226,347.58 7,225,172.89 7,703,046.32
05/31/95 7,283,548.22 7,465,048.50 8,001,132.93
06/30/95 7,216,814.14 7,458,328.18 8,059,793.55
07/31/95 7,359,815.74 7,530,674.05 8,041,792.55
08/31/95 7,512,350.78 7,572,092.15 8,138,846.93
09/30/95 7,579,084.86 7,709,146.27 8,218,026.18
10/31/95 7,741,153,34 7,789,321.66 8,324,899.30
11/30/95 8,028,928.56 7,953,676.66 8,449,647.53
12/31/95 8,172,816.16 7,999,014.40 8,568,227.59
01/31/96 8,323,302.60 8,066,204.55 8,625,125.88
02/29/96 8,071,081.31 7,968,603.83 8,475,201.41
03/31/96 8,162,452.04 8,061,039.08 8,416,289.02
04/30/96 8,314,736.60 8,102,151.41 8,368,957.70
05/31/96 8,294,431.99 8,165,347.11 8,351,963.75
06/30/96 8,406,605.60 8,224,954.95 8,464,123.87
07/31/96 8,518,966.07 8,289,929.93 8,487,286.00
08/31/96 8,682,399.47 8,414,281.81 8,473,061.43
09/30/96 8,938,478.46 8,547,224.37 8,620,720.04
10/31/96 9,277,524.20 8,690,819.90 8,811,681.77
11/30/96 9,585,747.60 8,836,825.77 8,962,613.29
12/31/96 9,541,698.32 8,831,523.68 8,879,279.96
01/31/97 9,589,949.64 8,948,098.08 8,096,470.29
02/28/97 9,650,263.79 9,032,212.63 8,928,625.38
03/31/97 9,456,645.41 9,006,921.99 8,829,682.78
04/30/97 9,529,482.22 9,099,692.28 8,961,858.01
05/31/97 9,711,574.23 9,149,740.10 9,046,576.03
06/30/97 9,917,870.53 9,293,390.93 9,153,952.67
07/31/97 10,149,938.93 9,445,801.59 9,400,805.64
08/31/97 10,027,797.66 9,476,973.32 9,320,619.34
09/30/97 10,224,041.93 9,619,127.86 9,458,081.57
</TABLE>
Past performance is not an indication of future results. The line graph above
assumes the investment of $5,000,000 on 1/1/90, the first full month following
the Fund's inception on 12/13/89, compared to the Salomon Brothers World
Government Bond Index (Currency Hedged) and the Lehman Brothers Aggregate Bond
Index, each an unmanaged market index. Foreign investing involves potentially
higher risks including foreign currency fluctuations and political or economic
uncertainty.
Continued deflationary pressures in Japan, the economics of European Monetary
Union, fragile growth in many countries, and the recent turmoil in emerging
markets, create both challenges and opportunities for foreign bond investors.
PIMCO believes the Fund can capitalize on these opportunities and continue to
add value to your account.
Sincerely,
/s/ BRENT R. HARRIS
-------------------------------
Brent R. Harris
Chairman of the Board
November 21, 1997
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997 (unaudited)
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value $1,134,715
- ---------------------------------------------------------------------------
Cash and foreign currency 505
- ---------------------------------------------------------------------------
Receivable for investments and foreign currency sold 255,769
- ---------------------------------------------------------------------------
Interest receivable 27,892
- ---------------------------------------------------------------------------
1,418,881
===========================================================================
Liabilities:
Payable for investments and foreign currency purchased 648,629
- ---------------------------------------------------------------------------
Written options outstanding 30
- ---------------------------------------------------------------------------
Accrued investment adviser's fee 183
- ---------------------------------------------------------------------------
Accrued administrator's fee 183
- ---------------------------------------------------------------------------
Variation margin payable 404
- ---------------------------------------------------------------------------
649,429
===========================================================================
Net Assets $ 769,452
===========================================================================
Net Assets Consist of:
Paid in capital $ 683,441
- ---------------------------------------------------------------------------
Undistributed net investment income 64,221
- ---------------------------------------------------------------------------
Accumulated undistributed net realized gain 19,376
- ---------------------------------------------------------------------------
Net unrealized appreciation 2,414
- ---------------------------------------------------------------------------
$ 769,452
===========================================================================
Shares Issued and Outstanding 92,475
===========================================================================
Net Asset Value, Offering and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 8.32
===========================================================================
Cost of Investments Owned 1,143,208
===========================================================================
Cost of Foreign Currency Held 505
===========================================================================
</TABLE>
See Notes to Financial Statements
2
<PAGE>
STATEMENT OF OPERATIONS
For the period ended September 30, 1997 (unaudited)
$ in thousands
Investment Income:
<TABLE>
<CAPTION>
<S> <C>
Interest $ 22,533
====================================================================================================
Expenses:
Investment advisory fees 1,128
- ----------------------------------------------------------------------------------------------------
Administration fees 1,128
- ----------------------------------------------------------------------------------------------------
Trustees' fees 8
- ----------------------------------------------------------------------------------------------------
Miscellaneous 16
- ----------------------------------------------------------------------------------------------------
Total expenses 2,280
- ----------------------------------------------------------------------------------------------------
Net Investment Income 20,253
====================================================================================================
Net Realized and Unrealized Gain (Loss):
Net realized gain on investments 30,194
- ----------------------------------------------------------------------------------------------------
Net realized gain on futures contracts and written options 4,592
- ----------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions 14,641
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 13,482
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on futures contracts and written options 3,838
- ----------------------------------------------------------------------------------------------------
Net change in unrealized depreciation on translation of assets and
liabilities denominated in foreign currencies (16,056)
- ----------------------------------------------------------------------------------------------------
Net Gain 50,691
- ----------------------------------------------------------------------------------------------------
Net Increase in Assets Resulting from Operations $ 70,944
====================================================================================================
</TABLE>
See Notes to Financial Statements
3
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
$ in thousands
Period ended Year ended
September 30, 1997 March 31, 1997
------------------ --------------
(unaudited)
Decrease in Net Assets from:
<S> <C> <C>
Operations
Net investment income $ 20,253 $ 80,122
- --------------------------------------------------------------------------------------------
Net realized gain 49,427 102,137
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation 1,264 (23,658)
- --------------------------------------------------------------------------------------------
Net increase resulting from operations 70,944 158,601
============================================================================================
Distributions to Shareholders
From net investment income (10,445) (53,658)
- --------------------------------------------------------------------------------------------
From net realized capital gains 0 (96,847)
- --------------------------------------------------------------------------------------------
Total distributions (10,445) (150,505)
============================================================================================
Fund Share Transactions
Receipts for shares sold 111,366 282,531
- --------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 10,154 147,963
- --------------------------------------------------------------------------------------------
Cost of shares redeemed (370,517) (1,752,580)
- --------------------------------------------------------------------------------------------
Net decrease resulting from Fund share transactions (248,997) (1,322,086)
- --------------------------------------------------------------------------------------------
Total Decrease in Net Assets $(188,498) $(1,313,990)
============================================================================================
Net Assets
- --------------------------------------------------------------------------------------------
Beginning of period $ 957,950 $ 2,271,940
- --------------------------------------------------------------------------------------------
End of period * 769,452 957,950
============================================================================================
* Including undistributed net investment income of: $ 64,221 $ 54,413
- --------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
4
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Selected Per Share Data
for the Period or Year Ended: 9/30/97 3/31/97 3/31/96 3/31/95 3/31/94 3/31/93
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value beginning of period $ 7.79 $ 8.04 $ 7.44 $ 9.93 $ 10.53 $ 10.02
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.18 0.84 0.63 2.18 0.47 0.62
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 0.45 0.42 0.49 (2.41) 0.24 0.42
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 0.63 1.26 1.12 (0.23) 0.71 1.04
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.10) (0.50) (0.39) (2.26) (0.96) (0.48)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net
investment income 0.00 0.00 (0.13) 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gains 0.00 (1.01) 0.00 0.00 (0.35) (0.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.10) (1.51) (0.52) (2.26) (1.31) (0.53)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 8.32 $ 7.79 $ 8.04 $ 7.44 $ 9.93 $ 10.53
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%) 8.11 15.86 15.08 (1.27) 6.54 10.61
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $769,452 $957,950 $2,271,940 $ 45,950 $2,296,978 $2,589,677
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (%) 0.51 (a) 0.50 0.50 0.43 0.43 0.46
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 4.49 (a) 7.17 6.09 5.90 5.51 6.67
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 129 875 1,046 674 370 301
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Annualized
</TABLE>
See Notes to Financial Statements
5
<PAGE>
STATEMENT OF CASH FLOWS
For the period ended September 30, 1997 (unaudited)
$ in thousands
Increase (Decrease) in Cash and Foreign Currency from:
Financing Activities
<TABLE>
<CAPTION>
<S> <C>
Sales of Fund shares $ 111,367
- --------------------------------------------------------------------------------
Redemptions of Fund shares (370,517)
- --------------------------------------------------------------------------------
Cash distributions paid (291)
- --------------------------------------------------------------------------------
Proceeds from financing transactions 361,769
- --------------------------------------------------------------------------------
Net increase from financing activities 102,328
================================================================================
Operating Activities
Purchases of long-term securities and foreign currency (5,690,966)
- --------------------------------------------------------------------------------
Proceeds from sales of long-term securities and foreign currency 5,269,679
- --------------------------------------------------------------------------------
Purchases of short-term securities (net) 289,654
- --------------------------------------------------------------------------------
Net investment income 20,253
- --------------------------------------------------------------------------------
Change in other receivables/payables (net) 5,966
- --------------------------------------------------------------------------------
Net decrease from operating activities (105,414)
- --------------------------------------------------------------------------------
Net Decrease in Cash and Foreign Currency (3,086)
================================================================================
Cash and Foreign Currency
- --------------------------------------------------------------------------------
Beginning of period 3,591
- --------------------------------------------------------------------------------
End of period $ 505
================================================================================
</TABLE>
See Notes to Financial Statements
6
<PAGE>
SCHEDULE OF INVESTMENTS
September 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
ARGENTINA (c)(e) 2.0%
<S> <C> <C> <C>
Republic of Argentina
3.353% due 04/01/01 (d) AP 9,927 $ 9,185
3.241% due 09/01/02 (d) 7,250 6,321
--------
Total Argentina 15,506
========
(Cost $12,800)
AUSTRALIA (c)(e) 4.9%
Commonwealth of Australia
9.500% due 08/15/03 A$ 14,400 12,344
4.000% due 08/20/05 (h) 20,150 25,647
--------
Total Australia 37,991
========
(Cost $37,882)
CANADA (c)(e) 18.3%
Commonwealth of Canada
3.700% due 04/02/98 C$ 31,720 22,556
4.108% due 07/23/98 50,000 35,071
5.500% due 02/01/00 33,000 24,258
6.625% due 10/03/07 N$ 50,000 31,726
4.250% due 12/01/26 (h) C$ 36,632 27,522
--------
Total Canada 141,133
========
(Cost $138,715)
CROATIA 1.1%
Republic of Croatia
6.500% due 07/31/06 (d) $ 7,968 7,670
6.500% due 07/30/10 (d) 1,220 1,150
--------
Total Croatia 8,820
========
(Cost $9,050)
CZECH REPUBLIC (e) 2.3%
Bayerische Landesbank
11.500% due 10/09/97 CK 570,000 17,320
--------
Total Czech Republic 17,320
========
(Cost $21,201)
FINLAND (c)(e) 11.1%
Merita
6.125% due 04/28/03 (d) $ 6,000 6,000
5.925% due 09/11/03 (d) 31,500 31,503
Republic of Finland
3.490% due 03/13/98 FM 71,000 13,245
3.630% due 08/14/98 142,000 26,008
7.250% due 04/18/06 41,000 8,577
--------
Total Finland 85,333
========
(Cost $85,159)
GERMANY (c)(e) 0.0%
Republic of Germany DM
6.500% due 07/04/27 65 39
--------
Total Germany 39
========
(Cost $39)
GREECE (c)(e) 1.6%
Republic of Greece
11.200% due 05/19/03 (d) GD 1,100,000 3,967
11.100% due 06/17/03 (d) 1,611,700 5,817
14.000% due 10/23/03 710,400 2,570
--------
Total Greece 12,354
========
(Cost $13,379)
HUNGARY (e) 0.6%
Government of Hungary
23.500% due 05/17/98 HF 850,000 4,363
--------
Total Hungary 4,363
========
(Cost $4,576)
INDONESIA (e) 1.2%
Citibank Indonesia
19.128% due 10/24/97 IR 30,000,000 9,064
--------
Total Indonesia 9,064
========
(Cost $12,270)
ITALY (c)(e) 0.0%
Republic of Italy
6.000% due 01/01/00 IL 270,000 159
9.500% due 01/01/05 140,000 97
--------
Total Italy 256
========
(Cost $246)
</TABLE>
7
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
September 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
MEXICO (e) 1.1%
<S> <C> <C> <C>
Republic of Mexico
18.950% due 10/23/97 MP 33,260 $ 4,240
22.800% due 10/30/97 32,330 4,109
--------
Total Mexico 8,349
========
(Cost $8,242)
NETHERLANDS (c)(e) 0.6%
Kingdom of Netherlands
6.250% due 07/15/98 DG 9,100 4,671
--------
Total Netherlands 4,671
========
(Cost $4,839)
NEW ZEALAND (c)(e) 17.6%
Commonwealth of New Zealand
6.500% due 2/15/00 N$ 66,900 42,556
10.000% due 3/15/02 67,900 48,918
8.000% due 4/15/04 47,350 32,443
4.500% due 2/15/16 (h) 18,150 11,261
--------
Total New Zealand 135,178
========
(Cost $143,363)
POLAND (e) 8.5%
Republic of Poland
21.670% due 10/22/97 PZ 2,010 580
21.160% due 11/05/97 41,500 11,870
21.850% due 10/12/97 12,150 3,459
21.500% due 12/03/97 23,620 6,635
21.640% due 04/22/98 35,030 9,051
21.550% due 06/26/98 12,700 3,165
15.000% due 06/12/99 30,000 7,943
4.000% due 10/27/14 (d) $ 14,000 12,233
3.000% due 10/27/24 (d) 17,500 10,631
--------
Total Poland 65,567
========
(Cost $67,189)
SOUTH AFRICA (e) 1.3%
Republic of South Africa
16.300% due 10/17/97 SR 46,430 9,911
---------
Total South Africa 9,911
=========
(Cost $10,360)
SUPRANATIONAL (c)(e) 1.2%
European Bank for
Reconstruction & Development
9.000% due 04/22/98 PP 183,000 5,066
World Bank
10.250% due 04/11/02 155,000 4,201
--------
Total Supranational 9,267
========
(Cost $12,840)
SWEDEN (c)(e) 26.4%
Kingdom of Sweden
11.000% due 01/21/99 SK 808,100 114,888
10.250% due 05/05/00 493,800 73,032
13.000% due 06/15/01 40,000 6,603
9.000% due 04/20/09 53,300 8,615
--------
Total Sweden 203,138
========
(Cost $195,426)
UNITED STATES 38.2%
Corporate Bonds and
Notes 11.5%
Champion Home Equity Loan
Trust 8.531% due 02/25/28 (d) $ 7,552
Ford Motor Credit Corp.
5.960% due 03/23/99 (d) 12,500 12,493
Salomon, Inc.
3.650% due 02/14/02 (h) 58,692 57,060
Student Loan Marketing Assn.
6.040% due 10/25/07 (d) 3,500 3,500
TCI Communications, Inc.
6.394% due 04/01/02 (d) 7,200 7,103
--------
87,847
========
U.S. Treasury Bonds 11.9%
6.750% due 08/15/26 83,000 86,190
6.385% due 08/15/27 5,500 5,476
--------
91,666
========
Mortgage-Backed Securities 14.8%
Federal Home Loan Mortgage Corp.
7.850% due 06/01/22 (d) 3,978 4,179
8.000% due 08/01/22 (d) 1,985 2,071
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
<S> <C> <C> <C>
Federal National Mortgage Assn.
8.121% due 07/01/21 (d) $ 2,326 $ 2,448
7.961% due 11/01/22 (d) 2,845 2,977
7.586% due 01/01/23 (d) 3,192 3,329
7.632% due 01/01/23 (d) 4,114 4,295
7.900% due 08/01/23 (d) 3,103 3,246
6.110% due 10/23/27 (d) 15,000 14,902
Government National Mortgage Assn.
7.125% due 07/20/22-09/20/23 (d)(g) 21,751 22,423
6.875% due 10/20/23 (d) 3,547 3,651
7.375% due 04/20/25-05/20/25 (d)(g) 13,869 14,298
6.500% due 10/20/26 (d) 3,744 3,843
Pacific Southwest Bank
6.060% due 06/15/02 5,510 5,494
Resolution Trust Corp.
6.664% due 06/25/21 (d) 2,397 2,322
Ryland Acceptance Corp.
8.086% due 09/25/23 (d) 24,019 24,597
----------
114,075
==========
Total United States 293,588
==========
(Cost $293,139)
PURCHASED PUT OPTIONS 0.0%
U.S. Treasury Note (CBOT)
8.000% due 12/31/97
Strike @ 100.00 Exp. 11/17/97 180,000 28
----------
Total Purchased Put Options 28
==========
(Cost $55)
PURCHASED CALL OPTIONS (e) 2.6%
Bankers Acceptance Future (MSE)
Strike @ 94.00 Exp. 12/15/97 C$ 1,900,000 6,292
Kingdom of Sweden (OTC)
11.000% due 01/21/99 (j)
Strike @ 91.41 Exp. 01/28/98 SK 616,500 12,104
10.250% due 05/05/00 (j)
Strike @ 95.38 Exp. 01/28/98 40,000 780
Matif PIBOR Future (MAT)
Strike @ 95.00 Exp. 12/15/97 FF 1,000,000 591
Strike @ 95.50 Exp. 12/15/97 500,000 191
----------
Total Purchased Call Options 19,958
==========
(Cost $19,557)
SHORT-TERM INSTRUMENTS 6.9%
Commercial Paper 5.2%
BellSouth Telecommunications, Inc.
5.580% due 10/03/97 $ 3,300 3,299
General Motors Acceptance Corp.
5.580% due 10/24/97 20,000 19,929
5.540% due 11/03/97 2,400 2,388
KFW International Finance, Inc.
5.510% due 11/13/97 11,300 11,226
5.500% due 11/19/97 2,800 2,779
----------
39,621
==========
Repurchase Agreements 1.0%
State Street Bank
5.000% due 10/01/97 7,933 7,933
(Dated 09/30/97. Collateralized by U.S.
Treasury Bond 6.250% 08/31/02 valued at
$8,094,794. Repurchase proceeds are
$7,934,102.)
U.S. Treasury Bills (b)(g) 0.7%
5.036% due 10/02/97 - 11/13/97 5,345 5,327
----------
Total Short-Term Instruments 52,881
==========
(Cost $52,881)
TOTAL INVESTMENTS (a) 147.5% $1,134,715
==========
(Cost $1,143,208)
WRITTEN OPTIONS (f) 0.0% (30)
(Premiums $18)
OTHER ASSETS AND LIABILITIES (NET) (47.5%) (365,233)
----------
NET ASSETS 100.0% $ 769,452
==========
</TABLE>
9
<PAGE>
SCHEDULE OF INVESTMENTS (Cont.)
September 30, 1997 (unaudited)
Notes to Schedule of Investments ($ in thousands):
(a) At September 30, 1997, the net unrealized appreciation (depreciation) of
investments based on cost for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost. $ 17,532
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value. $(26,025)
--------
Unrealized depreciation-net $ (8,493)
========
</TABLE>
(b) Securities with an aggregate market value of $5,327 have been segregated
with the custodian to cover margin requirements for the following open
future contracts at September 30, 1997:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Type Contracts (Depreciation)
================================================================================
<S> <C> <C>
Commonwealth of Australia 3 Year Note (12/97) 29 $ 26
Commonwealth of Canada 10 Year Bond (12/97) 200 7
Republic of France 10 Year (12/97) 83 (78)
Swiss Franc vs 90 Day Libor Rate Option (12/97) 1,350 (178)
U.S. Treasury 10 Year Note (12/97) 2,131 2,392
U.S. Treasury 30 Year Bond (12/97) 110 141
------
$2,310
======
</TABLE>
(c) Foreign forward currency contracts outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Principal Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
================================================================================
<S> <C> <C> <C> <C>
Buy A$ 2,148 10/97 $ (42)
Sell 36,658 10/97 291
Sell 17,517 11/97 280
Buy AP 10,450 10/97 451
Buy BF 1,400 12/97 1
Buy BP 2,113 10/97 (88)
Sell 21,056 10/97 (133)
Sell 1,468 11/97 (38)
Sell 235 01/98 0
Buy C$ 46,252 11/97 114
Buy 89,131 12/97 167
Buy 89,500 03/98 (143)
Sell 70,061 11/97 (139)
Sell 80,918 12/97 (280)
Sell 97,259 03/98 1,625
Sell CK 476,150 10/97 (794)
Buy DG 11,990 12/97 (3)
Sell 9,684 11/97 (206)
Sell DK 3,036 10/97 0
Buy DM 265,871 10/97 254
Buy 13,206 11/97 348
Buy 112,066 12/97 786
Buy 78,218 01/98 (60)
Sell 242,260 10/97 (887)
Sell 176,600 11/97 (3,919)
Sell 55,198 12/97 (142)
Buy EC 9,243 10/97 18
Sell 9,243 10/97 53
Sell 10,864 01/98 5
Buy FF 2,839 10/97 0
Sell 5,209 10/97 (5)
Sell 7,210 11/97 (67)
Sell 3,057 12/97 0
Sell FM 46,095 10/97 118
Sell 68,776 01/98 29
Sell GD 553,400 10/97 (73)
Buy IL 11,128 10/97 0
Buy IP 21,120 10/97 (1,115)
Buy IR 66,000 10/97 (2)
Buy 66,000 11/97 0
Buy 11,040,000 12/97 (346)
Sell 66,000 10/97 0
Buy JY 450,900 10/97 20
Buy 8,197,196 11/97 98
Buy 4,484,000 12/97 152
Sell 450,900 10/97 250
Sell 14,884,196 11/97 3,015
Sell 4,484,000 12/97 590
Sell MR 40,580 12/97 1,135
Buy N$ 7,844 12/97 74
Sell 195,840 10/97 5,165
Sell 29,839 12/97 (166)
Buy PP 56,530 10/97 (12)
Buy SF 262,437 10/97 2,145
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
================================================================================
<S> <C> <C> <C> <C>
Sell 151,976 10/97 $(1,066)
Sell 55,736 11/97 (1,649)
Sell 142,127 01/98 (368)
Buy SK 419,875 10/97 1,879
Buy 499,507 11/97 3,653
Buy 15,600 12/97 51
Sell 986,884 10/97 (454)
Sell 204,000 11/97 (1,025)
Buy SP 8,063,830 10/97 (508)
Buy 4,357,641 11/97 1,606
Buy 7,500,826 12/97 147
Sell 16,618,755 10/97 (148)
Sell 5,267,869 12/97 (202)
Sell SR 11,890 10/97 (42)
-------
$10,398
=======
</TABLE>
(d) Variable Rate Security. The rate listed is as of September 30, 1997.
(e) Principal amount denoted in indicated currency:
A$ - Australian Dollar IL - Italian Lira
AP - Argentine Peso IP - Irish Punt
BF - Belgian Franc IR - Indonesian Rupiah
BP - British Pound JY - Japanese Yen
C$ - Canadian Dollar MP - Mexican Peso
CK - Czech Koruna MR - Malaysian Ringgit
DG - Dutch Guilder N$ - New Zealand Dollar
DK - Danish Krone PP - Philippines Peso
DM - German Mark PZ - Polish Zloty
EC - European Currency Unit SF - Swiss Franc
FF - French Franc SK - Swedish Krona
FM - Finnish Markka SP - Spanish Peseta
GD - Greek Drachma SR - South African Rand
HF - Hungarian Forint
(f) Premiums received on Written Options:
<TABLE>
<CAPTION>
Premiums Market
Type Par Received Value
================================================================================
<S> <C> <C> <C> <C>
Put - Indonesian Rupiah vs US Dollar (OTC)
Strike @ 3,400.00 Exp. 10/31/97 IR 5,100,000 $18 $30
</TABLE>
(g) Securities are grouped by coupon and
represent a range of maturities.
(h) Principal amount of the security is
adjusted for inflation.
(i) Swap agreements outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
Notional Unrealized
Type Amount Appreciation
================================================================================
<S> <C> <C> <C>
Receive floating rate on 6 month Yen/LIBOR
and pay fixed rate.
Broker: Deutsche Bank AG New York
Exp. 09/11/07 JY 25,300,000 $0
Receive fixed rate and pay floating rate
on Australian 6 month Bank Bill Rate.
Broker: Deutsche Bank AG New York
Exp. 09/11/07 A$ 350,000 0
--
$0
==
</TABLE>
(j) Security is subject to outstanding forward sale commitment.
See Notes to Financial Statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1997 (unaudited)
1. Organization and Significant Accounting Policies
The International Bond Fund (the "Fund") is a series of the PIMCO Funds (the
"Trust"). The Trust was organized under the laws of the Commonwealth of
Massachusetts on February 19, 1987, and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The following is a summary of significant accounting policies followed in the
preparation of the Fund's financial statements. The policies are in conformity
with generally accepted accounting principles. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
Security Valuation. Portfolio securities and other financial instruments for
which market quotations are readily available are stated at market value.
Market value is determined on the basis of last reported sales prices, or if no
sales are reported, as is the case for most securities traded over-the-counter,
the mean between representative bid and asked quotations obtained from a
quotation reporting system or from established market makers. Fixed income
securities, including those to be purchased under firm commitment agreements
(other than obligations having a maturity of sixty days or less), are normally
valued on the basis of quotes obtained from brokers and dealers or pricing
services. Foreign currency amounts are converted to U.S. dollars using foreign
exchange quotations received from independent dealers. Short-term investments
having a maturity of sixty days or less are valued at amortized cost, which
approximates market value. Certain fixed income securities for which daily
market quotations are not available may be valued, pursuant to guidelines
established by the Board of Trustees, with reference to fixed income securities
whose prices are more readily obtainable.
Financing Transactions. The Fund may enter into financing transactions
consisting of the sale by the Fund of securities, together with a commitment to
repurchase similar securities at a future date. The difference between the
selling price and the future purchase price is an adjustment to interest income
to the Fund. If the counter-party to whom the Fund sells the security becomes
insolvent, the Fund's right to repurchase the security may be restricted; the
value of the security may change over the term of the financing transaction; and
the return earned by the Fund with the proceeds of a financing transaction may
not exceed transaction costs. Included in payable for investments and foreign
currency purchased is $361,769,077 related to these financing transactions.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income is recorded on the
ex-dividend date, except certain dividends from foreign securities where the ex-
dividend date may have passed, are recorded as soon as the Fund is informed of
the ex-dividend date. Interest income is recorded on the accrual basis
commencing on the settlement date of the transaction, and includes the accretion
of discounts and amortization of premiums.
Dividends and Distributions to Shareholders. The Fund declares and distributes
dividends representing substantially all net investment income on a quarterly
basis. Any net realized capital gains from the sale of portfolio securities
will be distributed no less frequently than once each year. The Fund records
distributions to shareholders on the ex-dividend date. Distributions of foreign
exchange gains or losses on investments and the income generated from such
investments, arising from fluctuations of exchange rates of the non-dollar
denominated investment relative to the U.S. dollar, are reported to shareholders
as ordinary income distributions in accordance with the provisions of the
Internal Revenue Code.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for such items as wash sales, foreign currency transactions and
capital loss carryforwards.
12
<PAGE>
Federal Income Taxes. The Fund intends to qualify as a regulated investment
company and distribute all of its taxable income and net realized gains, if
applicable, to shareholders. Accordingly, no provision for federal income taxes
has been made.
Futures and Options. The Fund is authorized to enter into futures contract and
options. The Fund may use futures contracts to manage its exposure to the bond
market or change in interest rates and currency values, or for gaining exposure
to markets. The primary risks associated with the use of futures contracts and
options are imperfect correlation between the change in market value of the
securities held by the Fund and the prices of futures contracts and options, the
possibility of an illiquid market and the inability of the counter-party to meet
the terms of the contract. Futures contracts and purchased options are valued
based upon their quoted daily settlement prices. The premium received for a
written option is recorded as an asset with an equal liability which is marked
to market based on the option's quoted daily settlement price. Fluctuations in
the value of such instruments are recorded as unrealized appreciation
(depreciation) until terminated at which time realized gains and losses are
recognized.
Forward Currency Contracts. The Fund is authorized to enter into forward
foreign exchange contracts for the purpose of hedging against foreign exchange
risk arising from the Fund's investment or anticipated investment in securities
denominated in foreign currencies. The Fund also may enter into these contracts
for purposes of increasing exposure to a foreign country or to shift exposure to
foreign currency fluctuations from one country to another. All commitments are
marked to market daily at the applicable translation rates and any resulting
unrealized gains or losses are recorded. Realized gains or losses are recorded
at the time the forward contract matures or by delivery of the currency. Risks
may arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
For assets and liabilities other than investments in securities, net
realized and unrealized gains and losses from foreign currency transactions
arise from changes in currency exchange rates.
Swaps. The Fund is authorized to enter into interest, index and currency
exchange swap agreements. PIMCO uses these agreements in order to obtain a
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded the desired return. The agreements
involve elements of credit risk identified as the cost of replacing those
agreements for which PIMCO is in a net receivable position in the event of
counterparty default.
At September 30, 1997, the Fund was a party to swap agreements. The
agreements involve the contractual exchange of payments whereby the Funds will
(i) receive proceeds based on 6 month Yen LIBOR and pay a fixed rate; and (ii)
receive a fixed rate and pay a floating rate based on the 6 month Australian
Bank Bill Rate. The differential to be paid or received is recognized daily
over the life of the agreement. For the period ended September 30, 1997, net
payments of $5,059 were made in connection with the agreements and is included
in interest income of the Fund.
Delayed-Delivery Transactions. The Fund may purchase or sell securities on a
when-issued or delayed-delivery basis. These transactions involve a commitment
by the Fund to purchase or sell securities for a predetermined price or yield,
with payment and delivery taking place beyond the customary settlement period.
When delayed-delivery purchases are outstanding, the Fund will set aside and
maintain until the settlement date in a segregated account, liquid assets in an
amount sufficient to meet the purchase price. When purchasing a security on a
delayed-delivery basis, the Fund assumes the rights and risks of ownership of
the security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. The Fund may
dispose of or renegotiate a delayed-delivery transaction after it is entered
into, and may sell when-issued securities before they are delivered, which may
result in a capital gain or loss. When the Fund has sold a security on a
delayed-delivery basis, the Fund does not participate in future gains and losses
with respect to the security. Forward sales commitments are accounted for by
the Fund in the same manner as forward currency contracts discussed above.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Cont.)
September 30, 1997 (unaudited)
The following security was subject to outstanding forward sale commitments
at September 30, 1997 which are covered by purchased call options (amounts in
thousands):
<TABLE>
<CAPTION>
Principal
Amount Value Proceeds
--------- --------- ----------
<S> <C> <C> <C> <C>
Kingdom of Sweden SK 656,500 $93,564 $92,496
------- -------
$93,564 $92,496
======= =======
</TABLE>
Repurchase Agreements. The Fund may engage in repurchase transactions. Under
the terms of a typical repurchase agreement, the Fund takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time. The
market value of the collateral must be equal at all times to the total amount of
the repurchase obligations, including interest. Generally, in the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred.
2. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO serves as investment adviser (the "Adviser") to
the Trust, pursuant to an investment advisory contract. The Adviser receives a
monthly fee from the Fund at an annual rate of 0.25% of the Fund's average daily
net assets.
Administration Fee. PIMCO also serves as administrator (the "Administrator"),
and provides administrative services to the Trust for which it receives a
monthly administrative fee based on the Fund's average daily net assets at the
annual rate of 0.25%.
Expenses. The Trust is responsible for the following expenses: (i) salaries
and other compensation of any of the Trust's executive officers and employees
who are not officers, directors, stockholders or employees of PIMCO or its
subsidiaries or affiliates; (ii) taxes and governmental fees; (iii) brokerage
fees and commissions and other portfolio transaction expenses; (iv) the costs of
borrowing money, including interest expenses; (v) fees and expenses of the
Trustees who are not "interested persons" of PIMCO or the Trust, and any counsel
retained exclusively for their benefit; (vi) extraordinary expenses, including
costs of litigation and indemnification expenses; and (vii) expenses, such as
organizational expenses, which are capitalized in accordance with generally
accepted accounting principles. The ratio of expenses to average net assets, as
disclosed in Financial Highlights, may differ from the annual fund operating
expenses as disclosed in the Prospectus for the reasons set forth above. Each
unaffiliated Trustee receives an annual retainer of $45,000, plus $3,000 for
each Board of Trustees meeting attended, plus reimbursement of related expenses.
In addition, each committee chair receives an annual retainer of $1,500. These
expenses are allocated to the Funds of the Trust according to their respective
net assets.
Distributor. PIMCO Funds Distribution Company ("PFDCO"), a wholly-owned
subsidiary of PIMCO Advisors L.P., serves as the distributor of the Fund's
shares.
14
<PAGE>
3. Purchases and Sales of Securities
Purchases and sales of investment securities (excluding short-term instruments)
for the Fund for the period ended September 30, 1997 were as follows ($ in
thousands):
<TABLE>
<CAPTION>
Purchases Sales
U.S. Government/Agency Other U.S. Government/Agency Other
---------------------- ----------- ---------------------- -----------
<S> <C> <C> <C>
$1,241,457 $3,695,475 $1,190,550 $4,568,607
</TABLE>
4. Transactions in Written Call and Put Options were as follows ($ in
thousands):
<TABLE>
<CAPTION>
Premiums
--------
<S> <C>
Balance at March 31, 1997 $ 0
Sales 18
Closing buys 0
Expirations 0
Exercised 0
---
Balance at September 30, 1997 $18
===
</TABLE>
5. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Period Ended Year Ended
September 30, 1997 March 31, 1997
<S> <C> <C>
Shares sold 13,581 34,437
Shares redeemed (45,362) (212,584)
Shares issued as reinvestment of dividends 1,247 18,752
------ -------
Net decrease (30,534) (159,395)
====== =======
</TABLE>
6. Federal Income Tax Matters
For the year ended March 31, 1997, the Fund utilized capital loss carryforwards
of $19,435,112.
15
<PAGE>
[This Page Left Blank Intentionally]
16
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Funds. Founded in 1971, Pacific Investment
Management Company currently manages assets in excess of $108 billion on behalf
of mutual fund and institutional clients located around the world.
Pacific Investment Management Company is one of six investment advisory firms
which form PIMCO Advisors L.P., the nation's fourth largest publicly traded
investment management concern with combined assets under management in excess of
$130 billion. Widely recognized for providing consistent performance and high-
quality client service, the six affiliated firms are:
Pacific Investment Management Company/Newport Beach, California
Columbus Circle Investors/Stamford, Connecticut
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
Blairlogie Capital Management/Edinburgh, Scotland
Units of PIMCO Advisors L.P. trade on the New York Stock Exchange under the
ticker symbol "PA."
Trustees and Officers
Brent R. Harris Chairman and Trustee
Guilford C. Babcock Trustee
Vern O. Curtis Trustee
Thomas P. Kemp Trustee
William J. Popejoy Trustee
R. Wesley Burns President
Garlin G. Flynn Secretary
John P. Hardaway Treasurer
Investment Advisor and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 360
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1500 K Street N.W.
Washington, D.C. 20005
Independent Accountants
Price Waterhouse LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
P I M C O
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
(800) 927-4648
This report is submitted for the general information of the shareholders of the
PIMCO International Bond Fund. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective Prospectus
for the PIMCO Funds, which contains information covering its investment policies
as well as other pertinent information.
PIMCO Funds Distribution Company
2187 Atlantic Street, Stamford, CT 06902
