<PAGE> front cover
Annual Report March 31, 1997
PIMCO
INTERNATIONAL BOND FUND
<PAGE> 1
CHAIRMAN'S MESSAGE
Dear Client:
The International Bond Fund's fiscal year, encompassing the
latter nine months of 1996 and the first quarter of 1997,
was marked by strong returns for foreign bond investors.
While domestic bond yields rose in response to
persistent inflation fears, many foreign bond markets
surged higher in response to continued high
unemployment, sluggish economic growth and little evidence
of inflation.
The contrast was telling in two areas that impacted the
Fund's fiscal year performance. First, while the Federal
Reserve did not formally increase U.S. short-term
interest rates until March, intermittent market expectations
of an eventual tightening kept 10-year rates on a see-saw
with yields rising and falling, eventually finishing 57
basis points higher for the period. At the same time,
persistent high unemployment in many countries and a near
absence of inflationary pressures allowed 10-year rates
to move lower in most foreign markets, with declines
ranging from 53 basis points in Germany to 250 basis
points in Spain. The other factor benefiting fund investors
was a strengthening U.S. dollar which, when coupled with
relatively high U.S. short-term rates, favored the
Fund's strategy of hedging most foreign currency exposure
into increasingly valuable dollars.
The Fund's fiscal year return of 15.86% solidly bested both
the Lehman Brothers Government/Corporate Bond Index and
the Salomon World Government Bond Index (Hedged), which
posted 4.46% and 11.73% increases, respectively. Shown
below is a summary of the Fund's total return investment
performance compared to these Indices over various time periods.
Performance of the Fund is net of fees and reflects the
reinvestment of dividends.
<TABLE>
<CAPTION>
Annualized Returns Ended 3/31/97
Since
Inception
1 Yr. 3 Yr. 5 Yr. (12/89)
<S> <C> <C> <C> <C>
International Bond Fund (%) 15.86 9.59 9.18 9.19
Salomon World Gov't
Bond Index (%) 11.73 10.11 9.30 8.45
Lehman Gov't/Corp. Index (%) 4.46 6.61 7.32 8.13
</TABLE>
Cumulative Returns from Inception through March 31, 1997
[Graph Appears Here]
<TABLE>
<CAPTION>
International Salomon World Gov't Lehman Gov't/
Month Bond Fund Bond Index Corp. Index
<C> <C> <C> <C>
12/31/89 $ 5,000,000 $ 5,000,000 $ 5,000,000
03/31/90 4,924,925 4,825,552 4,942,765
03/31/91 5,493,971 5,345,843 5,560,124
03/31/92 6,096,592 5,775,221 6,192,932
03/31/93 6,743,338 6,366,030 7,078,462
03/31/94 7,184,356 6,746,420 7,274,950
03/31/95 7,092,879 7,113,491 7,607,691
03/31/96 8,162,452 8,061,039 8,438,875
03/31/97 9,456,645 9,006,922 8,815,181
</TABLE>
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 Government/Corporate Bond
Index, each an unmanaged market index. Foreign
investing involves potentially higher risks including
foreign currency fluctuations and political or economic
uncertainty. Past performance is not an indication of
future results.
PIMCO continues to believe that investment discretion,
including the ability to allocate opportunistically to
foreign bonds is a valuable portfolio management tool. We
were pleased to be able to boost your investment return over
the past year by utilizing the Fund as an efficient means
of gaining diversified foreign market exposure.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
May 16, 1997
<PAGE> 2
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<CAPTION>
Amounts in thousands, except per share amounts
<S> <C>
Assets:
Investments, at value $ 2,226,782
Cash and foreign currency 3,591
Receivable for investments and foreign currency sold 183,021
Variation margin receivable 36
Interest receivable 36,549
2,449,979
Liabilities:
Payable for investments and foreign currency purchased 1,491,528
Accrued investment adviser's fee 208
Accrued administrator's fee 208
Variation margin payable 65
Other accrued expenses and liabilities 20
1,492,029
Net Assets $ 957,950
Net Assets Consist of:
Paid in capital $ 932,438
Undistributed net investment income 54,413
Accumulated net realized loss (30,051)
Net unrealized appreciation 1,150
$ 957,950
Shares Issued and Outstanding 123,009
Net Asset Value, Offering and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 7.79
Cost of Investments Owned 2,253,781
Cost of Foreign Currency Held 3,590
</TABLE>
See Notes to Financial Statements
<PAGE> 3
<TABLE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<CAPTION>
$ in thousands
Investment Income:
<S> <C>
Interest $ 85,745
Expenses:
Investment advisory fees 2,810
Administration fees 2,810
Trustees' fees 3
Total expenses 5,623
Net Investment Income 80,122
Net Realized and Unrealized Gain (Loss):
Net realized gain on investments 71,074
Net realized gain on futures contracts and written options 9,316
Net realized gain on foreign currency transactions 21,747
Net change in unrealized depreciation on investments (7,748)
Net change in unrealized depreciation on futures
contracts and written options (1,500)
Net change in unrealized depreciation on translation of
assets and liabilities denominated in foreign currencies (14,410)
Net Gain 78,479
Net Increase in Assets Resulting from Operations $ 158,601
</TABLE>
See Notes to Financial Statements
<PAGE> 4
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
$ in thousands
Year ended Year ended
March 31, 1997 March 31, 1996
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Net investment income $ 80,122 $ 112,642
Net realized gain 102,137 114,220
Net change in unrealized appreciation
(depreciation) (23,658) 24,171
Net increase resulting from operations 158,601 251,033
Distributions to Shareholders
From net investment income (53,658) (112,598)
In excess of net investment income 0 (36,556)
From net realized capital gains (96,847) 0
Total distributions (150,505) (149,154)
Fund Share Transactions
Receipts for shares sold 282,531 2,594,823
Issued as reinvestment of distributions 147,963 144,179
Cost of shares redeemed (1,752,580) (614,891)
Net increase (decrease) resulting from
Fund share transactions (1,322,086) 2,124,111
Total Increase (Decrease) in Net Assets $ (1,313,990) $ 2,225,990
Net Assets
Beginning of period $ 2,271,940 $ 45,950
End of period * 957,950 2,271,940
* Including undistributed net investment
income of: $ 54,413 $ 27,949
</TABLE>
See Notes to Financial Statements
<PAGE> 5
<TABLE>
STATEMENT OF CASH FLOWS
For the year ended March 31, 1997
<CAPTION>
$ in thousands
Increase (Decrease) in Cash and Foreign Currency from:
Financing Activities
<S> <C>
Sales of Fund shares $ 282,531
Redemptions of Fund shares (1,752,580)
Cash distributions paid (2,541)
Net proceeds from financing transactions 543,690
Net decrease from financing activities (928,900)
Operating Activities
Purchases of long-term securities and foreign currency (19,584,981)
Proceeds from sales of long-term securities and foreign
currency 20,024,887
Purchases of short-term securities (net) 213,306
Net investment income 80,122
Change in other receivables/payables (net) 196,716
Net increase from operating activities 930,050
Net Increase in Cash and Foreign Currency 1,150
Cash and Foreign Currency
Beginning of period 2,441
End of period $ 3,591
</TABLE>
See Notes to Financial Statements
<PAGE> 6
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Selected Per Share Data
for the Year Ended: 3/31/97 3/31/96 3/31/95 3/31/94 3/31/93
<S> <C> <C> <C> <C> <C>
Net asset value beginning of
period $ 8.04 $ 7.44 $ 9.93 $ 10.53 $ 10.02
Net investment income 0.84 0.63 2.18 0.47 0.62
Net realized and unrealized
gain (loss) 0.42 0.49 (2.41) 0.24 0.42
Total income (loss) from
investment operations 1.26 1.12 (0.23) 0.71 1.04
Dividends from net investment
income (0.50) (0.39) (2.26) (0.96) (0.48)
Dividends in excess of net
investment income 0.00 (0.13) 0.00 0.00 0.00
Distributions from net realized
capital gains (1.01) 0.00 0.00 (0.35) (0.05)
Total distributions (1.51) (0.52) (2.26) (1.31) (0.53)
Net asset value end of
period $ 7.79 $ 8.04 $ 7.44 $ 9.93 $ 10.53
Total return (%) 15.86 15.08 (1.27) 6.54 10.61
Net assets end of
period (000's) $ 957,950 $2,271,940 $ 45,950 $2,296,978 $2,589,677
Ratio of expenses to
average net assets (%) 0.50 0.50 0.43 0.43 0.46
Ratio of net investment
income to average net
assets (%) 7.17 6.09 5.90 5.51 6.67
Portfolio turnover rate (%) 875 1,046 674 370 301
</TABLE>
See Notes to Financial Statements
<PAGE> 7
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
March 31, 1997
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Argentina (c)(e) - 1.6%
Republic of Argentina
3.576% due 04/01/01 (d) $ 11,052 $ 9,802
3.576% due 09/01/02 (d) 7,221 5,672
Total Argentina 15,474
(Cost $13,098)
Australia (c)(e) - 23.6%
Commonwealth of Australia
13.000% due 07/15/00 A$ 115,300 105,672
9.500% due 08/15/03 14,400 12,268
10.000% due 02/15/06 120,900 106,939
Western Australian Treasury Corp.
5.420% due 06/20/97 $ 1,400 1,383
Total Australia 226,262
(Cost $229,193)
Canada (c)(e) - 87.8%
Canadian Wheat Board
5.600% due 04/04/97 35,000 34,984
Commonwealth of Canada
5.370% due 04/09/97 48,000 47,943
6.500% due 09/01/98 C$ 161,300 119,548
8.000% due 11/01/98 79,160 60,032
5.500% due 02/01/00 331,000 240,083
8.500% due 03/01/00 378,220 295,820
9.000% due 12/01/04 19,820 16,403
4.250% due 12/01/26 (h) 35,880 25,672
Province of British Columbia
5.500% due 04/23/97 $ 1,000 997
Total Canada 841,482
(Cost $854,658)
Czech Republic (e) - 2.0%
Bayerische Landesbank
11.500% due 10/09/97 CK 570,000 19,509
Total Czech Republic 19,509
(Cost $21,193)
Finland (c)(e) - 6.1%
Merita
6.375% due 04/28/03 (d) $ 6,000 6,000
5.925% due 09/11/03 (d) 31,500 31,323
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Republic of Finland
3.490% due 03/13/98 FM 71,000 13,763
7.250% due 04/18/06 36,000 7,668
Total Finland 58,754
(Cost $58,623)
Greece (c)(e) - 0.2%
Republic of Greece
14.800% due 05/19/03 (d) GD 500,000 1,957
Total Greece 1,957
(Cost $1,959)
Italy (c)(e) - 0.0%
Republic of Italy
5.250% due 01/01/00 IL 270,000 156
8.313% due 01/01/05 140,000 90
Total Italy 246
(Cost $254)
Japan (c)(e) - 0.7%
Government of Japan
6.400% due 03/20/00 JY 680,000 6,371
4.100% due 12/22/03 55,000 503
Total Japan 6,874
(Cost $6,809)
Netherlands (c)(e) - 1.1%
Kingdom of Netherlands
6.250% due 07/15/98 DG 19,600 10,771
Total Netherlands 10,771
(Cost $11,449)
New Zealand (c)(e) - 17.5%
Commonwealth of New Zealand
6.500% due 02/15/00 N$ 66,900 44,897
10.000% due 03/15/02 67,900 51,093
8.000% due 04/15/04 47,350 32,930
8.000% due 11/15/06 55,750 38,888
Total New Zealand 167,808
(Cost $167,338)
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Supranational (e) - 1.3%
European Bank for Reconstruction & Development
9.000% due 04/22/98 PP 183,000 6,941
World Bank
10.250% due 04/11/02 155,000 5,879
Total Supranational 12,820
(Cost $12,840)
Sweden (c)(e) - 24.8%
Kingdom of Sweden
11.000% due 01/21/99 SK 1,408,400 205,376
10.250% due 05/05/00 207,700 31,068
Total Sweden 236,444
(Cost $242,520)
United States - 27.8%
Corporate Bonds & Notes - 9.8%
Champion Home Equity Loan Trust
8.429% due 02/25/28 (d) $ 8,777 8,928
Ford Motor Credit Corp.
5.960% due 03/23/99 (d) 12,500 12,490
Pacific Southwest Bank
6.060% due 06/17/02 (d) 7,651 7,648
Salomon, Inc.
3.650% due 02/14/02 (h) 58,000 56,605
TCI Communications, Inc.
6.218% due 04/01/02 (d) 7,200 7,102
92,773
Mortgage-Backed Securities - 17.6%
Federal Home Loan Mortgage Corp.
6.092% due 04/01/20-06/01/30 (d)(f) 12,502 12,339
6.094% due 02/01/20 (d) 3,049 3,015
7.300% due 06/01/22 (d) 4,455 4,645
7.928% due 08/01/22 (d) 3,008 3,129
Federal National Mortgage Assn.
7.238% due 05/01/22 (d) 9,238 9,564
7.584% due 01/01/23 (d) 3,973 4,121
7.625% due 01/01/23 (d) 4,633 4,814
7.686% due 08/01/23 (d) 3,613 3,762
7.825% due 07/01/21 (d) 2,393 2,505
7.942% due 11/01/22 (d) 3,030 3,159
7.967% due 02/01/23 (d) 6,231 6,535
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Government National Mortgage Assn.
6.000% due 11/20/26 $ 15,104 $ 15,127
6.500% due 10/20/26-12/20/26 (f) 14,717 14,878
6.875% due 10/20/23 (d) 3,862 3,941
7.125% due 07/20/22-05/20/25 (d)(f) 41,526 42,479
Resolution Trust Corp.
6.639% due 06/25/21 (d) 3,535 3,430
Ryland Acceptance Corp.
7.837% due 09/25/23 (d) 31,018 31,512
168,955
Asset-Backed Securities - 0.4%
Student Loan Marketing Assn.
6.011% due 10/25/07 (d) 3,500 3,500
Total United States 265,228
(Cost $265,247)
Purchased OTC Call Options (c)(e) - 8.8%
Commonwealth of Australia
13.000% due 07/15/00 (g)
Strike @ 105.16 Exp. 06/27/97 A$ 115,300 8,993
Commonwealth of Canada
6.500% due 09/01/98 (g)
Strike @ 92.27 Exp. 04/16/97 C$ 160,000 11,162
8.000% due 11/01/98 (g)
Strike @ 95.10 Exp. 04/16/97 65,500 4,609
8.000% due 11/01/98 (g)
Strike @ 95.05 Exp. 04/24/97 31,000 2,174
5.500% due 02/01/00 (g)
Strike @ 90.44 Exp. 06/20/97 224,000 15,147
5.500% due 02/01/00 (g)
Strike @ 90.31 Exp. 06/24/97 107,000 7,325
8.500% due 03/01/00 (g)
Strike @ 95.71 Exp. 06/25/97 378,200 30,844
Government of Japan
6.400% due 03/20/00 (g)
Strike @ 99.06 Exp. 06/25/97 JY 680,000 841
Kingdom of Sweden
11.000% due 01/21/99 (g)
Strike @ 100.92 Exp. 04/17/97 SK 140,000 1,675
11.000% due 01/21/99 (g)
Strike @ 100.94 Exp. 04/21/97 37,600 448
10.250% due 05/05/00 (g)
Strike @ 91.96 Exp. 06/27/97 40,000 1,042
Total Purchased OTC Call Options 84,259
(Cost $89,695)
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
<S> <C> <C>
Short-Term Instruments - 29.1%
Discount Notes - 28.5%
E.I. Du Pont de Nemours
5.370% due 04/28/97 $ 30,000 $ 29,879
5.370% due 04/29/97 15,700 15,634
Ford Motor Credit Corp.
5.550% due 05/05/97 36,000 35,811
General Electric Capital Corp.
5.480% due 04/25/97 48,000 47,825
General Motors Acceptance Corp.
5.550% due 05/07/97 45,400 45,148
KFW International Finance, Inc.
5.500% due 04/04/97 5,000 4,998
5.540% due 04/23/97 9,600 9,567
National Rural Utilities Cooperative
5.400% due 05/23/97 41,300 40,978
New Center Asset Trust
5.520% due 04/25/97 3,100 3,089
5.570% due 06/24/97 22,100 21,807
Pitney Bowes Credit Corp.
5.550% due 06/26/97 18,300 18,053
272,789
Repurchase Agreement - 0.2%
State Street Bank
5.000% due 04/01/97 2,367 2,367
(Dated 03/31/97. Collateralized by
U.S. Treasury Note 5.125% 02/28/98
valued at $2,419,228. Repurchase
proceeds are $2,367,329.)
U.S. Treasury Bills - 0.4%
5.080% due 06/26/97-7/03/97 (b)(f) 3,785 3,738
Total Short-Term Instruments 278,894
(Cost $278,905)
Total Investments (a) - 232.4% 2,226,782
(Cost $2,253,781)
Other Assets and Liabilities (Net) - (132.4%) (1,268,832)
Net Assets - 100.0% $ 957,950
</TABLE>
[CAPTION]
Notes to Schedule of Investments ($ in thousands):
(a) At March 31, 1997, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost. $ 8,199
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (45,682)
Unrealized depreciation - net $ (37,483)
(b) Securities with an aggregate market value of $3,738
have been segregated with the custodian to cover
margin requirements for the following open future
contracts at March 31, 1997:
<TABLE>
<CAPTION>
Unrealized
Type Contracts Depreciation
<S> <C> <C>
Commonwealth of Australia 3 Year Note (06/97) 815 $ (75)
U.S. Treasury 10 Year Note (06/97) 454 (596)
U.S. Treasury 30 Year Bond (06/97) 236 (391)
$ (1,062)
(c) Foreign forward currency contracts outstanding
at March 31, 1997:
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
<S> <C> <C> <C> <C> <C>
Sell A$ 8,018 04/97 $ (58)
Sell 9,256 06/97 (87)
Buy AP 10,450 10/97 450
Buy BF 1,400 06/97 0
Sell BP 154 04/97 4
Buy C$ 150,931 04/97 (659)
Sell 172,568 04/97 4,250
Buy 59,765 05/97 (579)
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
<S> <C> <C> <C> <C>
Sell C$ 59,765 05/97 $ 1,343
Buy 361,542 06/97 (1,474)
Sell 370,574 06/97 4,629
Sell 97,259 03/98 1,054
Buy DG 63,057 04/97 (954)
Sell 72,741 04/97 1,026
Buy DK 147,664 04/97 16
Sell 161,276 04/97 1,326
Buy DM 85,333 04/97 (2,818)
Sell 38,845 04/97 3,271
Sell 10,476 06/97 (44)
Sell 44,425 07/97 (165)
Sell EC 1,905 07/97 5
Sell FF 169 07/97 (1)
Buy FM 99 04/97 0
Buy GD 587,377 04/97 (6)
Buy IL 11,537 04/97 (1)
Sell 409 04/97 0
Buy IR 20,612,900 06/97 15
Sell JY 1,703,808 04/97 1,031
Buy 1,700,865 05/97 7
Buy MP 77,500 06/97 506
Buy N$ 50,940 05/97 (6)
Sell 219,465 05/97 1,861
Buy 11,065 06/97 9
Sell 45,758 06/97 (56)
Sell SF 29,500 04/97 1,213
Sell 53,980 05/97 239
Buy SK 206,440 04/97 (2,249)
Sell 18,700 04/97 218
Sell 184,053 05/97 522
Buy SP 3,701,716 04/97 (1,747)
Sell 2,856,641 04/97 625
Buy 4,357,641 05/97 (230)
Buy 1,777,200 06/97 222
$ 12,708
</TABLE>
(d) Variable rate security. The rate
listed is as of March 31, 1997.
(e) Principal amount denoted in indicated currency:
A$ - Australian Dollar FM - Finnish Markka
AP - Argentine Peso GD - Greek Drachma
BF - Belgian Franc IL - Italian Lira
BP - British Pound IR - Indonesian Rupiah
C$ - Canadian Dollar JY - Japanese Yen
CK - Czech Koruna MP - Mexican Peso
DG - Dutch Guilder N$ - New Zealand Dollar
DK - Danish Krone PP - Philippines Peso
DM - German Mark SF - Swiss Franc
EC - European Currency Unit SK - Swedish Krona
FF - French Franc SP - Spanish Peseta
(f) Securities are grouped by coupon and represent a
range of maturities.
(g) Security is subject to outstanding forward sale
commitment.
(h) Principal amount of the security is adjusted for
inflation.
See Notes to Financial Statements
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
1. 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.
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 $543,690,491 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.
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.
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.
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (Cont.)
March 31, 1997
Futures and Options. The Fund is authorized to enter into futures
contracts and options. The primary risks associated with the use of
futures contracts and options are imperfect correlation between the
change in market value of the securities held by the Fund and the prices
of futures contracts and options, the possibility of an illiquid market
and the inability of the counter-party to meet the terms of the contract.
Futures contracts and purchased options are valued based upon their
quoted daily settlement prices. The premium received for a written
option is recorded as an asset with an equal liability which is marked
to market based on the option's quoted daily settlement price.
Fluctuations in the value of such instruments are recorded as unrealized
appreciation (depreciation) until terminated at which time realized gains
and losses are recognized.
Forward 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. The aggregate principal amounts of the contracts for
which delivery is anticipated are recorded in the Fund's accounts, while
such amounts are not recorded if the Fund intends to settle the contracts
prior to delivery. All commitments are marked to market daily at the
applicable translation rates and any resulting unrealized gains or losses
are recorded. 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.
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.
The following securities were subject to outstanding forward sale
commitments at March 31, 1997 which are covered by purchased call
options (amounts in thousands):
<TABLE>
<CAPTION>
Principal
Amount Value Proceeds
<S> <C> <C> <C> <C>
Commonwealth of Australia A$ 115,300 $ 105,672 $ 104,016
Commonwealth of Canada C$ 965,700 727,653 727,898
Government of Japan JY 680,000 6,371 6,266
Kingdom of Sweden SK 217,600 31,881 32,054
$ 871,577 $ 870,234
</TABLE>
Estimates. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
<PAGE> 13
2. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. Pacific Investment Management Company
("PIMCO") serves as investment adviser (the "Adviser") to the
Trust, pursuant to an investment advisory contract. The Adviser
receives a monthly fee from the Fund at an annual rate of 0.25%
of the Fund's average daily net assets.
Administration Fee. PIMCO also serves as administrator (the
Administrator), and provides administrative services to the Trust
for which it receives a monthly administrative fee based on the
Fund's average daily net assets at the annual rate of 0.25%.
Expenses. The Trust is responsible for the following expenses:
(i) salaries and other compensation of any of the Trust's
executive officers and employees who are not officers, directors,
stockholders or employees of PIMCO or its subsidiaries or
affiliates; (ii) taxes and governmental fees; (iii) brokerage
fees and commissions and other portfolio transaction expenses;
(iv) the costs of borrowing money, including interest expenses;
(v) fees and expenses of the Trustees who are not "interested
persons" of PIMCO or the Trust, and any counsel retained
exclusively for their benefit; (vi) extraordinary expenses,
including costs of litigation and indemnification expenses;
and (vii) expenses, such as organizational expenses, which
are capitalized in accordance with generally accepted accounting
principles. Each unaffiliated Trustee receives an annual retainer
of $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 $1,500. These
expenses are allocated to the Funds of the Trust according to
their respective net assets.
Distributor. PIMCO Funds Distribution Company ("PFDCO"), a wholly-owned
subsidiary of PIMCO Advisors L.P., serves as the distributor of
the Fund's shares.
3. Purchases and Sales of Securities
Purchases and sales of investment securities (excluding short-term
instruments) for the Fund for the year ended March 31, 1997 were as follows
($ in thousands):
Purchases Sales
U.S. Government Other U.S. Government Other
$ 167,411 $ 18,478,100 $ 617,254 $ 20,198,984
4. Transactions in Written Call and Put Options were as follows
($ in thousands):
<TABLE>
<CAPTION>
Premiums
<S> <C>
Balance at March 31, 1996 $ 313
Sales 0
Closing buys 0
Expirations (313)
Exercised 0
Balance at March 31, 1997 $ 0
</TABLE>
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (Cont.)
March 31, 1997
5. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of
beneficial interest with a $.0001 par value. Changes
in shares of beneficial interest were as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended Year ended
March 31, 1997 March 31, 1996
<S> <C> <C>
Shares sold 34,437 335,250
Shares redeemed (212,584) (76,839)
Shares issued as 18,752 17,814
reinvestment of dividends
Net increase (decrease) (159,395) 276,225
</TABLE>
6. Federal Income Tax Matters
For the year ended March 31, 1997, the Fund utilized capital loss
carryforwards of $19,435,112.
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of the International Bond Fund
(a portfolio of the PIMCO Funds: Pacific Investment Management Series)
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements
of operations and of changes in net assets and cash flows and the
financial highlights present fairly, in all material respects,
the financial position of the International Bond Fund (the "Fund")
at March 31, 1997, and the results of its operations, the changes in
its net assets and cash flows and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement position. We believe that
our audits, which included confirmation of securities at March 31, 1997
by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Kansas City, Missouri
May 27, 1997
<PAGE> 16
[This page left blank intentionally]
<PAGE> inside back cover
Pacific Investment Mangement 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 $91 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 $111 billion. Widely recognized for providing consistent
performance and high-quality client service, the six affiliated firms are:
Pacific Investment Management Company/Newport Beach, California
Columbus Circle Investors/Stamford, Connecticut
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
Blairlogie Capital Management/Edinburgh, Scotland
Units of PIMCO Advisors L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris Chairman and Trustee
Guilford C. Babcock Trustee
Vern O. Curtis Trustee
Thomas P. Kemp Trustee
William J. Popejoy Trustee
R. Wesley Burns President
Garlin G. Flynn Secretary
John P. Hardaway Treasurer
Investment Advisor and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 360
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Counsel
Dechert, Price & Rhoads
1500 K Street N.W.
Washington, D.C. 20005
Independent Accountants
Price Waterhouse LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE> back cover
PIMCO
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
(800) 927-4648
This report is submitted for the general information of the shareholders
of the PIMCO 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 other pertinent information.
