<PAGE>
As filed with the Securities and Exchange Commission on January 13, 1997
File No. 33-12113, 811-5028
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 33 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 37 [X]
PIMCO Funds
(Exact Name of Registrant as Specified in Charter)
840 Newport Center Drive
Newport Beach, California 92660
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(714) 760-4867
Robert W. Helm, Esq. R. Wesley Burns
Dechert Price & Rhoads Pacific Investment Management Company
1500 K Street, N.W. 840 Newport Center Drive
Washington, D.C. 20005 Newport Beach, California 92660
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b)
[X] on January 14, 1997 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Proposed Maximum
Offering
Title of Number Price per Proposed Amount of
Securities of Shares Share (within Maximum Registration
Being Being 15 days of Offering Fee
Registered Registered filing) Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Indefinite* N/A N/A N/A
Beneficial
Interest,
Par Value
$.0001
</TABLE>
* Registrant has elected to register an indefinite number of shares of
beneficial interest pursuant to Rule 24f-2 under the Investment Company Act of
1940. Registrant filed the Notice required by Rule 24f-2 on May 30, 1996.
Pursuant to Agreements and Plans of Reorganization dated November 1, 1996,
approved by shareholders of certain series of PIMCO Advisors Funds ("PAF") (File
Nos. 2-87203 and 811-3881), the Registrant will be permitted to use any
redemption credits pursuant to Rules 24e-2 and 24f-2 of the PAF Global Income
Fund, in connection with its acquisition by the Registrant's Global Bond Fund
II, in reliance on Rule 24f-2(b)(3)(ii) under the Investment Company Act of
1940; and the Registrant will be permitted to use the redemption credits of the
PAF Total Return Income Fund and PAF High Income Fund in connection with their
acquisition by the Registrant's Total Return Fund and High Yield Fund,
respectively, in reliance on the position of the Staff of the Division of
Investment Management set forth in Kemper Total Return Fund (pub. avail.
February 6, 1995).
------------------------
The Reorganizations are expected to be effective on or about January 17, 1997.
<PAGE>
CROSS-REFERENCE SHEET
REQUIRED BY RULE 495
UNDER THE SECURITIES ACT OF 1933
The enclosed Prospectuses, Statement of Additional Information, and
Part C relate to PIMCO Funds (the "Trust"), an investment company currently
consisting of 20 separate series (the "Funds").
PART A
Institutional Class and Administrative Class Prospectus
Information Required in Prospectus
----------------------------------
Item Number Heading
- ----------- -------
1 Cover Page
2 Prospectus Summary, Expense Information
3 Financial Highlights
4 Investment Objectives and Policies;
Characteristics and Risks of Securities and
Investment Techniques; Other Information
5 Management of the Trust
5A Information Contained in Registrant's
Annual Report
6 Dividends, Distributions and Taxes;
Other Information
7 Purchase of Shares; Net Asset Value
8 Redemption of Shares
9 Not Applicable
<PAGE>
PART A
Class A, Class B, and Class C Prospectus
Information Required in Prospectus
----------------------------------
Item Number Heading
----------- -------
1 Cover Page
2 Schedule of Fees
3 Financial Highlights
4 Investment Objectives and Policies;
Characteristics and Risks of Securities and
Investment Techniques
5 Management of the Trust
5A Information Contained in Registrant's
Annual Report
6 Distributions; Taxes; Description of
the Trust
7 How to Buy Shares; General; Alternative Purchase
Arrangements; Exchange Privilege; Distributor
and Distribution and Servicing Plans; How Net
Asset Value is Determined
8 How to Redeem
9 Not Applicable
<PAGE>
PART B
Information Required in Statement of Additional Information
-----------------------------------------------------------
Item Number Heading
----------- -------
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Objectives and Policies; Investment
Restrictions
14 Trustees and Officers
15 Voting Rights
16 Management of the Trust; Distribution of Trust
Shares; Custodian, Transfer Agent and Dividend
Disbursing Agent
17 Portfolio Transactions and Brokerage
18 Other Information
19 Distribution of Trust Shares; Net Asset Value
20 Taxation
21 Distribution of Trust Shares
22 Performance Information
23 Financial Statements
<PAGE>
PIMCO Funds
Prospectus
January 14, 1997
---------------------------------------------------------------
PIMCO Funds: STOCK FUNDS
Pacific
Investment StocksPLUS Fund
Management StocksPLUS Short Strategy Fund*
Series
---------------------------------------------------------------
STOCK AND BOND FUNDS
Strategic Balanced Fund*
---------------------------------------------------------------
LONG-TERM BOND FUNDS
Long-Term U.S. Government Fund
---------------------------------------------------------------
INTERMEDIATE-TERM BOND FUNDS
Foreign Bond Fund Total Return Fund II*
Global Bond Fund* Total Return Fund III*
Global Bond Fund II** Commercial Mortgage
International Bond Fund* Securities Fund*
High Yield Fund Moderate Duration Fund*
Total Return Fund Real Return Bond Fund
---------------------------------------------------------------
SHORTER-TERM BOND FUNDS
Low Duration Fund Short-Term Fund
Low Duration Fund II* Money Market Fund
Low Duration Fund III*
* These Funds are not available for investment as of the date
of this Prospectus.
** Information concerning the Global Fund II assumes the
completion of a reorganization not scheduled to occur until
January 17, 1997 and, accordingly, this Prospectus may not be
used in respect of such Fund until such date as the
reorganization occurs.
P I M C O
<PAGE>
PIMCO Funds: Pacific Investment Management Series
Prospectus
January 14, 1997
PIMCO Funds (the "Trust") is an open-end series management invest-
ment company offering twenty separate investment portfolios (each
a "Fund"), each with different investment objectives and strate-
gies. Each of the twenty Funds is described herein. The Trust is
designed to provide access to the professional investment manage-
ment services offered by Pacific Investment Management Company
("Pacific Investment Management"), which serves as investment ad-
viser (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 offer up to
two additional classes of shares, Institutional Class shares and
Administrative Class shares. See "Description of the Trust--Multi-
ple 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, is set forth in this Prospectus. There
can be no assurance that the investment objective of any Fund will
be achieved. Because the market value of 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, AND THE COMMER-
CIAL MORTGAGE SECURITIES FUND MAY INVEST UP TO 35% OF ITS ASSETS,
IN JUNK BONDS, WHICH ARE SUBJECT TO HIGH RISK, AND SPECULATIVE
WITH REGARD TO PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. IN-
VESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING IN
THESE FUNDS. SEE "CHARACTERISTICS AND RISKS OF SECURITIES AND IN-
VESTMENT TECHNIQUES--HIGH YIELD SECURITIES ("JUNK BONDS")."
TABLE OF CONTENTS
<TABLE>
<S> <C>
Overview............................................................... 3
Schedule of Fees....................................................... 4
Financial Highlights................................................... 8
Investment Objectives and Policies..................................... 9
Investment Risks and Considerations.................................... 18
Characteristics and Risks of Securities
and Investment Techniques.............................................. 19
Performance Information................................................ 32
How to Buy Shares...................................................... 34
Alternative Purchase Arrangements...................................... 37
Exchange Privilege..................................................... 46
How to Redeem.......................................................... 47
Distributor and Distribution and Servicing Plans....................... 51
How Net Asset Value Is Determined...................................... 55
Distributions.......................................................... 55
Taxes.................................................................. 56
Management of the Trust................................................ 57
Description of the Trust............................................... 60
Mailings to Shareholders............................................... 61
Appendix A -- Description of Duration.................................. 62
Appendix B -- Description of Securities Ratings........................ 63
</TABLE>
2 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 FUND
PROFILES
PIMCO PRIMARY
FUND NAME OBJECTIVE DURATION CREDIT QUALITY/1/
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STOCK FUNDS StocksPLUS/2/ Total return which exceeds that of the 0-1 year B to Aaa; max
S&P 500 10% below Baa
------------------------------------------------------------------------------------
StocksPLUS Short Total return through implementation 0-1 year B to Aaa; max
Strategy of short positions on the S&P 500 10% below Baa
---------------------------------------------------------------------------------------------------------
STOCK AND BOND
FUNDS Strategic Balanced Maximum total return, consistent 0-6 years B to Aaa; max
with preservation of capital 10% below Baa
---------------------------------------------------------------------------------------------------------
LONG-TERM BOND Greater
FUNDS Long-Term U.S. Government Maximum total return, consistent than or A to Aaa
with preservation of capital equal to
8 years
---------------------------------------------------------------------------------------------------------
INTERMEDIATE- Foreign Bond Maximum total return, consistent 3-6 years B to Aaa; max
TERM BOND FUNDS with preservation of capital 10% below Baa
(non-U.S.)
------------------------------------------------------------------------------------
Global Bond Maximum total return, consistent 3-6 years B to Aaa; max
with preservation of capital (U.S. 10% below Baa
and 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.)
------------------------------------------------------------------------------------
International Bond Maximum total return, consistent 0-8 years Baa to Aaa
with preservation of capital (U.S.
and non-U.S.)
------------------------------------------------------------------------------------
High Yield Maximum total return, consistent 3-6 years B to Aaa; min
with preservation of capital 65% below Baa
------------------------------------------------------------------------------------
Total Return Maximum total return, consistent 3-6 years B to Aaa; max
with preservation of capital 10% below Baa
------------------------------------------------------------------------------------
Total Return II Maximum total return, consistent 3-6 years Baa to Aaa
with preservation of capital
------------------------------------------------------------------------------------
Total Return III Maximum total return, consistent 3-6 years B to Aaa; max
with preservation of capital 10% below Baa
------------------------------------------------------------------------------------
Commercial Mortgage Maximum total return, consistent 3-8 years B to Aaa; max
Securities with preservation of capital 35% below Baa
------------------------------------------------------------------------------------
Moderate Duration Maximum total return, consistent 2-5 years B to Aaa; max
with preservation of capital 10% below Baa
------------------------------------------------------------------------------------
Real Return Bond/3/ Maximum real return, consistent Not applicable, A to Aaa
with preservation of real capital but see Fund
description
---------------------------------------------------------------------------------------------------------
SHORTER-TERM
BOND FUNDS Low Duration Maximum total return, consistent 1-3 years B to Aaa; max
with preservation of capital 10% below Baa
------------------------------------------------------------------------------------
Low Duration II Maximum total return, consistent 1-3 years A to Aaa
with preservation of capital
------------------------------------------------------------------------------------
Low Duration III Maximum total return, consistent 1-3 years B to Aaa; max
with preservation of capital 10% below Baa
------------------------------------------------------------------------------------
Short-Term Maximum current income, consistent 0-1 year B to Aaa; max
with preservation of capital and 10% below Baa
daily liquidity
------------------------------------------------------------------------------------
Less than or equal Min 95% Aaa or
Money Market Maximum current income, consistent to 90 days dollar- Prime 1; Less
with preservation of capital and weighted average than or equal
daily liquidity maturity to 5% Aa or
Prime 2
</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. Available for purchase in tax deferred accounts only. The Fund
may invest all of its assets in stock index futures backed by
short term bonds.
3. The Real Return Bond Fund will commence offering Class A, Class
B and Class C shares on January 27, 1997.
January 14, 1997 Prospectus 3
<PAGE>
Schedule of Fees
<TABLE>
<CAPTION>
SHAREHOLDER
TRANSACTION
EXPENSES
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
---------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM INITIAL SALES CHARGE IMPOSED ON
PURCHASES
(as a percentage of offering price at
time of purchase)
ALL FUNDS EXCEPT FOR MONEY MARKET,
SHORT-TERM, LOW DURATION AND
STOCKSPLUS FUNDS 4.50% None None
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 REIN-
VESTED DIVIDENDS
(as a percentage of net asset value at
time of purchase) None None None
---------------------------------------------------------------
MAXIMUM CONTINGENT DEFERRED SALES
CHARGE ("CDSC")
(as a percentage of original purchase
price) 1%(/2/) 5%(/3/) 1%(/4/)
---------------------------------------------------------------
REDEMPTION FEE
STOCKSPLUS SHORT STRATEGY FUND 1%(/5/) 1%(/5/) 1%(/5/)
ALL OTHER FUNDS None None None
---------------------------------------------------------------
EXCHANGE FEE None 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.
5. On shares held less than 3 months.
4 PIMCO Funds: Pacific Investment Management Series
<PAGE>
The purpose of the following 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.
<TABLE>
<CAPTION>
CLASS A
SHARES
EXAMPLE: You
would pay the EXAMPLE: You
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>
STOCKSPLUS .40% .40% .25% 1.05% $40 $62 $86 $154 $40 $62 $86 $154
---------------------------------------------------------------------------------------------------
STOCKSPLUS SHORT STRAT-
EGY .40 .40 .25 1.05 55 77 100 167 55 77 100 167
---------------------------------------------------------------------------------------------------
STRATEGIC BALANCED .40 .40 .25 1.05 55 77 100 167 55 77 100 167
---------------------------------------------------------------------------------------------------
LONG-TERM U.S.
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 .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
---------------------------------------------------------------------------------------------------
INTERNATIONAL BOND .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
---------------------------------------------------------------------------------------------------
TOTAL RETURN II .25 .40 .25 .90 54 72 93 151 54 72 93 151
---------------------------------------------------------------------------------------------------
TOTAL RETURN III .25 .40 .25 .90 54 72 93 151 54 72 93 151
---------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE
SECURITIES .40 .40 .25 1.05 55 77 100 167 55 77 100 167
---------------------------------------------------------------------------------------------------
MODERATE DURATION .25 .40 .25 .90 54 72 93 151 54 72 93 151
---------------------------------------------------------------------------------------------------
REAL RETURN BOND .25 ,40 .25 .90 54 72 93 151 54 72 93 151
---------------------------------------------------------------------------------------------------
LOW DURATION .25 .40 .25 .90 39 58 78 137 39 58 78 137
---------------------------------------------------------------------------------------------------
LOW DURATION II .25 .40 .25 .90 54 72 93 151 54 72 93 151
---------------------------------------------------------------------------------------------------
LOW DURATION III .25 .40 .25 .90 54 72 93 151 54 72 93 151
---------------------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------------------
</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.
January 14, 1997 Prospectus 5
<PAGE>
<TABLE>
<CAPTION>
CLASS B
SHARES
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>
STOCKSPLUS .40% .40% 1.00% 1.80% $68 $87 $117 $182 $18 $57 $97 $182
----------------------------------------------------------------------------------------------------
STOCKSPLUS SHORT
STRATEGY .40 .40 1.00 1.80 68 87 117 182 18 57 97 182
----------------------------------------------------------------------------------------------------
STRATEGIC BALANCED .40 .40 1.00 1.80 68 87 117 182 18 57 97 182
----------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------
GLOBAL BOND .25 .45 1.00 1.70 67 84 112 171 17 54 92 171
----------------------------------------------------------------------------------------------------
GLOBAL BOND II .25 .45 1.00 1.70 67 84 112 171 17 54 92 171
----------------------------------------------------------------------------------------------------
INTERNATIONAL BOND .25 .45 1.00 1.70 67 84 112 171 17 54 92 171
----------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------
TOTAL RETURN II .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
----------------------------------------------------------------------------------------------------
TOTAL RETURN III .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
----------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE
SECURITIES .40 .40 1.00 1.80 68 87 117 182 18 57 97 182
----------------------------------------------------------------------------------------------------
MODERATE DURATION .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
----------------------------------------------------------------------------------------------------
LOW DURATION II .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
----------------------------------------------------------------------------------------------------
LOW DURATION III .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
----------------------------------------------------------------------------------------------------
</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."
6 PIMCO Funds: Pacific Investment Management Series
<PAGE>
<TABLE>
<CAPTION>
CLASS C
SHARES
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
ADVIS- ADMINI- FUND
ORY 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>
STOCKSPLUS .40% .40% .75%(/2/) 1.55% $26 $49 $84 $185 $16 $49 $84 $185
---------------------------------------------------------------------------------------------------------
STOCKSPLUS SHORT
STRATEGY .40 .40 1.00 1.80 28 57 97 212 18 57 97 212
---------------------------------------------------------------------------------------------------------
STRATEGIC BALANCED .40 .40 1.00 1.80 28 57 97 212 18 57 97 212
---------------------------------------------------------------------------------------------------------
LONG-TERM U.S.
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 .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
---------------------------------------------------------------------------------------------------------
INTERNATIONAL BOND .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
---------------------------------------------------------------------------------------------------------
TOTAL RETURN II .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
---------------------------------------------------------------------------------------------------------
TOTAL RETURN III .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
---------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE
SECURITIES .40 .40 1.00 1.80 28 57 97 212 18 57 97 212
---------------------------------------------------------------------------------------------------------
MODERATE DURATION .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
---------------------------------------------------------------------------------------------------------
REAL RETURN BOND .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
---------------------------------------------------------------------------------------------------------
LOW DURATION .25 .40 .75 1.40 24 44 77 168 14 44 77 168
---------------------------------------------------------------------------------------------------------
LOW DURATION II .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
---------------------------------------------------------------------------------------------------------
LOW DURATION III .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
---------------------------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------------------------
</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 StocksPLUS, Short-
Term and Money Market Funds to the following annual rates based on
the Fund's average daily net assets until further notice:
StocksPLUS--.75%; Short-Term--.55%; and Money Market--.10%. Absent
such undertakings, the 12b-1 fee for each such Fund would be as
follows: StocksPLUS--1.00%; Short-Term--1.00%; and Money Market--
.20%.
3. Absent the undertakings noted, the "Total Fund Operating Ex-
penses" for the StockPLUS, Short-Term and Money Market Funds would
be as follows (based on average daily net assets): StocksPLUS--
1.80%; Short-Term--1.60%; and Money Market--.70%.
January 14, 1997 Prospectus 7
<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 intends to reorganize as a
series of the Trust on January 17, 1997. ALL OF THE INFORMATION IN
THIS SECTION ASSUMES THAT THE REORGANIZATION WILL OCCUR ON THAT
DATE. THIS PROSPECTUS WILL BE AMENDED IF SUCH REORGANIZATION DOES
NOT OCCUR. The expense ratio of the Fund shown below represents
the fee arrangement in effect for PIMCO Advisors Funds which dif-
fer from the fee arrangements of the Trust. The information pro-
vided 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 Re-
port. PIMCO Advisors Funds' Annual Report is incorporated by ref-
erence in the Statement of Additional Information and may be ob-
tained from the Distributor without charge. Financial Statements
and related Notes are also incorporated by reference in the State-
ment of Additional Information. The remaining Funds did not offer
Class A, Class B or Class C shares prior to the date of this Pro-
spectus.
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 OPER-
ATIONS:
Net Investment Income 0.32/2/ 0.30/2/ 0.30/2/
Net Gains or Losses on Secu-
rities (both realized and
unrealized) 0.95 0.92 0.92
------------ ------------ ------------
Total From Investment Opera-
tions 1.27 1.22 1.22
------------ ------------ ------------
Less Distributions:
Dividends (from net invest-
ment income) (0.31) (0.26) (0.26)
------------ ------------ ------------
Net Asset Value, End of Pe-
riod $ 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 In-
come 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.
8 PIMCO Funds: Pacific Investment Management Series
<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.
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 the Prospectus and "Investment Ob-
jectives and Policies" in the Statement of Additional Information.
EQUITY FUND The Equity Funds are the StocksPLUS Fund and the StocksPLUS Short
DESCRIP- Strategy Fund. The investment objective of the StockPLUS Fund is
TIONS to seek to achieve a total return which exceeds the total return
performance of the S&P 500 Index. The investment objective of the
StocksPLUS Short Strategy Fund is to seek total return through the
implementation of short investment positions on the S&P 500 Index.
Each of the Equity Funds invests in common stocks, options,
futures, options on futures and swaps consistent with its portfo-
lio management strategy as set forth below. Assets not invested in
equity securities may be invested in securities eligible for pur-
chase by the Fixed Income Funds. Each of the Equity Funds may in-
vest 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). In addition, each of the Equity
Funds may lend its portfolio securities to brokers, dealers and
other financial institutions in order to earn income. Each of the
Equity Funds may invest all of its assets in derivative instru-
ments, as described below and under "Characteristics of Securities
and Investment Techniques--Derivative Instruments." Each of the
Equity Funds may invest up to 20% of its assets in securities of
foreign issuers, may purchase and sell options and futures on for-
eign currencies, and may enter into forward foreign currency con-
tracts.
The Equity Funds differ in composition or strategy as follows:
STOCKSPLUS FUND invests only in common stocks that are represented
in the S&P 500 ("S&P 500 stocks"), stock index futures, options on
stock indexes, and options on stock index futures that are based
on the S&P 500 and swap agreements with respect to the S&P 500
("S&P 500 derivatives"). StocksPLUS is the name of a proprietary
portfolio management strategy which utilizes S&P 500 derivatives
in addition to or in place of S&P 500 stocks to equal or exceed
the performance of the S&P 500. The Fund will seek to remain in-
vested 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. Standard and
Poor's ("S&P") chooses the stocks to be included in the S&P 500
solely on a statistical basis.
January 14, 1997 Prospectus 9
<PAGE>
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 cur-
rently in the S&P 500 represent approximately two-thirds of the
total market value of all U.S. common stocks. The Fund is neither
sponsored by nor affiliated with S&P.
When S&P 500 derivatives appear to be overvalued relative to
the S&P 500, the Fund may invest up to 100% of its assets in a
"basket" of S&P 500 stocks. The composition of this basket will be
determined by standard statistical techniques that analyze the
historical correlation between the return of every stock currently
in the S&P 500 and the return on the S&P 500 itself. The 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 Secu-
rities and Investment Techniques--Derivative Instruments."
STOCKSPLUS SHORT STRATEGY FUND invests primarily in S&P 500 short
positions such that the Fund's net asset value is generally ex-
pected to vary inversely to the value of the S&P 500. The Fund is
designed for investors seeking to take advantage of declines in
the value of the S&P 500, or investors wishing to hedge existing
long equity positions. The Fund will generally realize gains only
when the price of the S&P 500 Index is declining. When the S&P 500
is rising, the Fund will generally incur a loss.
The Fund will maintain short positions through the use of a
combination of S&P 500 derivatives, including options, futures and
swap agreements. All S&P 500 derivatives will be covered by the
maintenance of a segregated account consisting of assets deter-
mined to be liquid by the Advisor in accordance with procedures
established by the Board of Trustees, or through the maintenance
of offsetting positions. It is anticipated that the Fund will gen-
erally remain fully invested in S&P 500 short positions at all
times, even during periods when the S&P 500 Index is rising. How-
ever, the Fund may purchase call options on S&P 500 futures con-
tracts from time to time in an effort to limit the total potential
decline in the Fund's net asset value. There can be no assurance
that the use of such call options would be effective in limiting
the potential decline in net asset value of the Fund.
The Advisor will actively manage the fixed income portion of
the Fund's investment portfolio that is used as coverage for S&P
500 derivatives in an attempt to provide incremental returns.
Thus, there will not be a perfect inverse correlation between the
performance of the S&P 500 and the performance of the Fund. A per-
fect inverse correlation would exist if the net asset value of the
Fund, including the value of its dividend and capital gains dis-
tributions, increased in exact proportion to decreases in the S&P
500 (or decreased in exact proportion to increases in the S&P
500). Rather, because of the Advisor's management of the fixed in-
come securities that are held by the Fund as cover for the Fund's
short positions, it is expected that, if the value of the S&P 500
were to decrease by 10%, for example, the amount by which the
Fund's net asset value would increase would be an amount slightly
in excess of 10%. Conversely, an increase in the S&P 500 of 10%
would result in a loss to the Fund of slightly less than this
amount. There can be no assurance that the use of such active
fixed income management techniques will produce the intended re-
sults.
10 PIMCO Funds: Pacific Investment Management Series
<PAGE>
BALANCED STRATEGIC BALANCED FUND has as its investment objective the maxi-
FUND mization of total return, consistent with preservation of capital
DESCRIPTION and prudent investment management. In seeking to achieve this ob-
jective, the Fund invests in the securities eligible for purchase
by the StocksPLUS Fund and the Total Return Fund. The percentage
of the Fund's assets allocated to equity or fixed income exposure
will vary in accordance with an asset allocation methodology de-
veloped by the Advisor. The methodology builds upon the Advisor's
long-standing process of economic forecasting of business cycle
stages by applying to this process a disciplined asset allocation
model which employs certain statistical variance techniques. De-
pending on the outcome of this asset allocation methodology, the
Fund's equity exposure will vary between 45% and 75% of its total
assets, and its fixed income exposure will vary between 25% and
55%. There can be no assurance that the Advisor's asset allocation
methodology will be successful.
FIXED With the exception of the StocksPLUS, StocksPLUS Short Strategy
INCOME FUND and Strategic Balanced Funds, each remaining Fund (together, the
DESCRIP- "Fixed Income Funds") differs from the others primarily in the
TIONS length of the Fund's duration or the proportion of its investments
in certain types of fixed income securities. For a discussion of
the concept of duration, see "Appendix A--Description of Dura-
tion."
The investment objective of the Money Market Fund and Short-
Term Fund is to seek to obtain maximum current income consistent
with preservation of capital and daily liquidity. The Money Market
Fund also attempts to maintain a stable net asset value of $1.00
per share, although there can be no assurance that it will be suc-
cessful in doing so. 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 man-
agement. For a discussion of "real return," see "Total Return and
Real Return," below. The investment objective of the Global Bond
Fund II is to seek maximum total return, consistent with the pres-
ervation of capital. Each of the remaining Fixed Income Funds
seeks to maximize total return, consistent with preservation of
capital and prudent investment management.
In selecting securities for each Fixed Income Fund, the 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 both by 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.
January 14, 1997 Prospectus 11
<PAGE>
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 or 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 invested in se-
curities 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 securi-
ties 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). For information
on the risks associated with investments in securities rated below
investment grade, see "Appendix B--Description of Securities Rat-
ings." The average portfolio duration of this Fund will normally
vary within a three- to six-year time frame.
GLOBAL BOND FUND invests in a portfolio of fixed income securities
denominated in major currencies, baskets of foreign currencies
(such as the ECU), and the U.S. dollar. Under normal circumstanc-
es, at least 65% of the Fund's assets will be invested in fixed
income securities of issuers located in at least three countries
(one of which may be the United States), which may be represented
by futures contracts (including related options) with respect to
such securities, and options on such securities, when the Advisor
deems it appropriate to do so. Depending on the Advisor's current
opinion as to the proper allocation of assets among domestic and
foreign issuers, investments in the securities of issuers located
outside the United States will normally vary between 25% and 75%
of the Fund's assets. The Fund may invest up to 10% of its assets
in fixed income securities that are rated below investment grade
but rated B or higher by Moody's or S&P (or, if unrated, deter-
mined 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--Description of Securities Rat-
ings." The average portfolio duration of this Fund will normally
vary within a three- to six-year time frame.
GLOBAL BOND FUND II has the same policies as the Global Bond Fund
except as set forth below. The Global Bond Fund II expects to
hedge its foreign currency exposure so that generally no more than
25% of the Fund's total net assets will be invested in unhedged
foreign currency-denominated securities. The Global Bond Fund II
may not borrow in excess of 10% of the value of its total assets
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage), or for extraor-
dinary or emergency purposes. The Global Bond Fund II may only en-
gage in short sales that are "against the box," and may not loan
its portfolio securities if their market value exceeds
12 PIMCO Funds: Pacific Investment Management Series
<PAGE>
25% of the total assets of the Fund. In addition, the Global Bond
Fund II is subject to different fundamental and non-fundamental
investment restrictions than the Global Bond Fund. See "Investment
Restrictions" in the Statement of Additional Information.
The Foreign Bond Fund differs from the Global Bond and Global
Bond II Funds primarily in the extent to which assets are invested
in the securities of issuers located outside the United States.
The Advisor will select these Funds' foreign country and currency
compositions based on an evaluation of relative interest rates,
exchange rates, monetary and fiscal policies, trade and current
account balances, and any other specific factors the Advisor be-
lieves to be relevant.
INTERNATIONAL BOND FUND invests in a portfolio of fixed income se-
curities denominated in major foreign currencies, baskets of for-
eign currencies, and the U.S. dollar. The Advisor will invest the
assets of the Fund in a number of international bond markets so
that, under normal conditions, the Fund will invest at least 65%
of its assets in fixed income securities of foreign issuers repre-
senting at least three foreign countries or currencies, which may
be represented by futures contracts (including related options)
with respect to such securities, and options on such securities,
when the Advisor deems it appropriate to do so. The International
Bond Fund will invest only in investment grade securities, i.e.,
in securities rated at least Baa by Moody's or BBB by S&P (or, if
unrated, deemed by the Advisor to be of comparable quality). The
average portfolio duration of this Fund will vary based on the
strategy currently being used by the Advisor in managing the as-
sets of the Fund within the overall PIMCO private account manage-
ment program, but is normally not expected to exceed eight years.
The Advisor will select the Fund's foreign country and currency
composition based on its evaluation of relative interest rates,
inflation rates, exchange rates, monetary and fiscal policies,
trade and current account balances, and any other specific factors
the Advisor believes to be relevant.
Each of the Real Return Bond, Foreign Bond, Global Bond, Global
Bond II and International 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
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 (other than the Global Bond Fund) denominated in currencies
other than the U.S. dollar. There can be no assurance that the Ad-
visor will be successful in doing so. The active use of currency
derivatives involves transaction costs which may adversely effect
yield and return.
The Commercial Mortgage Securities, Real Return Bond, Foreign
Bond, Global Bond, Global Bond II and International Bond Funds are
"non-diversified" for purposes of the Investment Company Act of
1940 ("1940 Act"), meaning that they may invest a greater 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.
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). Such securities are collo-
quially referred to as "junk bonds." The remainder of the Fund's
assets may be invested in investment grade fixed income securities
(i.e., securities rated at least Baa by Moody's or BBB by S&P, or,
if unrated, deemed by the 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
January 14, 1997 Prospectus 13
<PAGE>
Advisor's view of the potential for total return offered by a par-
ticular duration strategy. The Fund may invest in securities of
foreign issuers, but only those that are U.S. dollar-denominated.
The Fund may also engage in hedging strategies involving equity
options.
Investments in high yield securities, while generally providing
greater potential opportunity for capital appreciation and higher
yields than investments in higher rated securities, also entail
greater risk, including the possibility of default or bankruptcy
of the issuer of such securities. Risk of default or bankruptcy
may be greater in periods of economic uncertainty or recession, as
the issuers of high yield securities may be less able to withstand
general economic downturns. The 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.
TOTAL RETURN FUND II has the same policies as the Total Return
Fund, except that its investments in fixed income securities are
limited to those of domestic (U.S.) issuers that are rated at
least Baa by Moody's or BBB by S&P (or, if unrated, determined by
the Advisor to be of comparable quality).
TOTAL RETURN FUND III has the same policies as the Total Return
Fund, except that it limits its investments with respect to cer-
tain socially sensitive issues in the same manner as the Low Dura-
tion Fund III.
COMMERCIAL MORTGAGE SECURITIES FUND invests at least 65% of its
assets in commercial mortgage-backed securities rated at least Baa
by Moody's or BBB by S&P (or, if unrated, determined by the Advi-
sor to be of comparable quality). The Fund also may invest up to
35% of its assets in lower-rated securities (but rated at least B,
or, if unrated, determined by the Advisor to be of comparable
quality) if such securities are considered by the Advisor to have
attractive investment characteristics. For information on the
risks associated with investments in securities rated below in-
vestment grade, see "Appendix B--Description of Securities Rat-
ings." The average portfolio duration of this Fund will normally
vary within a three- to eight-year time frame depending on the Ad-
visor's view of the potential for total return offered by a par-
ticular duration strategy. The Fund may invest in securities of
foreign issuers, but only those that are U.S. dollar-denominated.
14 PIMCO Funds: Pacific Investment Management Series
<PAGE>
MODERATE DURATION FUND invests in a diversified portfolio of fixed
income securities of varying maturities. The average portfolio du-
ration of this Fund will normally vary within a two- to five-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 normally be shorter.
However, the total rate of return for this Fund is expected to ex-
hibit more volatility than that of the Low Duration Fund because
its duration will normally be longer.
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.
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
Moderate Duration Fund or the Total Return Fund because its dura-
tion will be shorter.
January 14, 1997 Prospectus 15
<PAGE>
LOW DURATION FUND II has the same policies as the Low Duration
Fund, except that its investments in fixed income securities are
limited to those of domestic (U.S.) issuers that are rated at
least A by Moody's or S&P (or, if unrated, determined by the Advi-
sor to be of comparable quality).
LOW DURATION FUND III has the same policies as the Low Duration
Fund, except that it limits its investments with respect to cer-
tain socially sensitive issues. As a matter of non-fundamental
policy, the Fund will not invest in the securities of any issuer
determined by the Advisor to be engaged principally in the provi-
sion of healthcare services, the manufacture of alcoholic bever-
ages, tobacco products, pharmaceuticals or military equipment, or
the operation of gambling casinos. The Fund will also avoid, to
the extent possible on the basis of information available to the
Advisor, the purchase of securities of issuers engaged in the pro-
duction or trade of pornographic materials. An issuer will be
deemed to be principally engaged in an activity if it derives more
than 10% of its gross revenues from such activities.
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). 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 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 secu-
rities 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 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 Trust-
ees; 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 approved or ratified by the Board
of Trustees. With respect to no more than 5% of its total assets,
measured at the time of investment, the Fund may also
16 PIMCO Funds: Pacific Investment Management Series
<PAGE>
invest in money market instruments that are in the second-highest
rating category for short-term debt obligations (e.g., rated Aa or
Prime-2 by Moody's or AA or A-2 by S&P). A money market instrument
will be considered to be in the second-highest rating category un-
der the criteria described above with respect to instruments con-
sidered to be of the highest quality, as applied to instruments in
the second-highest rating category. See "Appendix B--Description
of Securities Ratings" for a description of Moody's and S&P's rat-
ings 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.
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 composition of any fixed income portfolio, the
longer the duration of the portfolio, the greater the anticipated
potential for total return, with, however, greater attendant mar-
ket 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 exchange rates. Historically, the to-
tal return performance of equity-oriented portfolios has generally
been greater over the long term than fixed income portfolios. How-
ever, 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.
January 14, 1997 Prospectus 17
<PAGE>
"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 PIMCO Funds that do not invest primarily in infla-
tion-indexed 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 Investors Services, Inc.
("Moody's") or BBB by Standard & Poor's Corporation ("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
18 PIMCO Funds: Pacific Investment Management Series
<PAGE>
or other changes in a Fund's total assets, will not require a Fund
to dispose of an investment until the Advisor determines that is
practicable to sell or close out the investment without undue mar-
ket or tax consequences to the Fund. In the event that ratings
services assign different ratings to the same security, the Advi-
sor 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 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 rep-
resented by such receipt is a debt obligation of the U.S. Trea-
sury. Other zero coupon Treasury securities (STRIPs and CUBEs) are
direct obligations of the U.S. Government.
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
January 14, 1997 Prospectus 19
<PAGE>
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 ob-
ligations 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. Such bonds generally are issued at an interest rate lower
than typical bonds, but are expected to retain their principal
value over time. The interest rate on these bonds is fixed at is-
suance, but over the life of the bond this interest may be paid on
an increasing principal value, which has been adjusted for infla-
tion.
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%).
20 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,
January 14, 1997 Prospectus 21
<PAGE>
refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Fund to a lower rate of return upon rein-
vestment 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 value of a mortgage-related
security generally will decline; however, when interest rates are
declining, the value of mortgage-related securities with prepay-
ment features may not increase as much as other fixed income secu-
rities. The rate of prepayments on underlying mortgages will af-
fect the price and volatility of a mortgage-related security, and
may have the effect of shortening or extending the effective matu-
rity of the security beyond what was anticipated at the time of
purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mort-
gage-related security, the volatility of such security can be ex-
pected 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.
22 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 inverse
floater securities. The Funds may invest in other asset-backed se-
curities that have been offered to investors. For a discussion of
the characteristics of some of these instruments, see the State-
ment 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 viewed as
REPURCHASE a form of borrowing that involves the sale of a security by a Fund
AGREEMENTS, and its agreement to repurchase the instrument at a specified time
DOLLAR and price. The Fund will maintain a segregated account consisting
ROLLS, AND of assets determined to be liquid by the Advisor in accordance
OTHER with procedures established by the Board of Trustees, maturing not
BORROWINGS later than the expiration of the reverse repurchase agreement, to
cover its obligations under reverse repurchase agreements.
A Fund may enter into dollar rolls, in which the Fund sells
mortgage-backed or other securities for delivery in the current
month and simultaneously contracts to purchase substantially 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
January 14, 1997 Prospectus 23
<PAGE>
mark-to-market basis in an amount at least equal to the current
market value of the securities loaned; (ii) the Fund may at any
time call the loan and obtain the return of the securities loaned;
(iii) the Fund will receive any interest or dividends paid on the
loaned securities; and (iv) the aggregate market value of securi-
ties 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 ei-
ther interest, through investment of cash collateral by the Fund
in permissible investments, or a fee, if the collateral is U.S.
Government securities. Securities lending involves the risk of
loss of rights in the collateral or delay in recovery of the col-
lateral should the borrower fail to return the security loaned or
become insolvent. The Funds may pay lending fees to the party ar-
ranging the loan.
DELAYED Each of the Funds may purchase or sell securities on a when-is-
DELIVERY, sued, delayed delivery, or forward commitment basis. These trans-
WHEN- actions involve a commitment by the Fund to purchase or sell secu-
ISSUED, AND rities for a predetermined price or yield, with payment and deliv-
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
TRANSAC- of security. When such purchases are outstanding, the Fund will
TIONS 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 StocksPLUS, High Yield and Total Re-
turn III Funds), and particularly the StocksPLUS Short Strategy
Fund, may from time to time effect short sales as part of their
overall portfolio management strategies, including the use of de-
rivative instruments, or to offset potential declines in value of
long positions in similar securities as those sold short. A short
sale (other than a short sale against the box) is a transaction in
which a Fund sells a security it does not own at the time of the
sale in anticipation that the market price of that security will
decline. To the extent that a Fund engages in short sales, it must
(except in the case of short sales "against the box") maintain 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."
24 PIMCO Funds: Pacific Investment Management Series
<PAGE>
FOREIGN Each of the Funds (except the Total Return II and Low Duration II
SECURITIES Funds) may invest directly in fixed income securities of non-U.S.
issuers. The Long-Term U.S. Government, High Yield, Commercial
Mortgage Securities and Money Market Funds may only invest in U.S.
dollar-denominated fixed income securities of non-U.S. issuers.
Each of the Equity Funds may invest directly in foreign equity se-
curities.
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, Low Duration III and Short-Term Funds
limit their investments in securities of issuers based in NICs to
5% of their assets, and the remaining Fixed Income Funds (except
the Foreign Bond, Global Bond, Global Bond II and International
Bond Funds) limit their investments in securities of issuers based
in NICs to 10% of their assets. For purposes of this restriction,
the term "NIC" is not meant to include a defined 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 in-
vest in securities issued in countries which may be considered by
other advisers or analysts to be developing or emerging markets.
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 (except the Total Return II and
Low Duration II Funds) may invest in Brady Bonds. Brady Bonds are
securities created through the exchange of existing commercial
bank loans to sovereign entities for new obligations in connection
with debt restructurings under a debt restructuring plan intro-
duced by former U.S. Secretary of the Treasury, Nicholas F. Brady.
Brady Bonds have been issued only recently, and for that reason do
not have a long payment history. Brady Bonds may be collateralized
or uncollateralized, are issued in various currencies (but primar-
ily 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 re-
spect 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.
25
January 14, 1997 Prospectus
<PAGE>
FOREIGN Foreign currency exchange rates may fluctuate significantly over
CURRENCY short periods of time. They generally are determined by the forces
TRANSAC- of supply and demand in the foreign exchange markets and the rela-
TIONS 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. Each Fund will segregate assets determined
to be liquid by the Advisor in accordance with procedures estab-
lished 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, except the Global Bond
Fund, will use these techniques to hedge at least 75% of its expo-
sure to foreign currency. For a description of these instruments,
see "Derivative Instruments" below and the Statement of Additional
Information.
26 PIMCO Funds: Pacific Investment Management Series
<PAGE>
HIGH YIELD The High Yield Fund invests at least 65% of its assets, and the
SECURITIES Commercial Mortgage Securities Fund may invest up to 35% of its
("JUNK assets, in fixed income securities rated lower than Baa by Moody's
BONDS") or lower than BBB by S&P but rated at least B by Moody's or S&P
(or, if not rated, of comparable quality). In addition, each of
the StocksPLUS, StocksPLUS Short Strategy, Strategic Balanced,
Foreign Bond, Global Bond, Global Bond II, Total Return, Total Re-
turn III, Moderate Duration, Low Duration, Low Duration III and
Short-Term 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 Global Bond Fund II), based upon the dollar-weighted average
ratings of the Funds' portfolio holdings at the end of each month
in the Funds' fiscal year, each operational Fund that may invest
greater than 5% of its assets in securities rated below investment
grade had the following percentages of its net assets invested in
securities rated in the categories indicated as rated by Moody's
(or, if unrated, determined by the Advisor to be of comparable
quality). See "Appendix B--Description of Securities Ratings," for
further information.
January 14, 1997 Prospectus 27
<PAGE>
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>
STOCKSPLUS 10.17% 59.79% 4.28% 6.45% 0.00% 11.00% 7.60% 0.72% 0.00%
------------------------------------------------------------------------------
FOREIGN BOND 2.72 46.26 30.18 8.62 0.51 2.88 5.18 3.65 0.00
------------------------------------------------------------------------------
GLOBAL BOND 15.05 40.36 29.03 5.45 0.50 2.62 2.06 4.92 0.00
------------------------------------------------------------------------------
GLOBAL BOND II* 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
------------------------------------------------------------------------------
TOTAL RETURN III 10.22 69.93 1.91 6.49 0.00 4.78 5.36 1.31 0.00
------------------------------------------------------------------------------
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
</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
28 PIMCO Funds: Pacific Investment Management Series
<PAGE>
utilizing a derivatives strategy for a Fund, the Fund might have
been in a better position if it had not entered into the transac-
tion at all. The use of these strategies involves certain special
risks, including a possible imperfect correlation, or even no cor-
relation, between price movements of derivative instruments and
price movements of related investments. While some strategies in-
volving 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
January 14, 1997 Prospectus 29
<PAGE>
investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements
in a related security, the price of the put or call option may
move more or less than the price of the related security. There
can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. Furthermore, if trading re-
strictions 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
30 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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.
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. Each of the Equity Funds and the
Strategic Balanced Fund may invest in interest rate, stock index
and foreign currency futures contracts and options thereon.
There are several risks associated with the use of futures and
futures options for hedging purposes. There can be no guarantee
that there will be a correlation between price movements in the
hedging vehicle and in the portfolio securities being hedged. An
incorrect correlation could result in a loss on both the hedged
securities in a Fund and the hedging vehicle, so that the 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 Commodity
Futures Trading Commission ("CFTC"), or, with respect to positions
in financial futures and related options that do not qualify as
"bona fide hedging" positions, will enter such positions only to
the extent that aggregate initial margin deposits plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," would not exceed 5%
of the Fund's net assets.
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
January 14, 1997 Prospectus 31
<PAGE>
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 "il-
liquid securities" for this purpose means securities that cannot
be disposed of within seven days in the ordinary course of busi-
ness 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, repur-
chase agreements with maturities in excess of seven days, certain
loan participation interests, fixed time deposits which are not
subject to prepayment or provide for withdrawal penalties upon
prepayment (other than overnight deposits), securities that are
subject to legal or contractual restrictions on resale (such as
privately placed debt securities) and other securities whose dis-
position 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).
"FUNDA- The investment objective of the Global Bond Fund II described in
MENTAL" this Prospectus may be changed by the Board of Trustees without
POLICIES 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.
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.
The Trust may, from time to time, include the yield and total
return for each class of shares of its Funds in advertisements or
reports to shareholders or prospective investors. Yield quotations
for the Money Market Fund may include current yield and effective
yield. Current yield will be based on income received by a hypo-
thetical investment over a given seven-day period (less expenses
accrued during the period) and "annualized" (i.e., assuming that
the seven-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment). Effective
yield for the Fund is calculated in the manner similar to that
used to calculate current yield, but reflects the compounding ef-
fect on earnings of reinvested dividends. For the remaining Funds,
quotations of yield for a Fund or class will be based on the in-
vestment income per share (as defined by the Securities and Ex-
change Commission) during a particular 30-day (or one-month) pe-
riod (including dividends and interest), less expenses accrued
during the period
32 PIMCO Funds: Pacific Investment Management Series
<PAGE>
("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.
All Funds may include the total return of Class A, Class B
and/or Class C shares in advertisements or other written material.
When a Fund advertises its total return 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 administration 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). The Funds may advertise total return using alterna-
tive methods that reflect all elements of return, but that may be
adjusted to reflect the cumulative impact of alternative fee and
expense structures, such as the currently effective advisory and
administrative fees for the Funds.
The Trust also may provide current distribution information to
its shareholders in shareholder reports or other shareholder com-
munications, or in certain types of sales literature provided to
prospective investors. Current distribution information for a par-
ticular class of a Fund will be based on distributions for a spec-
ified period (i.e., total dividends from net investment income),
divided by the relevant class net asset value per share on the
last day of the period and annualized. The rate of current distri-
butions 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
January 14, 1997 Prospectus 33
<PAGE>
to be representative of what may be achieved in the future. For a
description of the methods used to determine yield and total re-
turn for the Funds, see the Statement of Additional Information.
Investment results of the Funds will fluctuate over time, and
any presentation of the Funds' total return or yield for any prior
period should not be considered as a representation of what an 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"). The Real
Return Bond Fund will commence offering Class A, Class B and Class
C shares on January 27, 1997.
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 included with this Prospectus (the "Ac-
count Application") with payment, 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 deal-
er).
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 are also subject to a CDSC, and, in the case of the
StocksPLUS Short Strategy Fund, a redemption fee. See "Alternative
Purchase Arrangements." Purchase payments for Class B and Class C
shares are fully invested at the net asset value next determined
after acceptance of the trade. Purchase payments for Class A
shares, less the applicable sales charge, are invested at the net
asset value next determined after acceptance of the trade.
All purchase orders received by the Distributor prior to the
close of regular trading (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.
34 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 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 information about dealer commissions, see "Alterna-
tive Purchase Arrangements" below. Persons selling Fund shares may
receive different compensation for selling Class A, Class B or
Class C shares. Normally, Fund shares purchased through partici-
pating brokers are held in the investor's account with that bro-
ker. No share certificates will be issued unless specifically re-
quested 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 in-
cluded with this Prospectus. All shareholders who open direct ac-
counts with the Distributor will receive from the Distributor in-
dividual confirmations of each purchase, redemption, dividend re-
investment, exchange or transfer of Trust shares, including the
total number of Trust shares owned as of the confirmation date,
except that purchases which result from the reinvestment of daily-
accrued dividends and/or distributions will be confirmed once each
calendar quarter. See "Distributions" below. Information regarding
direct investment or any other features or plans offered by the
Trust may be obtained by calling the Distributor at 800-426-0107
or by calling your broker.
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 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
January 14, 1997 Prospectus 35
<PAGE>
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 avail-
able 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 Dis-
tributor or participating brokers. You may enroll by completing
the appropriate section on the Account Application, or you may ob-
tain 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 purchases
of shares in amounts from $50 to $10,000. To initiate such pur-
chases, call 800-852-8457. All such calls will be recorded. Fund
Link is normally established within 45 days of receipt of a Fund
Link Application by Shareholder Services, Inc. (the "Transfer
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,
36 PIMCO Funds: Pacific Investment Management Series
<PAGE>
the Transfer Agent and the Fund may rely on any telephone instruc-
tions believed to be genuine and will not be responsible to share-
holders for any damage, loss or expenses arising out of such in-
structions. The Fund reserves the right to amend, suspend or dis-
continue 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 return than Class A, Class
B or Class C shares. To obtain more information about Institu-
tional Class or Administrative Class shares, please call the Dis-
tributor 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.
January 14, 1997 Prospectus 37
<PAGE>
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 accepted is
$249,999. The maximum single purchase of Class C shares accepted
is $999,999. The Funds may refuse any order to purchase shares.
For a description of the Distribution and Servicing Plans and
distribution and servicing fees payable thereunder with respect to
Class A, Class B and Class C shares, see "Distributor and 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 connec
38 PIMCO Funds: Pacific Investment Management Series
<PAGE>
tion with termination of employment or termination of the employ-
er's plan and the transfer to another employer's plan or to an
IRA; (iv) any partial or complete redemption following death or
disability (as defined in the Code) of a shareholder (including
one who owns the shares as joint tenant with his or her spouse)
from an account in which the deceased or disabled is named, pro-
vided the redemption is requested within one year of the death or
initial determination of disability; (v) any redemption resulting
from a return of an excess contribution to a qualified employer
retirement plan or an IRA; (vi) certain periodic redemptions under
an Automatic Withdrawal Plan from an account meeting certain mini-
mum balance requirements, in amounts meeting certain maximums es-
tablished from time to time by the Distributor; (vii) redemptions
by Trustees, officers and employees of the Trust, and by direc-
tors, officers and employees of the Distributor and the Advisor;
(viii) redemptions effected pursuant to a Fund's right to involun-
tarily 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 specified in such Fund's prospectus; (ix) in-
voluntary redemptions caused by operation of law; (x) redemption
of shares of any Fund that is combined with another Fund, invest-
ment company, or personal holding company by virtue of a merger,
acquisition or other similar reorganization transaction; (xi) re-
demptions by a shareholder who is a participant making periodic
purchases of not less than $50 through certain employer sponsored
savings plans that are clients of a broker-dealer with which the
Distributor has an agreement with respect to such purchases; (xii)
redemptions effected by trustees or other fiduciaries who have
purchased shares for employer sponsored plans, the administrator
for which has an agreement with the Distributor with respect to
such purchases; or (xiii) redemptions in connection with IRA ac-
counts 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.
January 14, 1997 Prospectus 39
<PAGE>
INITIAL Class A shares are sold at a public offering price equal to their
SALES net asset value per share plus a sales charge, as set forth below.
CHARGE As indicated below under "Class A Deferred Sales Charge," certain
ALTERNA investors that purchase $1,000,000 or more of any Fund's Class A
TIVE -- shares (and thus pay no initial sales charge) may be subject to a
CLASS A 1% CDSC if they redeem such shares during the first 18 months af-
SHARES ter their purchase.
ALL FUNDS (EXCEPT MONEY MARKET, SHORT-TERM, 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 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>
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 Charge" 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.
40 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 0.50% of the
purchase price on sales of Class A shares of all or selected Funds
purchased to each participating broker which obtains purchase 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 addi-
tional $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.
January 14, 1997 Prospectus 41
<PAGE>
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 indicated in the Letter. At the investor's option, a
Letter of Intent 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 in-
cluded 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 Money Market, Short-Term,
Low Duration 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 Application
included with this Prospectus. If you are a current Class A share-
holder desiring to do so you can obtain a form of Letter of Intent
by contacting the Distributor at 800-426-0107 or any broker par-
ticipating in this program.
REINSTATEMENT PRIVILEGE A Class A shareholder who has caused any
or all of his shares (other than Money Market Fund shares that
were not acquired by exchanging Class A shares of another Fund) to
be redeemed may reinvest all or any portion of the redemption 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.
42 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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, to a spouse or child of such person or to
any trust, profit sharing or pension plan for the benefit of any
such person, (b) current or retired trustees of PIMCO Funds: Mul-
ti-Manager Series or Cash Accumulation Trust, registered invest-
ment companies for which PIMCO Advisors L.P., an affiliate of the
Advisor, acts as investment adviser, (c) current registered repre-
sentatives and other full-time employees of participating brokers
or such persons' spouses, (d) trustees or other fiduciaries pur-
chasing shares for certain employer sponsored plans that have at
least 100 eligible participants or at least $1 million in total
plan assets, (e) trustees or other fiduciaries purchasing shares
for certain employer-sponsored plans, the trustee, fiduciary or
administrator for which has an agreement with the Distributor with
respect to such purchases, (f) participants investing through ac-
counts known as "wrap accounts" established with brokers or deal-
ers approved by the Distributor where such brokers or dealers are
paid a single, inclusive fee for brokerage and investment manage-
ment services, (g) broker-dealers or registered investment advis-
ers affiliated with such broker-dealers with which the Distributor
has an agreement for the use of PIMCO Funds in particular invest-
ment products for which a fee is charged, and (h) trust accounts
for which trust companies affiliated with the Trust or the Advisor
serve as trustee. As described above, the Distributor will not pay
any initial commission to dealers upon the sale of Class A shares
to the purchasers described in this paragraph except for sales to
purchasers described under (d) or (e) in this paragraph.
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.
An investor or participating broker must notify the Distributor
whenever a quantity discount or reduced sales charge is applicable
to a purchase and must provide the Distributor with sufficient in-
formation at the time of purchase to verify that each purchase
qualifies for the privilege or discount. Upon such notification,
the investor will receive the lowest applicable sales charge. The
quantity discounts described above may be modified or terminated
at any time.
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.
January 14, 1997 Prospectus 43
<PAGE>
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 Charge."
For more information about the Class A CDSC, call the Distribu-
tor 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. Firms also may hold Fund shares in nominee or street
name as agent for and on behalf of their customers. In such in-
stances, the Trust's transfer agent will have no information with
respect to or control over accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information
about their accounts only from their broker. In addition, certain
privileges with respect to the purchase and redemption of shares
or the reinvestment of dividends may not be available through such
firms. Some firms may participate in a program allowing them ac-
cess to their clients' accounts for servicing including, without
limitation, transfers of registration and dividend payee changes;
and may perform functions such as generation of confirmation
statements and disbursement of cash dividends. This Prospectus
should be read in connection with such firms' material regarding
their fees and services.
DEFERRED Class B shares are sold at their current net asset value without
SALES any initial sales charge. The full amount of an investor's pur-
CHARGE chase payment will be invested in shares of the Fund(s) selected.
ALTERNA- A CDSC will be imposed on Class B shares of all Funds if an in-
TIVE-- vestor redeems an amount which causes the current value of the in-
CLASS B vestor's account for a Fund to fall below the total dollar amount
SHARES 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 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.
44 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 pur-
chase 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 investment performance and reinvestment of dis-
tributions to $11,000. The investor then may redeem up to
$1,000 from that Fund ($11,000 minus $10,000) without incur-
ring 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 5%, the
Class B CDSC would be $100.
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 Distribu-
tor at 800-426-0107.
ASSET Class C shares are sold at their current net asset value without
BASED any initial sales charge. A CDSC is imposed on Class C shares of
SALES all Funds if an investor redeems an amount which causes the cur-
CHARGE rent value of the investor's account for a Fund to fall below the
ALTERNA- total dollar amount of purchase payments subject to the CDSC, ex-
TIVE-- cept that no CDSC is imposed if the shares redeemed have been ac-
CLASS C quired through the reinvestment of dividends or capital gains dis-
SHARES 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).
January 14, 1997 Prospectus 45
<PAGE>
The following example will illustrate the operation of the
Class C CDSC:
Assume that an individual opens an account and makes a pur-
chase payment of $10,000 for Class C shares of a Fund and that
six months later the value of the investor's account for that
Fund has grown through investment performance and reinvestment
of distributions to $11,000. The investor then may redeem up
to $1,000 from that Fund ($11,000 minus $10,000) without in-
curring 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.
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 StocksPLUS, Low Duration, Short-Term and
Money Market Funds. For the StocksPLUS and Low Duration 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 Distrib-
utor has an agreement with respect to such purchases, no payments
are made at the time of purchase. During such periods as may from
time to time be designated by the Distributor, the Distributor
will pay an additional amount of up to .50% of the purchase price
on sales of Class C shares of all or selected Funds purchased to
each participating broker which obtains purchase orders in amounts
exceeding thresholds established from time to time by the Distrib-
utor.
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 Dis-
tributor 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 load 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
46 PIMCO Funds: Pacific Investment Management Series
<PAGE>
telephone exchanges, by a telephone request to the Transfer Agent
at 800-852-8457. The Trust will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine,
and may be liable for any losses due to unauthorized or fraudulent
instructions if it fails to employ such procedures. The Trust will
require a form of personal identification prior to acting on a
caller's telephone instructions, will provide written confirma-
tions of such transactions and will record telephone instructions.
Exchange forms are available from the Distributor at 800-426-0107
and may be used if there will be no change in the registered name
or address of the shareholder. Changes in registration information
or account privileges may be made in writing to the Transfer
Agent, Shareholder Services, Inc., P.O. Box 5866, Denver, Colorado
80217-5866, or by use of forms which are available from the Dis-
tributor. A signature guarantee is required. See "How to Buy
Shares--Signature Guarantee." Telephone exchanges may be made be-
tween 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 purchases if, in
the judgment of the Advisor, the purchase would adversely affect
the Fund and its shareholders. In particular, a pattern of ex-
changes 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 Securities and
Exchange Commission regulations, the Trust will give 60 days' ad-
vance notice to shareholders of any termination or material modi-
fication of the exchange privilege. For further information about
exchange privileges, contact your participating broker or call the
Transfer Agent at 800-426-0107.
With respect to Class B and Class C shares, or Class A shares
subject to a CDSC, if less than all of an investment is exchanged
out of a Fund, any portion of the investment attributable to 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.
PIMCO AUTO Investors may also select the PIMCO Auto Exchange plan which es-
EXCHANGE tablishes automatic periodic exchanges. For further information on
automatic exchanges see "How to Buy Shares--PIMCO Auto Exchange"
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. In
order to discourage short-term trading, the StocksPLUS Short
Strategy Fund imposes a redemption fee, payable to the Fund, of 1%
on all shares of the Fund held for less than three months, which
January 14, 1997 Prospectus 47
<PAGE>
is in addition to any CDSC that may be payable to the Distributor
in respect of Class A, Class B or Class C shares. There is no
charge by the Distributor (other than an applicable CDSC) with re-
spect to a redemption; however, a participating broker who
processes a redemption for an investor may charge customary com-
missions for its services. Dealers and other financial services
firms are obligated to transmit orders promptly. Requests for re-
demption 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 confirmed at
the net asset value effective as of the closing of the Exchange on
that day, less any applicable CDSC.
DIRECT REDEMPTION A shareholder's original Account Application
permits the shareholder to redeem by written request and by tele-
phone (unless the shareholder specifically elects not to utilize
telephone redemptions) and to elect one or more of the additional
redemption procedures described below. A shareholder may change
the instructions indicated on his original Account Application, or
may request additional redemption options, only by transmitting a
written direction to the Transfer Agent. Requests to institute or
change any of the additional redemption procedures will require a
signature guarantee.
Redemption proceeds will normally be mailed to the redeeming
shareholder within seven days or, in the case of wire transfer or
Fund Link redemptions, sent to the designated bank account within
one business day. Fund Link redemptions may be received by the
bank on the second or third business day. In cases where shares
have recently been purchased by personal check, redemption pro-
ceeds may be withheld until the check has been collected, which
may take up to 15 days. To avoid such withholding, investors
should purchase shares by certified or bank check or by wire
transfer.
WRITTEN REQUESTS (Does not apply to shares held in broker "street
name" accounts.) To redeem shares in writing (whether or not rep-
resented by certificates), a shareholder must send the following
items to the Transfer Agent, Shareholder Services, Inc., P.O. Box
5866, Denver, Colorado 80217-5866: (1) a written request for re-
demption 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 redemp-
tions described below, a guarantee of all signatures on the writ-
ten request or on the share certificate or accompanying stock pow-
er, 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 documents which may be required by the Transfer
Agent for redemption by corporations, partnerships or other orga-
nizations, executors, administrators, trustees, custodians or
guardians, or if the redemption is requested by anyone other than
the shareholder(s) of record. Transfers of shares are subject to
the same requirements. A signature guarantee is not required for
redemptions of $50,000 or less, requested by and payable to all
shareholders of record for the account, to be sent to the address
of record for that account. To avoid delay in redemption or trans-
fer, shareholders having any questions about these requirements
should contact the Transfer Agent in writing or by calling 1-800-
426-0107 before submitting a request. Redemption or transfer re-
quests will not be honored until all required documents in the
proper form have been received by the Transfer Agent.
If the proceeds of the redemption (i) exceed $50,000, (ii) are
to be paid to a person other than the record owner, (iii) are to
be sent to an address other than the address of the account on the
Transfer Agent's records, or (iv) are to be paid to a corporation,
partnership, trust or fiduciary, the signature(s) on the 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.
48 PIMCO Funds: Pacific Investment Management Series
<PAGE>
TELEPHONE REDEMPTIONS (Does not apply to shares held in broker
"street name" accounts.) The Trust accepts telephone requests for
redemption of shares for amounts up to $50,000 within any 7 calen-
dar day period, except for investors who have specifically de-
clined telephone redemption privileges on the Account Application
or elected in writing not to utilize telephone redemptions. The
proceeds of a telephone redemption will be sent to the record
shareholder at his record address. Changes in account information
must be made in a written authorization with a signature guaran-
tee. See "How to Buy Shares--Signature Guarantee". Telephone re-
demptions will not be accepted during the 30-day period following
any change in an account's record address.
By completing an Account Application, an investor agrees that
the Trust, the Distributor and the Transfer Agent shall not be 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 the investor on the next Trust
business day after the redemption is effected, provided the re-
demption 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 following Trust business day at
that day's net asset value and the proceeds are usually sent to
the investor on the second following Trust business day. The Trust
reserves the right to terminate or modify the telephone redemption
service at any time. During times of severe disruptions in the se-
curities markets, the volume of calls may make it difficult to re-
deem by telephone, in which case a shareholder may wish to send a
written request for redemption as described under "Written Re-
quests" above. Telephone communications may be recorded by the
Distributor or the Transfer Agent.
FUND LINK REDEMPTIONS (Does not apply to shares held in broker
"street name" accounts.) If a shareholder has established Fund
Link, the shareholder may redeem shares by telephone and have the
redemption proceeds sent to a designated account at a financial
institution. Fund Link is normally established within 45 days of
receipt of a Fund Link Application by the Transfer Agent. To use
Fund Link for redemptions, call the Transfer Agent at 800-852-
8457. Subject to the limitations set forth above under "Telephone
Redemptions," the Distributor, the Trust and the Transfer Agent
may rely on instructions by any registered owner believed to be
genuine and will not be responsible to any shareholder for any
loss, damage or expense arising out of such instructions. Requests
received by the Transfer Agent prior to the close of regular trad-
ing (normally 4:00 p.m. Eastern time) on the Exchange on a busi-
ness day will be processed at the net asset value on that day and
the proceeds (less any CDSC) will normally be sent to the desig-
nated 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 Ex-
change, 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 certifi-
cated form. Changes in bank account information must be made by
completing a new Fund Link Application, signed by all owners of
record of the account,
January 14, 1997 Prospectus 49
<PAGE>
with all signatures guaranteed. See "How to Buy Shares--Signature
Guarantee." See "How to Buy Shares-- PIMCO Fund Link" for informa-
tion on establishing the Fund Link privilege. The Trust may termi-
nate the Fund Link program at any time without notice to share-
holders.
EXPEDITED WIRE TRANSFER REDEMPTIONS (Does not apply to shares held
in broker "street name" accounts.) If a shareholder has given au-
thorization for expedited wire redemption, shares can be redeemed
and the proceeds sent by federal wire transfer to a single previ-
ously designated bank account. Requests received by the Trust
prior to the close of the Exchange will result in shares being re-
deemed that day at the next determined net asset value (less any
CDSC) and normally the proceeds being sent to the designated bank
account the following business day. The bank must be a member of
the Federal Reserve wire system. Delivery of the proceeds of a
wire redemption request may be delayed by the Trust for up to 7
days if the Distributor deems it appropriate under then current
market conditions. Once authorization is on file, the Trust will
honor requests by any person identifying himself as the owner of
an account or the owner's broker by telephone at 800-852-8457 or
by written instructions. The Trust cannot be responsible for the
efficiency of the Federal Reserve wire system or the shareholder's
bank. The Trust does not currently charge for wire transfers. The
shareholder is responsible for any charges imposed by the 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."
CERTIFICATED SHARES To redeem shares for which certificates have
been issued, the certificates must be mailed to or deposited with
the Trust, duly endorsed or accompanied by a duly endorsed stock
power or by a written request for redemption. Signatures must be
guaranteed as described under "How to Buy Shares--Signature Guar-
antee." Further documentation may be requested from institutions
or fiduciary accounts, such as corporations, custodians (e.g., un-
der the Uniform Gifts to Minors Act), executors, administrators,
trustees or guardians ("institutional account owners"). The re-
demption request and stock power must be signed exactly as the ac-
count is registered, including indication of any special capacity
of the registered owner.
AUTOMATIC WITHDRAWAL PLAN An investor who owns or buys shares of a
Fund having a net asset value of $10,000 or more may open an Auto-
matic Withdrawal Plan and have a designated sum of money (not less
than $100 per Fund) paid monthly (or quarterly) to the investor or
another person. Such a plan may be established by completing the
appropriate section of the Account Application or you may obtain
an Automatic Withdrawal Plan Application from the Distributor or
your broker. If an Automatic Withdrawal Plan is set up after the
account is established providing for payment to a person other
than the record shareholder or to an address other than the ad-
dress of record, a signature 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 distri-
butions are reinvested in additional shares of that class of the
Fund at net asset value. Shares in a plan account are then re-
deemed at net asset value (less any applicable CDSC) to make each
withdrawal payment. Any applicable CDSC may be waived for certain
redemptions under an Automatic Withdrawal Plan. See "Alternative
Purchase Arrangements--Waiver of Contingent Deferred Sales
Charges."
50 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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.
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.
January 14, 1997 Prospectus 51
<PAGE>
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 0.20% 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>
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>
All Funds except
the StocksPlus,
Low Duration,
Short-Term and
Money Market
Funds .25% .75%
-------------------------------------
StocksPLUS and
Low
DurationFunds* .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 StocksPLUS and Short-Term Funds, such fee is subject to an in-
crease to a rate of .75% if the Distributor ceases to voluntarily
waive any portion of the fee.
52 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 Investment Company Act of 1940 and are of the type known as
"compensation" plans. This means that, although the Trustees of
the Trust are expected to take into account the expenses of the
Distributor and its predecessors in their periodic review of the
Distribution and Servicing Plans, the fees are payable to compen-
sate the Distributor for services rendered even if the amount paid
exceeds the Distributor'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 the relative sales of each class, except for any ex-
penses that relate only to the sale or servicing of a single
class. The Distributor may make payments to brokers (and with re-
spect 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
-----------------------------
<S> <C>
All Funds except the
Money Market Fund .25%
-----------------------------
Money Market Fund .10%
</TABLE>
CLASS B SHARES*
(PAYABLE ONLY WITH
RESPECT TO SHARES
OUTSTANDING FOR ONE YEAR
OR MORE)
<TABLE>
<CAPTION>
SERVICING
FEE
-----------------
<S> <C>
All Funds .25%
</TABLE>
January 14, 1997 Prospectus 53
<PAGE>
CLASS C SHARES--PURCHASED ON OR AFTER 7/1/91*
(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)
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FEE FEE
-------------------------------------
<S> <C> <C>
All Funds except
the StocksPLUS,
Low Duration,
Short-Term and
Money Market
Funds .25% .65%
-------------------------------------
StocksPLUS and
Low Duration
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
-----------------------------
<S> <C>
All Funds except the
Money Market Fund .25%
-----------------------------
Money Market Fund .10%
</TABLE>
*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.
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.
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
54 PIMCO Funds: Pacific Investment Management Series
<PAGE>
payments under the PIMCO Advisors Funds' Class C Distribution and
Servicing Plan. The allocation of such excess (on a pro rata ba-
sis) as of September 30, 1996 to the Global Income Fund was ap-
proximately $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.
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.
January 14, 1997 Prospectus 55
<PAGE>
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 (other than the
International Bond Fund), dividends are declared daily from net
investment income to shareholders of record at the close of the
previous business day, and distributed to shareholders monthly.
The International Bond, Strategic Balanced and the Equity Funds
intend to declare and pay as a dividend substantially all of their
net investment income on a quarterly basis. Any net realized capi-
tal gains from the sale of portfolio securities will be distrib-
uted 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 distribu-
tion 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.
Shareholders subject to U.S. federal income tax will be subject
to tax on dividends received from a Fund, regardless of whether
received in cash or reinvested in additional shares. Distributions
received by tax-exempt shareholders will not be subject to federal
income tax to the extent permitted under applicable tax law. All
shareholders must treat dividends, other than capital gain divi-
dends or dividends that represent a return of capital to share-
holders, as ordinary income. Dividends designated by a Fund as
capital gain dividends are taxable to shareholders as long-term
capital gain except as provided by an applicable tax exemption.
Any distributions that are not from a Fund's net investment income
or net capital gain may be characterized as a return of capital to
shareholders or, in some cases, as capital gain. Certain dividends
declared in October, November or December of a calendar year are
taxable to shareholders (who otherwise are subject to tax on divi-
dends) as though received on December 31 of that year if paid to
shareholders during January of the following calendar year. For
state income tax purposes, interest on some Federal obligations
generally is not exempt from taxation, whether received directly
by a shareholder or through distributions of investment company
taxable income (for
56 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 liability company controlled by the PIMCO
Managing Directors. Pacific Investment Management's address is 840
Newport Center Drive, Suite 360, Newport Beach, California 92660.
Pacific Investment Management is registered as an investment ad-
viser with the Securities and Exchange Commission and as a commod-
ity 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.
January 14, 1997 Prospectus 57
<PAGE>
Information about the individual portfolio managers responsible
for management of the Trust's currently operational Funds, includ-
ing 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,
TOTAL RETURN FUND II Pacific Investment Management. A
TOTAL RETURN FUND III Fixed Income Portfolio Manager, Mr.
LOW DURATION FUND Gross is one of the founders of Pa-
LOW DURATION FUND II cific Investment Management and has
LOW DURATION FUND III managed the Total Return, Total Re-
turn II, Total Return III, Low Dura-
tion, Low Duration II and Low Dura-
tion Fund III Funds since their in-
ception, May 11, 1987, December 30,
1991, May 1, 1991, May 11, 1987, No-
vember 1, 1991 and December 27, 1996,
respectively.
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 President and Senior International
GLOBAL BOND FUND II Portfolio Manager, Pacific Investment
INTERNATIONAL BOND FUND Management. A Fixed Income Portfolio
Manager, Mr. Thomas has managed the
Foreign Bond, Global Bond and Inter-
national Bond Funds 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.
STOCKSPLUS FUND David H. Edington, Managing Director,
STRATEGIC BALANCED FUND Pacific Investment Management. A
MODERATE DURATION FUND Fixed Income Portfolio Manager, Mr.
SHORT-TERM FUND Edington joined Pacific Investment
Management in 1987 and has managed
the StocksPLUS, Strategic Balanced,
Moderate Duration and Short-Term
Funds since their inception, May 14,
1993, June 28, 1996, January 2, 1997,
and October 7, 1987, respectively.
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 14, 1997.
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>
58 PIMCO Funds: Pacific Investment Management Series
<PAGE>
FUND Pacific Investment Management also serves as administrator to the
ADMINIS- Funds pursuant to an administration agreement with the Trust. Pa-
TRATOR 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. In addition, Pacific Investment Manage-
ment, at its own expense, arranges for the provision of legal, au-
dit, custody, transfer agency (including sub-transfer agency and
other administrative services) and other services for the Funds,
and is responsible for the costs of registration of the Trust's
shares and the printing of prospectuses and shareholder reports
for current shareholders.
The 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 The Funds feature fixed advisory and administrative fee rates. For
AND providing investment advisory and administrative services to the
ADMINIS- Funds as described above, Pacific Investment Management receives
TRATIVE monthly fees from each Fund at an annual rate (i) based on the av-
FEES 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>
StocksPLUS, StocksPLUS Short Strate-
gy, Strategic Balanced and
Commercial Mortgage Securities Funds .40%
--------------------------------------------------
Money Market Fund .15%
--------------------------------------------------
All other Funds .25%
<CAPTION>
ADMINISTRATIVE
FUND FEE RATE
--------------------------------------------------
<S> <C>
Foreign Bond, Global Bond, Global
Bond II and International Bond Funds .45%
--------------------------------------------------
Short-Term and Money Market Funds .35%
--------------------------------------------------
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
January 14, 1997 Prospectus 59
<PAGE>
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.
PORTFOLIO Pursuant to the advisory contract, the Advisor places orders for
TRANSAC- the purchase and sale of portfolio investments for the Funds' ac-
TIONS 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
CAPITAL- The Trust was organized as a Massachusetts business trust on Feb-
IZATION 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.
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.
60 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 (Larkspar, California) with respect to the Money Market
Fund; Sprint Corporation (Westwood, Kansas) with respect to the
Low Duration Fund II; Archdiocese of Los Angeles (Los Angeles,
California) with respect to the Total Return Fund III; Wendel &
Co. (New York, New York) with respect to the Long-Term U.S. Gov-
ernment Fund; Donaldson, Lufkin & Jenrette (Jersey City, New Jer-
sey) 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 Strategic Balanced Fund
and 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 defined 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.
January 14, 1997 Prospectus 61
<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.
62 PIMCO Funds: Pacific Investment Management Series
<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 quali-
SERVICE, ty. They carry the smallest degree of investment risk and are gen-
INC. erally referred to as "gilt edge." Interest payments are protected
by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to 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.
January 14, 1997 Prospectus 63
<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 extremely
strong.
AA: Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only
in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions, or
changing circumstances are more likely to lead to a weakened 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
64 PIMCO Funds: Pacific Investment Management Series
<PAGE>
inadequate capacity to meet timely interest and principal pay-
ments. The BB rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but 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.
January 14, 1997 Prospectus 65
<PAGE>
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.
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.
66 PIMCO Funds: Pacific Investment Management Series
<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
----------------------------------------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
Shareholder Services, Inc., P.O. Box 5866, Denver,
Co 80217
----------------------------------------------------------
For further information about the Trust, call
1-800-426-0107.
P I M C O
Printed on Recycled Paper Using Soy-Based Inks.
<PAGE>
[LOGO OF PIMCO APPEARS HERE]
PIMCO FUNDS
Pacific Investment Management Series
FIXED INCOME FUNDS
Money Market Fund
Short-Term Fund
Low Duration Fund
Low Duration Fund II
Low Duration Fund III
Moderate Duration Fund
High Yield Fund
Total Return Fund
Total Return Fund II
Total Return Fund III
Commercial Mortgage Securities Fund
Long-Term U.S. Government Fund
Real Return Bond Fund
Foreign Bond Fund
Global Bond Fund
Global Bond Fund II
International Bond Fund
EQUITY FUNDS
StocksPLUS Fund
StocksPLUS Short Strategy Fund
BALANCED FUND
Strategic Balanced Fund
PROSPECTUS
- --------------------------------------------------------------------------------
January 14, 1997
<PAGE>
PIMCO Funds: Pacific Investment Management Series
Prospectus
January 14, 1997
PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund") consisting of twenty separate investment portfolios (the
"Funds"). Each Fund has its own investment objective and policies. The Trust
is designed to provide access to the professional investment management
services offered by Pacific Investment Management Company ("PIMCO"), which
serves as investment adviser to the Funds.
This Prospectus describes two classes of shares offered by each Fund: the
"Institutional Class" and the "Administrative Class." Through a separate
prospectus, certain Funds offer up to three additional classes of shares,
Class A shares, Class B shares and Class C shares. See "Other Information--
Multiple Classes of Shares." Shares of the Institutional Class are offered
primarily for direct investment by investors such as pension and profit
sharing plans, employee benefit trusts, endowments, foundations, corporations,
and high net worth individuals (Institutional Class shares may also be offered
through certain financial intermediaries that charge their customers
transaction or other fees with respect to the customers' investments in the
Funds). Shares of the Administrative Class are offered primarily through
employee benefit plan alliances, broker-dealers, and other intermediaries, and
each Fund's Administrative Class shares are subject to service and/or
distribution fees paid to such entities for services they provide to
shareholders of that class. Administrative Class shares of certain Funds are
not currently available for investment. Institutional Class and Administrative
Class shares of the Funds are offered for sale at the relevant next determined
net asset value for each class with no sales charge. Shares of the PIMCO
International Bond Fund are offered only to private account clients of PIMCO.
EACH OF THE FUNDS, EXCEPT THE PIMCO MONEY MARKET FUND, MAY INVEST ALL OF ITS
ASSETS IN DERIVATIVE INSTRUMENTS, SOME OF WHICH MAY BE PARTICULARLY SENSITIVE
TO CHANGES IN PREVAILING INTEREST RATES. UNEXPECTED CHANGES IN INTEREST RATES
MAY ADVERSELY AFFECT THE VALUE OF A FUND'S INVESTMENTS IN PARTICULAR
DERIVATIVE INSTRUMENTS.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. It should be read and retained for
ready reference to information about the Funds.
Information about the investment objective of each Fund, along with a detailed
description of the types of securities in which each Fund may invest, and of
investment policies and restrictions applicable to each Fund, are set forth in
this Prospectus. There can be no assurance that the investment objective of
any Fund will be achieved. Because the market value of the Funds' investments
will change, the investment returns and net asset value per share of each Fund
will vary.
A Statement of Additional Information, dated January 14, 1997, as amended or
supplemented from time to time, containing additional and more detailed
information about the Funds, has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference into this Prospectus. It is
available without charge and may be obtained by writing or calling:
PIMCO Funds
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
Telephone: (800) 927-4648 (Current Shareholders)
(800) 800-0952 (New Accounts)
(800) 987-4626 (PIMCO Infolink Audio Response
Network)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE PIMCO MONEY MARKET FUND (OR IN ANY OTHER FUND) IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT
THE MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
THE PIMCO HIGH YIELD FUND MAY INVEST ALL OF ITS ASSETS, AND THE PIMCO
COMMERCIAL MORTGAGE SECURITIES FUND MAY INVEST UP TO 35% OF ITS ASSETS, IN
JUNK BONDS, WHICH ARE SUBJECT TO HIGH RISK, AND SPECULATIVE WITH REGARD TO
PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS SHOULD CAREFULLY
CONSIDER THESE RISKS BEFORE INVESTING IN THESE FUNDS. SEE "CHARACTERISTICS AND
RISKS OF SECURITIES AND INVESTMENT TECHNIQUES--HIGH YIELD SECURITIES ("JUNK
BONDS")."
January 14, 1997 Prospectus 1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Expense Information..................................................... 8
Financial Highlights.................................................... 10
Investment Objectives and Policies...................................... 16
Investment Restrictions................................................. 25
Characteristics and Risks of Securities and Investment Techniques....... 27
Management of the Trust................................................. 40
Purchase of Shares...................................................... 43
Redemption of Shares.................................................... 46
Portfolio Transactions.................................................. 48
Net Asset Value......................................................... 48
Dividends, Distributions and Taxes...................................... 49
Other Information....................................................... 50
Appendix A -- Description of Duration................................... A-1
Appendix B -- Description of Securities Ratings......................... B-1
</TABLE>
2 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PROSPECTUS SUMMARY
PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund") organized as a Massachusetts business trust on February 19,
1987. The Trust consists of twenty separate investment portfolios (the
"Funds").
COMPARISON OF PIMCO FUNDS
The following chart provides general information about each of the PIMCO
Funds. It is qualified in its entirety by the more complete descriptions of the
Funds appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FIXED INCOME FUNDS PRIMARY INVESTMENTS DURATION CREDIT QUALITY(1) FOREIGN(2)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Money Market Money market instruments Less than
or equal to
90 days Min 95% Aaa or 0%
dollar- Prime 1; Less
weighted than or equal
average to 5% Aa or
maturity Prime 2
- ------------------------------------------------------------------------------------------
Short-Term Money market instruments 0-1 yr B to Aaa; max 0-5%
and short maturity fixed 10% below Baa
income securities
- ------------------------------------------------------------------------------------------
Low Duration Short and intermediate 1-3 yrs B to Aaa; max 0-20%
maturity fixed income 10% below Baa
securities
- ------------------------------------------------------------------------------------------
Low Duration II Same as Low Duration 1-3 yrs A to Aaa 0%
Fund, with quality and
foreign issuer
restrictions
- ------------------------------------------------------------------------------------------
Low Duration III Same as Low Duration 1-3 yrs B to Aaa; max 0-20%
Fund, with prohibitions 10% below Baa
on firms engaged in
socially sensitive
practices
- ------------------------------------------------------------------------------------------
Moderate Duration Short and intermediate 2-5 yrs B to Aaa; max 0-20%
maturity fixed income 10% below Baa
securities
- ------------------------------------------------------------------------------------------
High Yield Higher yielding fixed 2-6 yrs B to Aaa; min 0%
income securities 65% below Baa
- ------------------------------------------------------------------------------------------
Total Return Intermediate maturity 3-6 yrs B to Aaa; max 0-20%
fixed income securities 10% below Baa
- ------------------------------------------------------------------------------------------
Total Return II Same as Total Return 3-6 yrs Baa to Aaa 0%
Fund, with quality and
foreign issuer
restrictions
- ------------------------------------------------------------------------------------------
Total Return III Same as Total Return 3-6 yrs B to Aaa; max 0-20%
Fund, with prohibitions 10% below Baa
on firms engaged in
socially sensitive
practices
- ------------------------------------------------------------------------------------------
Commercial Mortgage Commercial mortgage- 3-8 yrs B to Aaa; max 0%
Securities backed securities 35% below Baa
- ------------------------------------------------------------------------------------------
Long-Term U.S. Long-term maturity fixed greater
than or
equal to
8 yrs A to Aaa 0%
Government income securities
- ------------------------------------------------------------------------------------------
Real Return Bond Inflation-indexed fixed Not A to Aaa 0-35%
income securities applicable,
but see Fund
description
- ------------------------------------------------------------------------------------------
Foreign Bond Intermediate maturity 3-6 yrs B to Aaa; max Greater
hedged foreign fixed 10% below Baa than or
income securities equal to 85%
- ------------------------------------------------------------------------------------------
Global Bond Intermediate maturity 3-6 yrs B to Aaa; max 25-75%
U.S. and foreign fixed 10% below Baa
income securities
- ------------------------------------------------------------------------------------------
Global Bond II Intermediate maturity 3-6 yrs B to Aaa; max 25-75%
U.S. and hedged foreign 10% below Baa
fixed income securities
- ------------------------------------------------------------------------------------------
International Bond Foreign fixed income 0-8 yrs Baa to Aaa Greater
securities (Fund offered than or
only to PIMCO private equal to
account clients) 65%
- ------------------------------------------------------------------------------------------
<CAPTION>
EQUITY FUNDS PRIMARY INVESTMENTS DURATION CREDIT QUALITY(1) FOREIGN(2)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
StocksPLUS S&P 500 stock index 0-1 yr B to Aaa; max 0-20%
derivatives backed by a 10% below Baa
portfolio of short-term
fixed income securities
- ------------------------------------------------------------------------------------------
StocksPLUS Short Inversely correlated S&P 0-1 yr B to Aaa; max 0-20%
Strategy 500 derivatives backed 10% below Baa
by
a portfolio of short-
term fixed income
securities
- ------------------------------------------------------------------------------------------
<CAPTION>
BALANCED FUND PRIMARY INVESTMENTS DURATION CREDIT QUALITY(1) FOREIGN(2)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Strategic Balanced Same as Total Return and 0-6 yrs B to Aaa; max 0-20%
StocksPLUS Funds 10% below Baa
according to PIMCO's
allocation strategy
- ------------------------------------------------------------------------------------------
</TABLE>
1. As rated by Moody's Investors Services, Inc., or if unrated, determined to
be of comparable quality.
2. Percentage limitations relate to foreign currency-denominated securities for
all Funds except the PIMCO Foreign Bond, Global Bond, Global Bond II and
International Bond Funds. Percentage limitations for these three Funds relate
to securities of foreign issuers, denominated in any currency. Each Fund
(except the Low Duration II and Total Return II Funds) may invest beyond these
limits in U.S. dollar-denominated securities of foreign issuers. Neither the
Low Duration Fund II nor the Total Return Fund II may invest in any securities
of foreign issuers.
January 14, 1997 Prospectus 3
<PAGE>
INVESTMENT OBJECTIVES OF THE PIMCO FUNDS
The investment objective of each of the PIMCO Money Market Fund and PIMCO
Short-Term Fund is to seek to obtain maximum current income consistent with
preservation of capital and daily liquidity. The investment objective of the
PIMCO Real Return Bond Fund is to seek to realize maximum real return,
consistent with the preservation of real capital and prudent investment
management. The investment objective of the PIMCO Global Bond Fund II is to
seek maximum total return, consistent with the preservation of capital. The
investment objective of each of the remaining Fixed Income Funds and the PIMCO
Strategic Balanced Fund is to seek to realize maximum total return, consistent
with preservation of capital and prudent investment management. The investment
objective of the PIMCO StocksPLUS Fund is to seek to achieve a total return
which exceeds the total return performance of the Standard & Poor's Composite
Stock Price Index ("S&P 500"). The investment objective of the PIMCO StocksPLUS
Short Strategy Fund is to seek total return through the implementation of short
investment positions on the S&P 500 Index.
INVESTMENT RISKS AND CONSIDERATIONS
The following are some of the primary risks relevant to an investment in the
Funds and to the securities in which the Funds invest. Investors should read
this Prospectus carefully for a more complete discussion of the risks relating
to an investment in the Funds. The value of all securities and other
instruments held by the Funds will vary from time to time in response to a wide
variety of market factors. Consequently, the net asset value per share of each
Fund will vary, except that the PIMCO Money Market Fund shall attempt to
maintain a net asset value of $1.00 per share, although there can be no
assurance that the Fund will be successful in doing so. The net asset value per
share of any Fund may be less at the time of redemption than it was at the time
of investment. Generally, 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 securities rated lower than Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's Corporation ("S&P"). Such
securities carry a high degree of credit risk and are considered speculative by
the major rating agencies.
Certain Funds may invest in securities of foreign issuers, which may be
subject to additional risk factors, including foreign currency and political
risks, not applicable to securities of U.S. issuers. Certain of the Funds'
investment techniques may involve a form of borrowing, which may tend to
exaggerate the effect on net asset value of any increase or decrease in the
market value of a Fund's portfolio and may require liquidation of portfolio
positions when it is not advantageous to do so. Certain Funds may sell
securities short, which exposes the Fund to a risk of loss if the value of the
security sold short should increase.
All Funds (except the PIMCO Money Market Fund) may use derivative
instruments, consisting of futures, options, options on futures, and swap
agreements, for hedging purposes or as part of their investment strategies. Use
of these instruments may involve certain costs and risks, including the risk
that a Fund could not close out a position when it would be most advantageous
to do so, the risk of an imperfect correlation between the value of the
securities being hedged and the value of the particular derivative instrument,
and the risk that unexpected changes in interest rates may adversely affect the
value of a Fund's investments in particular derivative instruments.
Investors should carefully consider the possible tax consequences from
investing in the PIMCO Real Return Bond Fund. The Fund invests primarily in
securities that for tax purposes may be considered to have been issued
originally at a discount. Accordingly, the Fund may be required to make annual
distributions to shareholders in excess of the cash
4 PIMCO Funds: Pacific Investment Management Series
<PAGE>
received by the Fund in a given period from those investments. See
"Characteristics and Risks of Securities and Investment Techniques --
Inflation-Indexed Bonds" and "Dividends, Distributions and Taxes" for
additional information.
The Funds offer their shares to both retail and institutional investors.
Institutional shareholders, some of whom also may be investment advisory
clients of PIMCO, may hold large positions in certain of the Funds. Such
shareholders may on occasion make large redemptions of their holdings in the
Funds to meet their liquidity needs, in connection with strategic adjustments
to their overall portfolio of investments, or for other purposes. Large
redemptions from some Funds could require the Adviser to liquidate portfolio
positions when it is not most desirable to do so. Liquidation of portfolio
holdings also may cause a Fund to realize taxable capital gains.
The PIMCO Commercial Mortgage Securities, Real Return Bond, Foreign Bond,
Global Bond, Global Bond II, and International Bond Funds are "non-diversified"
for purposes of the Investment Company Act of 1940, meaning that they may
invest a greater percentage of their assets in the securities of one issuer
than the other Funds. As "non-diversified" portfolios, these Funds may be more
susceptible to risks associated with a single economic, political or regulatory
occurrence than a diversified portfolio might be. See "Investment Objectives
and Policies" and "Characteristics and Risks of Securities and Investment
Techniques" for additional information.
INVESTMENT ADVISER AND FUND ADMINISTRATOR
Pacific Investment Management Company ("PIMCO") serves as investment adviser
("Adviser") to the Trust, and also serves as the Trust's administrator. The
Adviser is an investment management firm established in 1971 that had
approximately $88.8 billion of assets under management as of November 30, 1996.
The Adviser is a subsidiary of PIMCO Advisors L.P. ("PIMCO Advisors"), which
had approximately $111.2 billion of assets under management as of November 30,
1996. See "Management of the Trust."
PURCHASE OF SHARES
This Prospectus describes two classes of shares of each Fund: the
"Institutional Class" and the "Administrative Class." Shares of the
Institutional Class are offered primarily for direct investment by
institutional investors (Institutional Class shares may also be offered through
certain financial intermediaries that charge their customers transaction or
other fees with respect to the customers' investments in the Funds). Shares of
the Administrative Class are offered primarily through employee benefit plan
alliances, broker-dealers, and other intermediaries, and each Fund pays service
and distribution fees to such entities for services they provide to such Fund's
shareholders of that class. Administrative Class shares of certain Funds are
not currently available for investment.
Shares of the Institutional Class and Administrative Class of the Funds are
offered at the relevant next determined net asset value with no sales charge.
The minimum initial investment for shares of either class is $5 million,
subject to certain exceptions. Shares of either class may also be offered to
clients of the Adviser and its affiliates. Shares of the PIMCO International
Bond Fund are offered only to private account clients of PIMCO. See "Purchase
of Shares."
January 14, 1997 Prospectus 5
<PAGE>
REDEMPTIONS AND EXCHANGES
Institutional Class and Administrative Class shares of each Fund may be
redeemed without cost at the relevant net asset value per share of the class of
that Fund next determined after receipt of the redemption request. The PIMCO
StocksPLUS Short Strategy Fund imposes a redemption fee, payable to the Fund,
of 1% on all shares of the Fund held for less than three months. The redemption
price may be more or less than the purchase price.
Institutional Class and Administrative Class shares of any Fund may be
exchanged on the basis of relative net asset values, for shares of the same
class of any other Fund of the Trust offered generally to the public, except
that only private account clients of PIMCO may purchase shares of the PIMCO
International Bond Fund. Shares of a Fund may also be exchanged for shares of
the same class of a series of PIMCO Funds: Multi-Manager Series, an affiliated
mutual fund family, comprised primarily of equity portfolios managed by the
subsidiary partnerships of PIMCO Advisors. See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
Each Fund will distribute dividends from net investment income at least
monthly (quarterly in the case of the PIMCO International Bond Fund, PIMCO
Strategic Balanced Fund and Equity Funds), and any net realized capital gains
at least annually. All dividends and distributions will be reinvested
automatically at net asset value in additional shares of the same class of the
same Fund, unless cash payment is requested. Dividends from net investment
income with respect to Administrative Class shares will be lower than those
paid with respect to Institutional Class shares, reflecting the payment of
service or distribution fees by that class. See "Dividends, Distributions and
Taxes."
6 PIMCO Funds: Pacific Investment Management Series
<PAGE>
(This page left blank intentionally)
January 14, 1997 Prospectus 7
<PAGE>
EXPENSE INFORMATION
SHAREHOLDER TRANSACTION EXPENSES (INSTITUTIONAL CLASS AND ADMINISTRATIVE
CLASS):
<TABLE>
<S> <C>
Sales Load Imposed on Purchases.......................................... None
Sales Load Imposed on Reinvested Dividends............................... None
Redemption Fee:
StocksPLUS Short Strategy Fund......................................... 1%*
All Other Funds........................................................ None
Exchange Fee............................................................. None
</TABLE>
*On shares held less than 3 months.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
ADVISORY ADMINISTRATIVE TOTAL
INSTITUTIONAL CLASS SHARES FEE FEE EXPENSES
-------------------------- -------- -------------- --------
<S> <C> <C> <C>
Money Market Fund........................... 0.15% 0.20% 0.35%
Short-Term Fund............................. 0.25 0.20 0.45
Low Duration Fund........................... 0.25 0.18 0.43
Low Duration Fund II........................ 0.25 0.25 0.50
Low Duration Fund III....................... 0.25 0.25 0.50
Moderate Duration Fund...................... 0.25 0.20 0.45
High Yield Fund............................. 0.25 0.25 0.50
Total Return Fund........................... 0.25 0.18 0.43
Total Return Fund II........................ 0.25 0.25 0.50
Total Return Fund III....................... 0.25 0.25 0.50
Commercial Mortgage Securities Fund......... 0.40 0.25 0.65
Long-Term U.S. Government Fund.............. 0.25 0.25 0.50
Real Return Bond Fund....................... 0.25 0.25 0.50
Foreign Bond Fund........................... 0.25 0.25 0.50
Global Bond Fund............................ 0.25 0.30 0.55
Global Bond Fund II......................... 0.25 0.30 0.55
International Bond Fund..................... 0.25 0.25 0.50
StocksPLUS Fund............................. 0.40 0.25 0.65
StocksPLUS Short Strategy Fund.............. 0.40 0.25 0.65
Strategic Balanced Fund..................... 0.40 0.25 0.65
</TABLE>
<TABLE>
<CAPTION>
ADVISORY ADMINISTRATIVE 12B-1 (SERVICE) TOTAL
ADMINISTRATIVE CLASS SHARES FEE FEE FEE EXPENSES
--------------------------- -------- -------------- --------------- --------
<S> <C> <C> <C> <C>
Money Market Fund.......... 0.15% 0.20% 0.25% 0.60%
Short-Term Fund............ 0.25 0.20 0.25 0.70
Low Duration Fund.......... 0.25 0.18 0.25 0.68
Low Duration Fund II....... 0.25 0.25 0.25 0.75
Low Duration Fund III...... 0.25 0.25 0.25 0.75
Moderate Duration Fund..... 0.25 0.20 0.25 0.70
High Yield Fund............ 0.25 0.25 0.25 0.75
Total Return Fund.......... 0.25 0.18 0.25 0.68
Total Return Fund II....... 0.25 0.25 0.25 0.75
Total Return Fund III...... 0.25 0.25 0.25 0.75
Commercial Mortgage
Securities Fund........... 0.40 0.25 0.25 0.90
Long-Term U.S. Government
Fund...................... 0.25 0.25 0.25 0.75
Real Return Bond Fund...... 0.25 0.25 0.25 0.75
Foreign Bond Fund.......... 0.25 0.25 0.25 0.75
Global Bond Fund........... 0.25 0.30 0.25 0.80
Global Bond Fund II........ 0.25 0.30 0.25 0.80
International Bond Fund.... 0.25 0.25 0.25 0.75
StocksPLUS Fund............ 0.40 0.25 0.25 0.90
StocksPLUS Short Strategy
Fund...................... 0.40 0.25 0.25 0.90
Strategic Balanced Fund.... 0.40 0.25 0.25 0.90
</TABLE>
8 PIMCO Funds: Pacific Investment Management Series
<PAGE>
For a more detailed discussion of the Funds' fees and expenses, see "Fund
Administrator," "Advisory and Administrative Fees," and "Service Fees" under
the caption "Management of the Trust."
EXAMPLE OF FUND EXPENSES:
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a hypothetical 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund............................ $4 $11 $20 $44
Short-Term Fund.............................. 5 14 25 57
Low Duration Fund............................ 4 14 24 54
Low Duration Fund II......................... 5 16 28 63
Low Duration Fund III........................ 5 16 28 63
Moderate Duration Fund....................... 5 14 25 57
High Yield Fund.............................. 5 16 28 63
Total Return Fund............................ 4 14 24 54
Total Return Fund II......................... 5 16 28 63
Total Return Fund III........................ 5 16 28 63
Commercial Mortgage Securities Fund.......... 7 21 36 81
Long-Term U.S. Government Fund............... 5 16 28 63
Real Return Bond Fund........................ 5 16 28 63
Foreign Bond Fund............................ 5 16 28 63
Global Bond Fund............................. 6 18 31 69
Global Bond Fund II.......................... 6 18 31 69
International Bond Fund...................... 5 16 28 63
StocksPLUS Fund.............................. 7 21 36 81
StocksPLUS Short Strategy Fund............... 7 21 36 81
Strategic Balanced Fund...................... 7 21 36 81
<CAPTION>
ADMINISTRATIVE CLASS SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund............................ $6 $19 $33 $75
Short-Term Fund.............................. 7 22 39 87
Low Duration Fund............................ 7 22 38 85
Low Duration Fund II......................... 8 24 42 93
Low Duration Fund III........................ 8 24 42 93
Moderate Duration Fund....................... 7 22 39 87
High Yield Fund.............................. 8 24 42 93
Total Return Fund............................ 7 22 38 85
Total Return Fund II......................... 8 24 42 93
Total Return Fund III........................ 8 24 42 93
Commercial Mortgage Securities Fund.......... 9 29 50 111
Long-Term U.S. Government Fund............... 8 24 42 93
Real Return Bond Fund........................ 8 24 42 93
Foreign Bond Fund ........................... 8 24 42 93
Global Bond Fund............................. 8 26 44 99
Global Bond Fund II.......................... 8 26 44 99
International Bond Fund...................... 8 24 42 93
StocksPLUS Fund.............................. 9 29 50 111
StocksPLUS Short Strategy Fund............... 9 29 50 111
Strategic Balanced Fund...................... 9 29 50 111
</TABLE>
The above tables are provided to assist investors in understanding the
various expenses which may be borne directly or indirectly in connection with
an investment in the Funds. This example should not be considered a
representation of past or future expenses or performance. Actual expenses may
be higher or lower than those shown.
January 14, 1997 Prospectus 9
<PAGE>
FINANCIAL HIGHLIGHTS
The following information regarding selected per share data and ratios for
shares of certain of the Funds is part of the Trust's financial statements,
which are included in the Trust's Annual Report dated March 31, 1996, and
Semi-Annual Report dated September 30, 1996, and incorporated by reference in
the Statement of Additional Information. The Trust's audited financial
statements and selected per share data and ratios appearing below have been
examined by Price Waterhouse LLP, independent accountants, whose opinion
thereon is also included in the Annual Report, which may be obtained without
charge. Information contained in the Trust's Semi-Annual Report is unaudited.
Information is presented for each Fund of the Trust which had investment
operations during the reporting periods. Information regarding the PIMCO Money
Market Fund and PIMCO Total Return Fund II reflects the operational history of
the Money Market Fund and PIMCO Managed Bond and Income Fund, two former
series of PIMCO Funds: Equity Advisors Series, which were reorganized as
series of the Trust as of November 1, 1995. On that date, the investment
advisory responsibilities of Pacific Mutual Life Insurance Company with
respect to the Money Market Fund were assumed by PIMCO. Information for these
Funds for each of the five years in the period ended October 31, 1995, has
been audited by the Funds' former independent accountants.
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET REALIZED TOTAL INCOME DIVIDENDS DIVIDENDS IN DISTRIBUTIONS DISTRIBUTIONS
YEAR OR VALUE NET AND UNREALIZED (LOSS) FROM FROM NET EXCESS OF NET FROM NET IN EXCESS OF
PERIOD BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT REALIZED NET REALIZED
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS CAPITAL GAINS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
Institutional Class
9/30/96* $ 1.00 $0.03 $ 0.00 $0.03 $(0.03) $ 0.00 $ 0.00 $ 0.00
11/1/95-3/31/96 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00 0.00
10/31/95 1.00 0.06 0.00 0.06 (0.06) 0.00 0.00 0.00
10/31/94 1.00 0.03 0.00 0.03 (0.03) 0.00 0.00 0.00
10/31/93 1.00 0.03 0.00 0.03 (0.03) 0.00 0.00 0.00
10/31/92 1.00 0.04 0.00 0.04 (0.04) 0.00 0.00 0.00
10/31/91(a) 1.00 0.04 0.00 0.04 (0.04) 0.00 0.00 0.00
Administrative Class
9/30/96* 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00 0.00
3/31/96 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00 0.00
10/31/95(b) 1.00 0.05 0.00 0.05 (0.05) 0.00 0.00 0.00
SHORT-TERM FUND
Institutional Class
9/30/96* $ 9.92 $0.30 $ 0.05 $0.35 $(0.29) $(0.01) $ 0.00 $ 0.00
3/31/96 9.79 0.69 0.12 0.81 (0.65) (0.03) 0.00 0.00
3/31/95 9.92 0.56 (0.13) 0.43 (0.55) (0.01) 0.00 0.00
3/31/94 10.03 0.48 (0.12) 0.36 (0.47) 0.00 0.00 0.00
3/31/93 10.01 0.37 0.02 0.39 (0.37) 0.00 0.00 0.00
3/31/92 10.02 0.55 0.00 0.55 (0.55) 0.00 (0.01) 0.00
3/31/91 9.99 0.77 0.04 0.81 (0.78) 0.00 0.00 0.00
3/31/90 10.00 0.86 (0.01) 0.85 (0.86) 0.00 0.00 0.00
3/31/89 10.00 0.81 (0.01) 0.80 (0.80) 0.00 0.00 0.00
3/31/88(c) 10.00 0.33 0.00 0.33 (0.33) 0.00 0.00 0.00
Administrative Class
9/30/96* 9.92 0.29 0.05 0.34 (0.28) (0.01) 0.00 0.00
3/31/96(d) 9.98 0.11 (0.07) 0.04 (0.10) 0.00 0.00 0.00
LOW DURATION FUND
Institutional Class
9/30/96* $ 9.95 $0.33 $ 0.01 $0.34 $(0.31) $(0.02) $ 0.00 $ 0.00
3/31/96 9.76 0.66 0.21 0.87 (0.68) 0.00 0.00 0.00
3/31/95 10.04 0.65 (0.30) 0.35 (0.54) 0.00 0.00 0.00
3/31/94 10.30 0.62 (0.16) 0.46 (0.64) (0.03) (0.05) 0.00
3/31/93 10.20 0.75 0.22 0.97 (0.74) 0.00 (0.13) 0.00
3/31/92 10.02 0.83 0.25 1.08 (0.82) 0.00 (0.08) 0.00
3/31/91 9.89 0.89 0.12 1.01 (0.88) 0.00 0.00 0.00
3/31/90 9.70 0.88 0.20 1.08 (0.88) 0.00 (0.01) 0.00
3/31/89 9.99 0.89 (0.25) 0.64 (0.90) 0.00 (0.03) 0.00
3/31/88(e) 10.00 0.74 (0.01) 0.73 (0.74) 0.00 0.00 0.00
Administrative Class
9/30/96* 9.95 0.31 0.01 0.32 (0.30) (0.01) 0.00 0.00
3/31/96 9.76 0.63 0.21 0.84 (0.65) 0.00 0.00 0.00
3/31/95(f) 9.67 0.18 0.07 0.25 (0.14) 0.00 0.00 0.00
LOW DURATION FUND II
Institutional Class
9/30/96* $ 9.82 $0.32 $(0.02) $0.30 $(0.26) $(0.06) $ 0.00 $ 0.00
3/31/96 9.77 0.66 0.04 0.70 (0.60) (0.03) 0.00 0.00
3/31/95 9.94 0.62 (0.16) 0.46 (0.58) (0.03) 0.00 0.00
3/31/94 10.25 0.60 (0.28) 0.32 (0.58) 0.00 (0.05) 0.00
3/31/93 10.04 0.63 0.25 0.88 (0.64) 0.00 (0.03) 0.00
3/31/92(g) 10.00 0.28 0.03 0.31 (0.27) 0.00 0.00 0.00
</TABLE>
- --------
(a) From commencement of operations, March 1, 1991.
(e) From commencement of operations,
May 11, 1987.
(b) From commencement of operations, January 24, 1995.
(f) From commencement of operations,
December 31, 1994.
(c) From commencement of operations, October 7, 1987.
(d) From commencement of operations, February 1, 1996.
*Unaudited. (g) From commencement of operations,
November 1, 1991.
10 PIMCO Funds: Multi-Manager Series
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
RATIO OF NET
NET ASSET NET ASSETS RATIO OF INVESTMENT
TAX BASIS VALUE END EXPENSES TO INCOME TO PORTFOLIO
RETURN TOTAL END TOTAL OF PERIOD AVERAGE AVERAGE TURNOVER
OF CAPITAL DISTRIBUTIONS OF PERIOD RETURN (000'S) NET ASSETS NET ASSETS RATE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $(0.03) $ 1.00 2.61% $ 28,300 0.35%+ 5.15%+ N/A
0.00 (0.02) 1.00 2.58 25,935 0.33+ 5.44+ N/A
0.00 (0.06) 1.00 5.67 7,741 0.40 5.53 N/A
0.00 (0.03) 1.00 3.53 7,454 0.40 3.52 N/A
0.00 (0.03) 1.00 2.83 5,836 0.40 2.78 N/A
0.00 (0.04) 1.00 3.85 7,817 0.40 4.02 N/A
0.00 (0.04) 1.00 3.78 45,406 0.53+ 5.20 N/A
0.00 (0.02) 1.00 2.49 12 0.60+ 5.00+ N/A
0.00 (0.02) 1.00 2.47 10 0.61+ 5.95+ N/A
0.00 (0.05) 1.00 4.21 10 0.68+ 5.94+ N/A
$ 0.00 $(0.30) $ 9.97 3.63% $ 128,198 0.45%+ 6.28%+ 56.87%
0.00 (0.68) 9.92 8.49 101,797 0.58 6.86 214.78
0.00 (0.56) 9.79 4.46 90,114 0.50 5.67 79.30
0.00 (0.47) 9.92 3.66 73,176 0.50 4.87 45.81
0.00 (0.37) 10.03 3.94 46,905 0.50 3.67 54.50
0.00 (0.56) 10.01 5.66 44,172 0.50 5.52 94.62
0.00 (0.78) 10.02 8.44 44,820 0.50 7.83 115.26
0.00 (0.86) 9.99 8.86 13,649 0.50 8.61 140.28
0.00 (0.80) 10.00 8.29 14,401 0.50 8.57 178.21
0.00 (0.33) 10.00 7.17+ 5,546 0.50+ 6.99+ 11.57
0.00 (0.29) 9.97 3.50 2,361 0.70+ 6.08+ 56.87
0.00 (0.10) 9.92 0.41 3,999 0.52+ 4.44+ 214.78
$ 0.00 $(0.33) $ 9.96 3.46% $2,685,682 0.43%+ 6.60%+ 114.52%
0.00 (0.68) 9.95 9.13 2,677,574 0.42 6.88 208.79
(0.09) (0.63) 9.76 3.60 2,332,032 0.41 6.46 77.14
0.00 (0.72) 10.04 4.56 2,298,255 0.43 6.05 42.69
0.00 (0.87) 10.30 9.91 1,403,594 0.45 7.21 67.51
0.00 (0.90) 10.20 11.30 906,650 0.50 8.08 37.21
0.00 (0.88) 10.02 10.60 516,325 0.57 8.97 44.31
0.00 (0.89) 9.89 11.36 317,425 0.60 8.83 161.91
0.00 (0.93) 9.70 6.49 172,046 0.60 8.83 56.23
0.00 (0.74) 9.99 8.64+ 115,865 0.60+ 8.85+ 77.88
0.00 (0.31) 9.96 3.33 3,935 0.68+ 6.40+ 114.52
0.00 (0.65) 9.95 8.83 2,536 0.69 6.73 208.79
(0.02) (0.16) 9.76 2.53 771 0.66+ 6.93+ 77.14
$ 0.00 $(0.32) $ 9.80 3.09% $ 256,720 0.50%+ 6.42%+ 147.94%
(0.02) (0.65) 9.82 7.30 253,299 0.48 6.61 225.02
(0.02) (0.63) 9.77 4.80 170,866 0.47 6.35 102.43
0.00 (0.63) 9.94 3.15 141,411 0.50 5.73 53.78
0.00 (0.67) 10.25 8.95 101,025 0.50 6.16 95.33
0.00 (0.27) 10.04 7.72+ 31,027 0.51+ 6.80+ 12.57
</TABLE>
- --------
+ Annualized.
January 14, 1997 Prospectus 11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET REALIZED TOTAL INCOME DIVIDENDS DIVIDENDS IN DISTRIBUTIONS DISTRIBUTIONS
YEAR OR VALUE NET AND UNREALIZED (LOSS) FROM FROM NET EXCESS OF NET FROM NET IN EXCESS OF
PERIOD BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT REALIZED NET REALIZED
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS CAPITAL GAINS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HIGH YIELD FUND
Institutional Class
9/30/96* $10.94 $0.46 $ 0.19 $ 0.65 $ (0.48) $ 0.00 $ 0.00 $ 0.00
3/31/96 10.42 1.04 0.54 1.58 (1.01) 0.00 (0.05) 0.00
3/31/95 10.52 0.99 (0.12) 0.87 (0.93) (0.02) 0.00 (0.02)
3/31/94 10.41 0.90 0.18 1.08 (0.90) 0.00 (0.07) 0.00
3/31/93(h) 10.00 0.24 0.41 0.65 (0.24) 0.00 0.00 0.00
Administrative Class
9/30/96* 10.94 0.45 0.19 0.64 (0.47) 0.00 0.00 0.00
3/31/96 10.41 1.02(+) 0.54(+) 1.56 (0.98) 0.00 (0.05) 0.00
3/31/95(i) 10.14 0.23 0.25 0.48 (0.21) 0.00 0.00 0.00
TOTAL RETURN FUND
Institutional Class
9/30/96* $10.29 $0.34 $ 0.00 $ 0.34 $ (0.32) $(0.02) $ 0.00 $ 0.00
3/31/96 10.02 0.81 0.29 1.10 (0.61) (0.10) (0.12) 0.00
3/31/95 10.25 0.64 (0.24) 0.40 (0.56) (0.05) 0.00 0.00
3/31/94 10.91 0.68 (0.16) 0.52 (0.71) (0.15) (0.30) (0.02)
3/31/93 10.46 0.76 0.76 1.52 (0.76) 0.00 (0.31) 0.00
3/31/92 10.15 0.86 0.60 1.46 (0.86) 0.00 (0.29) 0.00
3/31/91 9.77 0.90 0.39 1.29 (0.90) 0.00 (0.01) 0.00
3/31/90 9.62 0.87 0.21 1.08 (0.87) 0.00 (0.06) 0.00
3/31/89 10.04 0.90 (0.23) 0.67 (0.91) 0.00 (0.18) 0.00
3/31/88(e) 10.00 0.67 0.04 0.71 (0.67) 0.00 0.00 0.00
Administrative Class
9/30/96* 10.29 0.33 0.00 0.33 (0.31) (0.02) 0.00 0.00
3/31/96 10.01 0.80 0.29 1.09 (0.60) (0.09) (0.12) 0.00
3/31/95(j) 10.00 0.31 0.06 0.37 (0.32) (0.03) 0.00 0.00
TOTAL RETURN FUND II
Institutional Class
9/30/96* $ 9.89 $0.31 $(0.04) $ 0.27 $ (0.30) $(0.01) $ 0.00 $ 0.00
11/1/95-3/31/96 10.21 0.25 (0.17) 0.08 (0.26) 0.00 (0.09) (0.05)
10/31/95 9.39 0.69 0.76 1.45 (0.62) 0.00 (0.01) 0.00
10/31/94 10.38 0.51 (0.88) (0.37) (0.51) 0.00 (0.05) 0.00
10/31/93 9.99 0.61 0.74 1.35 (0.61) 0.00 (0.35) 0.00
10/31/92(k) 10.00 0.49 0.23 0.72 (0.49) 0.00 (0.24) 0.00
Administrative Class
9/30/96* 9.89 0.30 (0.04) 0.26 (0.30) 0.00 0.00 0.00
3/31/96 10.22 0.24 (0.17) 0.07 (0.26) 0.00 (0.09) (0.05)
10/31/95(l) 9.34 0.56 0.88 1.44 (0.55) 0.00 (0.01) 0.00
TOTAL RETURN FUND III
Institutional Class
9/30/96* $ 9.13 $0.29 $ 0.03 $ 0.32 $ (0.26) $(0.02) $ 0.00 $ 0.00
3/31/96 8.99 0.72 0.17 0.89 (0.54) (0.09) (0.12) 0.00
3/31/95 9.18 0.59 (0.16) 0.43 (0.52) (0.02) 0.00 0.00
3/31/94 9.81 0.59 (0.03) 0.56 (0.66) (0.12) (0.20) (0.21)
3/31/93 10.31 0.64 0.75 1.39 (0.64) 0.00 (1.25) 0.00
3/31/92(m) 10.00 0.63 0.58 1.21 (0.63) 0.00 (0.27) 0.00
LONG-TERM U.S. GOV'T FUND
Institutional Class
9/30/96* $ 9.96 $0.38 $(0.23) $ 0.15 $ (0.35) $ 0.00 $ 0.00 $ 0.00
3/31/96 9.85 0.83 0.66 1.49 (0.68) (0.04) (0.50) (0.16)
3/31/95 9.96 0.60 (0.09) 0.51 (0.60) (0.02) 0.00 0.00
3/31/94 11.36 0.62 (0.06) 0.56 (1.05) (0.04) (0.70) (0.17)
3/31/93 10.82 0.70 1.66 2.36 (0.70) 0.00 (1.12) 0.00
3/31/92(n) 10.00 0.64 0.85 1.49 (0.64) 0.00 (0.03) 0.00
FOREIGN BOND FUND
Institutional Class
9/30/96* $10.50 $0.26 $ 0.84 $ 1.10 $ (0.22) $ 0.00 $ 0.00 $ 0.00
3/31/96 9.38 0.96 1.03 1.99 (0.34) (0.25) (0.25) (0.03)
3/31/95 10.18 0.38 (0.57) (0.19) 0.00 0.00 0.00 0.00
3/31/94 10.34 0.55 0.27 0.82 (0.55) 0.00 (0.06) (0.37)
3/31/93(o) 10.00 0.16 0.34 0.50 (0.16) 0.00 0.00 0.00
</TABLE>
- --------
(h) From commencement of operations, December 16, 1992.
(m) From commencement of operations, May
1, 1991.
(i) From commencement of operations, January 16, 1995.
(n) From commencement of operations,
July 1, 1991.
(j) From commencement of operations, September 7, 1994.
(k) From commencement of operations, December 30, 1991.
(o) From commencement of operations,
December 3, 1992. Formerly the PIMCO
Foreign Fund.
(l) From commencement of operations, November 30, 1994.
+ Per share amounts based on average number of shares outstanding during the
period.
12 PIMCO Funds: Pacific Investment Management Series
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET ASSETS RATIO OF RATIO OF NET
TAX BASIS VALUE END EXPENSES TO INVESTMENT PORTFOLIO
RETURN TOTAL END TOTAL OF PERIOD AVERAGE INCOME TO AVERAGE TURNOVER
OF CAPITAL DISTRIBUTIONS OF PERIOD RETURN (000'S) NET ASSETS NET ASSETS RATE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $(0.48) $11.11 6.17% $ 754,183 0.50%+ 9.00%+ 28.20%
0.00 (1.06) 10.94 15.70 536,983 0.47 9.28 65.79
0.00 (0.97) 10.42 8.81 336,310 0.48 9.37 77.60
0.00 (0.97) 10.52 10.65 219,976 0.50 8.40 112.40
0.00 (0.24) 10.41 24.43+ 24,069 0.50+ 8.24+ 29.74
0.00 (0.47) 11.11 6.04 3,038 0.75+ 8.56+ 28.20
0.00 (1.03) 10.94 15.54 1,007 0.80 9.16 65.79
0.00 (0.21) 10.41 4.66 41 0.73+ 10.12+ 77.60
$ 0.00 $(0.34) $10.29 3.41% $11,373,400 0.43%+ 6.72%+ 89.71%
0.00 (0.83) 10.29 11.14 10,247,605 0.42 6.85 221.13
(0.02) (0.63) 10.02 4.22 7,239,735 0.41 6.72 98.48
0.00 (1.18) 10.25 4.55 5,008,160 0.41 6.27 176.74
0.00 (1.07) 10.91 15.29 3,155,441 0.43 7.07 89.95
0.00 (1.15) 10.46 14.90 1,813,935 0.46 8.18 110.46
0.00 (0.91) 10.15 13.74 975,619 0.49 9.10 98.68
0.00 (0.93) 9.77 11.36 659,663 0.60 8.60 109.90
0.00 (1.09) 9.62 5.96 192,613 0.60 8.53 195.26
0.00 (0.67) 10.04 8.31+ 45,172 0.60+ 7.66+ 75.34
0.00 (0.33) 10.29 3.28 135,539 0.68+ 6.64+ 89.71
0.00 (0.81) 10.29 10.99 104,618 0.68 6.64 221.13
(0.01) (0.36) 10.01 3.76 9,037 0.66+ 6.54+ 98.48
$ 0.00 $(0.31) $ 9.85 2.86% $ 442,834 0.50%+ 6.43%+ 151.18%
0.00 (0.40) 9.89 .78 455,583 0.51+ 6.36+ 73.18
0.00 (0.63) 10.21 15.96 442,091 0.50 6.47 41.05
(0.06) (0.62) 9.39 (3.58) 357,900 0.50 5.22 99.46
0.00 (0.96) 10.38 13.79 371,260 0.50 5.38 49.71
0.00 (0.73) 9.99 7.52 287,113 0.50+ 5.83+ 133.61
0.00 (0.30) 9.85 2.73 4,465 0.75+ 6.15+ 151.18
0.00 (0.40) 9.89 0.57 3,320 0.76+ 6.06+ 73.18
0.00 (0.56) 10.22 15.92 3,163 0.76+ 6.22+ 40.91
$ 0.00 $(0.28) $ 9.17 3.63% $ 158,505 0.50%+ 6.28%+ 74.95%
0.00 (0.75) 9.13 10.06 142,223 0.50 6.82 176.97
(0.08) (0.62) 8.99 4.92 99,497 0.50 6.95 145.98
0.00 (1.19) 9.18 5.64 97,522 0.50 6.00 95.21
0.00 (1.89) 9.81 14.47 65,349 0.51 6.06 161.38
0.00 (0.90) 10.31 13.61+ 47,908 0.60+ 6.75+ 521.14
$ 0.00 $(0.35) $ 9.76 1.61% $ 21,860 0.50%+ 7.43%+ 152.18%
0.00 (1.38) 9.96 14.83 32,511 0.56 6.80 238.32
0.00 (0.62) 9.85 5.50 32,349 0.50 6.62 88.92
0.00 (1.96) 9.96 4.13 25,978 0.50 5.37 97.67
0.00 (1.82) 11.36 23.42 22,946 0.50 6.16 320.08
0.00 (0.67) 10.82 20.57+ 15,900 0.50+ 7.91+ 427.81
$ 0.00 $(0.22) $11.38 10.59% $ 214,911 0.48%+ 4.00%+ 518.75%
0.00 (0.87) 10.50 21.80 258,493 0.52 5.83 1,233.71
(0.61) (0.61) 9.38 (1.85) 232,700 0.47 6.44 299.45
0.00 (0.98) 10.18 7.79 498,521 0.54 5.12 260.34
0.00 (0.16) 10.34 16.23+ 178,895 0.65+ 4.97+ 122.55
</TABLE>
- --------
+ Annualized.
January 14, 1997 Prospectus 13
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET REALIZED TOTAL INCOME DIVIDENDS DIVIDENDS IN DISTRIBUTIONS DISTRIBUTIONS
YEAR OR VALUE NET AND UNREALIZED (LOSS) FROM FROM NET EXCESS OF NET FROM NET IN EXCESS OF
PERIOD BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT REALIZED NET REALIZED
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME CAPITAL GAINS CAPITAL GAINS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL BOND FUND
Institutional Class
9/30/96* $10.05 $0.25 $ 0.43 $ 0.68 $(0.25) $0.00 $0.00 $0.00
3/31/96 9.87 0.45 0.72 1.17 (0.61) 0.00 (0.21) (0.17)
3/31/95 9.85 0.69 (0.14) 0.55 (0.29) (0.24) 0.00 0.00
3/31/94(p) 10.00 0.16 (0.15) 0.01 (0.16) 0.00 0.00 0.00
Administrative Class
9/30/96(q)* 10.28 0.08 0.20 0.28 (0.08) 0.00 0.00 0.00
INTERNATIONAL BOND FUND
Institutional Class
9/30/96* $ 8.04 $0.39 $ 0.37 $ 0.76 $(0.10) $0.00 $0.00 $0.00
3/31/96 7.44 0.63 0.49 1.12 (0.39) (0.13) 0.00 0.00
3/31/95 9.93 2.18 (2.41) (0.23) (2.26) 0.00 0.00 0.00
3/31/94 10.53 0.47 0.24 0.71 (0.96) 0.00 (0.35) 0.00
3/31/93 10.02 0.62 0.42 1.04 (0.48) 0.00 (0.05) 0.00
3/31/92 9.94 0.79 0.27 1.06 (0.78) 0.00 (0.20)++ 0.00
3/31/91 9.78 0.79 0.30 1.09 (0.83) 0.00 (0.10) 0.00
3/31/90(r) 10.00 0.15 (0.27) (0.12) (0.10) 0.00 0.00 0.00
STOCKSPLUS FUND
Institutional Class
9/30/96* $11.16 $0.53 $ 0.33 $ 0.86 $(0.42) $0.00 $0.00 $0.00
3/31/96 10.48 0.91 2.48 3.39 (1.05) 0.00 (1.62) (0.04)
3/31/95 9.52 1.03 0.69 1.72 (0.76) 0.00 0.00 0.00
3/31/94(s) 10.00 0.34 0.10 0.44 (0.34) (0.01) (0.10) (0.47)
STRATEGIC BALANCED FUND
Institutional Class
9/30/96(t)* $10.00 $0.20 $ 0.15 $ 0.35 $ 0.00 $0.00 $0.00 $0.00
</TABLE>
- --------
(p) From commencement of operations, (s) From commencement of operations,
November 23, 1993. Formerly the May 14, 1993.
PIMCO Global Fund.
(q) From commencement of operations, (t) From commencement of operations,
August 1, 1996. Formerly the June 28, 1996.
PIMCO Global Fund.
(r) From commencement of operations, ++ Gain distribution includes $0.14
December 13, 1989. Formerly the per share characterized for tax
PIMCO International Fund. purposes as distributions from
ordinary income.
* Unaudited.
14 PIMCO Funds: Pacific Investment Management Series
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
NET ASSET NET ASSETS RATIO OF RATIO OF NET
TAX BASIS VALUE END EXPENSES TO INVESTMENT PORTFOLIO
RETURN TOTAL END TOTAL OF PERIOD AVERAGE INCOME TO AVERAGE TURNOVER
OF CAPITAL DISTRIBUTIONS OF PERIOD RETURN (000'S) NET ASSETS NET ASSETS RATE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(0.25) $10.48 6.91% $ 160,821 0.55%+ 4.99%+ 453.28%
0.00 (0.99) 10.05 12.04 133,833 0.58 5.88 1,082.91
0.00 (0.53) 9.87 10.35 76,476 0.64 5.59 461.48
0.00 (0.16) 9.85 0.08 40,485 0.50+ 4.55+ 132.41
0.00 (0.08) 10.48 3.22 25 0.80+ 1.02+ 453.28
$0.00 $(0.10) $ 8.70 $9.51 $ 948,833 0.50%+ 4.20%+ 463.36
0.00 (0.52) 8.04 15.08 2,271,940 0.50 6.09 1,046.00
0.00 (2.26) 7.44 (1.27) 45,950 0.43 5.90 674.00
0.00 (1.31) 9.93 6.54 2,296,978 0.43 5.51 370.00
0.00 (0.53) 10.53 10.61 2,589,677 0.46 6.67 301.00
0.00 (0.98) 10.02 10.97 1,314,661 0.51 8.24 201.00
0.00 (0.93) 9.94 11.55 609,660 0.55 8.23 202.00
0.00 (0.10) 9.78 (4.18)+ 407,210 0.75+ 7.94+ 49.00
$0.00 $(0.42) $11.60 7.78% $ 181,300 0.65%+ 9.89%+ 27.29%
0.00 (2.71) 11.16 34.07 151,869 0.70 15.23 101.67
0.00 (0.76) 10.48 18.64 46,498 0.50 11.89 176.98
0.00 (0.92) 9.52 1.55 14,330 0.50+ 4.00+ 33.29
$0.00 $ 0.00 $10.35 3.50% $ 10,378 0.64%+ 7.73%+ 36.75%
</TABLE>
- --------
+ Annualized.
January 14, 1997 Prospectus 15
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and general investment policies of each Fund are
described below. There can be no assurance that the investment objective of
any Fund will be achieved. Because the market value of each Fund's investments
will change, the net asset value per share of each Fund (except the PIMCO
Money Market Fund) also will vary. Specific portfolio securities eligible for
purchase by the Funds, investment techniques that may be used by the Funds,
and the risks associated with these securities and techniques are described
more fully under "Characteristics and Risks of Securities and Investment
Techniques" in this Prospectus and "Investment Objectives and Policies" in the
Statement of Additional Information.
FIXED INCOME FUNDS
Each of the Fixed Income Funds differs from the others primarily in the
length of the Fund's duration or the proportion of its investments in certain
types of fixed income securities. For a discussion of the concept of duration,
see "Appendix A--Description of Duration."
The investment objective of the PIMCO Money Market Fund and PIMCO Short-Term
Fund is to seek to obtain maximum current income consistent with preservation
of capital and daily liquidity. The PIMCO Money Market Fund also attempts to
maintain a stable net asset value of $1.00 per share, although there can be no
assurance that it will be successful in doing so. The investment objective of
the PIMCO 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 discussion of "real return," see "Total Return and Real
Return," below. The investment objective of the PIMCO Global Bond Fund II is
to seek maximum total return, consistent with the preservation of capital.
Each of the remaining Fixed Income Funds seeks to maximize total return,
consistent with preservation of capital and prudent investment management.
In selecting securities for each Fixed Income Fund, the Adviser utilizes
economic forecasting, interest rate anticipation, credit and call risk
analysis, foreign currency exchange rate forecasting, and other security
selection techniques. The proportion of each Fund's assets committed to
investment in securities with particular characteristics (such as maturity,
type and coupon rate) will vary based on the Adviser's outlook for the U.S.
and foreign economies, the financial markets, and other factors.
Each of the Fixed Income Funds will invest at least 65% of its assets in the
following types of securities, which, unless specifically provided otherwise
in the descriptions of the Funds that follows, may be issued by domestic or
foreign entities and denominated in U.S. dollars or foreign currencies:
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government securities"), corporate debt securities,
including convertible securities and corporate commercial paper; mortgage-
backed and other asset-backed securities; inflation-indexed bonds issued by
both governments and corporations; structured notes and loan participations;
bank certificates of deposit, fixed time deposits and bankers' acceptances;
repurchase agreements and reverse repurchase agreements; obligations of
foreign governments or their subdivisions, agencies and instrumentalities; and
obligations of international agencies or supranational entities. Fixed income
securities may have fixed, variable, or floating rates of interest, including
rates of interest that vary inversely at a multiple of a designated or
floating rate, or that vary according to changes in relative values of
currencies. Each of the Fixed Income Funds may hold different percentages of
its assets in these various types of securities, and each Fund, except the
PIMCO Money Market Fund, may invest all of its assets in derivative
instruments or in mortgage- or asset-backed securities.
16 PIMCO Funds: Pacific Investment Management Series
<PAGE>
The compositions of the Fixed Income Funds differ as follows:
PIMCO MONEY MARKET FUND seeks maximum current income consistent with the
preservation of capital and daily liquidity. It attempts to achieve this
objective by investing at least 95% of its total assets, measured at the time
of investment, in a diversified portfolio of the highest quality money market
securities. The Fund may also invest up to 5% of its total assets, measured at
the time of investment, in money market securities that are in the second-
highest rating category for short-term obligations. The Fund's investments in
securities will be limited to U.S. dollar-denominated securities that mature
in 397 days or less from the date of purchase. The Fund may invest in the
following: obligations of the U.S. Government (including its agencies and
instrumentalities); short-term corporate debt securities of domestic and
foreign corporations; obligations of domestic and foreign commercial banks,
savings banks, and savings and loan associations; and commercial paper. The
Fund may invest more than 25% of its total assets in securities or obligations
issued by U.S. banks. The dollar-weighted average portfolio maturity of the
Fund will not exceed 90 days.
The PIMCO Money Market Fund may invest only in U.S. dollar-denominated money
market instruments that present minimal credit risk and, with respect to at
least 95% of its total assets, measured at the time of investment, that are of
the highest quality. The Adviser will make a determination as to whether a
security presents minimal credit risk under procedures adopted by the Board of
Trustees. A money market instrument will be considered to be of the highest
quality (1) if rated in the highest rating category (i) by any two nationally
recognized statistical rating organizations ("NRSROs") (e.g., Aaa or Prime-1
by Moody's, AAA or A-1 by S&P, or, (ii) if rated by only one NRSRO, by that
NRSRO, and whose acquisition is approved or ratified by the Board of Trustees;
(2) if unrated but issued by an issuer that has short-term debt obligations of
comparable maturity, priority, and security, and that are rated in the highest
rating category by (i) any two NRSROs or, (ii) if rated by only one NRSRO, by
that NRSRO, and whose acquisition is approved or ratified by the Board of
Trustees; or (3) an unrated security that is of comparable quality to a
security rated in the highest rating category as determined by the Adviser and
whose acquisition is approved or ratified by the Board of Trustees. With
respect to no more than 5% of its total assets, measured at the time of
investment, the Fund may also invest in money market instruments that are in
the second-highest rating category for short-term debt obligations (e.g.,
rated Aa or Prime-2 by Moody's or AA or A-2 by S&P). A money market instrument
will be considered to be in the second-highest rating category under the
criteria described above with respect to instruments considered to be of the
highest quality, as applied to instruments in the second-highest rating
category. See "Appendix B--Description of Securities Ratings" for a
description of Moody's and S&P's ratings applicable to fixed income
securities.
The PIMCO Money Market Fund may not invest more than 5% of its total assets,
measured at the time of investment, in securities of any one issuer that are
of the highest quality, except that (1) the Fund may invest more than 5% of
its total assets in the securities of a single issuer if rated in the highest
rating category for a period of up to three business days after purchase,
provided that the Fund may not make more than one investment at a time in
accordance with this exception, and (2) this limitation shall not apply to
U.S. Government securities and repurchase agreements with respect thereto. The
Fund may not invest more than the greater of 1% of its total assets or
$1,000,000, measured at the time of investment, in securities of any one
issuer that are in the second-highest rating category, except that this
limitation shall not apply to U.S. Government securities. In the event that an
instrument acquired by the Fund is downgraded or otherwise ceases to be of the
quality that is required for securities purchased by the Fund, the Adviser,
under procedures approved by the Board of Trustees (or the Board of Trustees
itself if the Adviser becomes aware an unrated security is downgraded below
high quality and the Adviser does not dispose of the security or such security
does not mature within five business days) shall promptly reassess whether
such security presents minimal credit risk and determine whether to retain the
instrument.
January 14, 1997 Prospectus 17
<PAGE>
PIMCO SHORT-TERM FUND invests in a diversified portfolio of fixed income
securities of varying maturities. The average portfolio duration of this Fund
will normally not exceed one year. The Fund may invest up to 10% of its assets
in fixed income securities that are rated below investment grade (rated below
Baa by Moody's or BBB by S&P) but rated B or higher by Moody's or S&P (or, if
unrated, determined by the Adviser to be of comparable quality). Securities
rated below investment grade may be referred to colloquially as "junk bonds."
For information on the risks associated with investments in securities rated
below investment grade, see "Appendix B--Description of Securities Ratings."
The Fund may invest up to 5% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S. dollar-
denominated securities of foreign issuers.
PIMCO LOW DURATION FUND invests in a diversified portfolio of fixed income
securities of varying maturities. The average portfolio duration of this Fund
will normally vary within a one- to three-year time frame based on the
Adviser's forecast for interest rates. The Fund may invest up to 10% of its
assets in fixed income securities that are rated below investment grade but
rated B or higher by Moody's or S&P (or, if unrated, determined by the Adviser
to be of comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Appendix B--
Description of Securities Ratings." The Fund may invest up to 20% of its
assets in securities denominated in foreign currencies, and may invest beyond
this limit in U.S. dollar-denominated securities of foreign issuers. The total
rate of return for this Fund is expected to exhibit less volatility than that
of the PIMCO Moderate Duration Fund or the PIMCO Total Return Fund because its
duration will be shorter.
PIMCO LOW DURATION FUND II has the same policies as the PIMCO Low Duration
Fund, except that its investments in fixed income securities are limited to
those of domestic (U.S.) issuers that are rated at least A by Moody's or S&P
(or, if unrated, determined by the Adviser to be of comparable quality).
PIMCO LOW DURATION FUND III has the same policies as the PIMCO Low Duration
Fund, except that it limits its investments with respect to certain socially
sensitive issues. As a matter of non-fundamental policy, the Fund will not
invest in the securities of any issuer determined by the Adviser to be engaged
principally in the provision of healthcare services, the manufacture of
alcoholic beverages, tobacco products, pharmaceuticals or military equipment,
or the operation of gambling casinos. The Fund will also avoid, to the extent
possible on the basis of information available to the Adviser, the purchase of
securities of issuers engaged in the production or trade of pornographic
materials. An issuer will be deemed to be principally engaged in an activity
if it derives more than 10% of its gross revenues from such activities.
PIMCO MODERATE DURATION FUND invests in a diversified portfolio of fixed
income securities of varying maturities. The average portfolio duration of
this Fund will normally vary within a two- to five-year time frame based on
the Adviser's forecast for interest rates. The Fund may invest up to 10% of
its assets in fixed income securities that are rated below investment grade
but rated B or higher by Moody's or S&P (or, if unrated, determined by the
Adviser to be of comparable quality). For information on the risks associated
with investments in securities rated below investment grade, see "Appendix B--
Description of Securities Ratings." The Fund may invest up to 20% of its
assets in securities denominated in foreign currencies, and may invest beyond
this limit in U.S. dollar-denominated securities of foreign issuers. The total
rate of return for this Fund is expected to exhibit less volatility than that
of the PIMCO Total Return Fund because its duration will normally be shorter.
However, the total rate of return for this Fund is expected to exhibit more
volatility than that of the PIMCO Low Duration Fund because its duration will
normally be longer.
PIMCO HIGH YIELD FUND invests under normal circumstances at least 65% of its
assets in a diversified portfolio of fixed income securities rated lower than
Baa by Moody's or lower than BBB by S&P but rated at least B by Moody's or S&P
(or, if unrated, determined by the Adviser to be of comparable quality). Such
securities are colloquially referred to
18 PIMCO Funds: Pacific Investment Management Series
<PAGE>
as "junk bonds." The remainder of the Fund's assets may be invested in
investment grade fixed income securities (i.e., securities rated at least Baa
by Moody's or BBB by S&P, or, if unrated, deemed by the Adviser to be of
comparable quality). The average portfolio duration of this Fund will normally
vary within a two- to six-year time frame depending on the Adviser's view of
the potential for total return offered by a particular duration strategy. The
Fund may invest in securities of foreign issuers, but only those that are U.S.
dollar-denominated. The Fund may also engage in hedging strategies involving
equity options.
Investments in high yield securities, while generally providing greater
potential opportunity for capital appreciation and higher yields than
investments in higher rated securities, also entail greater risk, including
the possibility of default or bankruptcy of the issuer of such securities.
Risk of default or bankruptcy may be greater in periods of economic
uncertainty or recession, as the issuers of high yield securities may be less
able to withstand general economic downturns. The Adviser seeks to reduce risk
through diversification, credit analysis and attention to current developments
and trends in both the economy and financial markets. The value of all fixed
income securities, including those held by the Fund, can be expected to change
inversely with interest rates. For a further discussion of the special risks
of investing in lower rated securities, see "Characteristics and Risks of
Securities and Investment Techniques--High Yield Securities."
PIMCO TOTAL RETURN FUND invests under normal circumstances at least 65% of
its assets in a diversified portfolio of fixed income securities of varying
maturities. The average portfolio duration of this Fund will normally vary
within a three- to six-year time frame based on the Adviser's forecast for
interest rates. The Fund may invest up to 10% of its assets in fixed income
securities that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by the Adviser to be of comparable
quality). For information on the risks associated with investments in
securities rated below investment grade, see "Appendix B--Description of
Securities Ratings." The Fund may also invest up to 20% of its assets in
securities denominated in foreign currencies, and may invest beyond this limit
in U.S. dollar-denominated securities of foreign issuers. Portfolio holdings
will be concentrated in areas of the bond market (based on quality, sector,
coupon or maturity) which the Adviser believes to be relatively undervalued.
The total rate of return for this Fund is expected to exhibit less volatility
than that of the PIMCO Long-Term U.S. Government Fund because its duration
will normally be shorter.
PIMCO TOTAL RETURN FUND II has the same policies as the PIMCO Total Return
Fund, except that its investments in fixed income securities are limited to
those of domestic (U.S.) issuers that are rated at least Baa by Moody's or BBB
by S&P (or, if unrated, determined by the Adviser to be of comparable
quality).
PIMCO TOTAL RETURN FUND III has the same policies as the PIMCO Total Return
Fund, except that it limits its investments with respect to certain socially
sensitive issues in the same manner as the PIMCO Low Duration Fund III.
PIMCO COMMERCIAL MORTGAGE SECURITIES FUND invests at least 65% of its assets
in commercial mortgage-backed securities rated at least Baa by Moody's or BBB
by S&P (or, if unrated, determined by the Adviser to be of comparable
quality). The Fund also may invest up to 35% of its assets in lower-rated
securities (but rated at least B, or, if unrated, determined by the Adviser to
be of comparable quality) if such securities are considered by the Adviser to
have attractive investment characteristics. For information on the risks
associated with investments in securities rated below investment grade, see
"Appendix B--Description of Securities Ratings." The average portfolio
duration of this Fund will normally vary within a three- to eight-year time
frame depending on the Adviser's view of the potential for total return
offered by a particular duration strategy. The Fund may invest in securities
of foreign issuers, but only those that are U.S. dollar-denominated.
PIMCO LONG-TERM U.S. GOVERNMENT FUND invests in a diversified portfolio of
primarily U.S. Government securities, which may be represented by futures
contracts (including related options) with respect to such securities, and
options on
January 14, 1997 Prospectus 19
<PAGE>
such securities, when the Adviser deems it appropriate to do so. The Fund will
have a minimum average portfolio duration of eight years. For point of
reference, the dollar-weighted average portfolio maturity of the Fund is
normally expected to be more than ten years. The total rate of return is
expected to exhibit more volatility than that of the other Fixed Income Funds
due to the greater investment risk normally associated with longer duration
investments. The PIMCO Long-Term U.S. Government Fund's investments in fixed
income securities are limited to those of U.S. dollar-denominated securities
of domestic and foreign issuers that are rated at least A by Moody's or S&P
(or, if unrated, determined by the Adviser to be of comparable quality). In
addition, the Fund will not acquire a security if, as a result, more than 10%
of the Fund's total assets would be invested in securities rated below Aa by
Moody's or below AA by S&P, or if more than 25% of the Fund's total assets
would be invested in securities rated Aa by Moody's or AA by S&P.
PIMCO 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 Adviser 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 principal value is
periodically adjusted according to the rate of inflation. 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
"Dividends, Distributions and Taxes" for information about the possible tax
consequences of investing in the Fund and in inflation-indexed bonds.
In managing fixed income securities, one of the principal tools generally
used by the Adviser 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, final maturity and call features. See
"Appendix A--Description of Duration." Because of the unique features of
inflation-indexed bonds, the Adviser utilizes a modified form of duration for
the PIMCO 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 PIMCO Real Return Bond Fund, it is expected 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.
PIMCO FOREIGN BOND FUND invests in a portfolio of fixed income securities
primarily denominated in major foreign currencies and baskets of foreign
currencies (such as the European Currency Unit, or "ECU"). The Adviser will
invest the assets of the Fund in a number of international bond markets so
that, under normal circumstances, the Fund will invest at least 85% of its
assets in securities of issuers located outside the United States,
representing at least three foreign countries, which may be represented by
futures contracts (including related options) with respect to such securities,
and options on such securities, when the Adviser deems it appropriate to do
so. The Fund may invest up to 10% of its assets in fixed income securities
that are rated below investment grade but rated B or higher by Moody's or S&P
(or, if unrated, determined by the Adviser to be of comparable quality). For
information on the risks associated with investments in securities rated below
investment grade, see "Appendix B--Description of Securities Ratings." The
average portfolio duration of this Fund will normally vary within a three- to
six-year time frame.
20 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO GLOBAL BOND FUND invests in a portfolio of fixed income securities
denominated in major foreign currencies, baskets of foreign currencies (such
as the ECU), and the U.S. dollar. Under normal circumstances, at least 65% of
its assets will be invested in fixed income securities of issuers located in
at least three countries (one of which may be the United States), which may be
represented by futures contracts (including related options) with respect to
such securities, and options on such securities, when the Adviser deems it
appropriate to do so. Depending on the Adviser's current opinion as to the
proper allocation of assets among domestic and foreign issuers, investments in
the securities of issuers located outside the United States will normally vary
between 25% and 75% of the Fund's assets. The Fund may invest up to 10% of its
assets in fixed income securities that are rated below investment grade but
rated B or higher by Moody's or S&P (or, if unrated, determined by the Adviser
to be of comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Appendix B--
Description of Securities Ratings." The average portfolio duration of this
Fund will normally vary within a three- to six-year time frame.
PIMCO GLOBAL BOND FUND II has the same policies as the PIMCO Global Bond
Fund, except as set forth below. The PIMCO Global Bond Fund II expects to
hedge its foreign currency exposure so that generally no more than 25% of the
Fund's total net assets will be invested in unhedged foreign currency-
denominated securities. The PIMCO Global Bond Fund II may not borrow in excess
of 10% of the value of its total assets and then only from banks as a
temporary measure to facilitate the meeting of redemption requests (not for
leverage), or for extraordinary or emergency purposes. The PIMCO Global Bond
Fund II may only engage in short sales that are "against the box," and may not
loan its portfolio securities if their market value exceeds 25% of the total
assets of the Fund. In addition, the PIMCO Global Bond Fund II is subject to
different fundamental and non-fundamental investment restrictions than the
PIMCO Global Bond Fund. See "Investment Restrictions" in this Prospectus and
in the Statement of Additional Information.
The PIMCO Foreign Bond Fund differs from the PIMCO Global Bond and Global
Bond II Funds primarily in the extent to which assets are invested in the
securities of issuers located outside the United States. The Adviser will
select these Funds' foreign country and currency compositions based on an
evaluation of relative interest rates, exchange rates, monetary and fiscal
policies, trade and current account balances, and any other specific factors
the Adviser believes to be relevant.
PIMCO INTERNATIONAL BOND FUND invests in a portfolio of fixed income
securities denominated in major foreign currencies, baskets of foreign
currencies, and the U.S. dollar. The PIMCO International Bond Fund is
available only to private account clients of PIMCO. The Adviser will invest
the assets of the Fund in a number of international bond markets so that,
under normal conditions, the Fund will invest at least 65% of its assets in
fixed income securities of foreign issuers representing at least three foreign
countries or currencies, which may be represented by futures contracts
(including related options) with respect to such securities, and options on
such securities, when the Adviser deems it appropriate to do so. The PIMCO
International Bond Fund will invest only in investment grade securities, i.e.,
in securities rated at least Baa by Moody's or BBB by S&P (or, if unrated,
deemed by the Adviser to be of comparable quality). The average portfolio
duration of this Fund will vary based on the strategy currently being used by
the Adviser in managing the assets of the Fund within the overall PIMCO
private account management program, but is normally not expected to exceed
eight years. The Adviser will select the Fund's foreign country and currency
composition based on its evaluation of relative interest rates, inflation
rates, exchange rates, monetary and fiscal policies, trade and current account
balances, and any other specific factors the Adviser believes to be relevant.
Each of the PIMCO Real Return Bond, Foreign Bond, Global Bond, Global Bond
II and International 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 securities in which it invests, as specifically
described elsewhere in this Prospectus, to be
January 14, 1997 Prospectus 21
<PAGE>
"bonds" as referenced in that Fund's name. The use of this name is not meant
to restrict a Fund's investment to the narrow category of debt securities that
are formally called "bonds."
As a non-fundamental, operating policy, the Adviser intends to use foreign
currency-related derivative instruments (currency futures and related options,
currency options, forward contracts and swap agreements) in an effort to hedge
foreign currency risk with respect to at least 75% of the assets of the Fixed
Income Funds (other than the PIMCO Global Bond Fund) denominated in currencies
other than the U.S. dollar. There can be no assurance that the Adviser will be
successful in doing so. The active use of currency derivatives involves
transaction costs which may adversely effect yield and return.
The PIMCO Real Return Bond, Commercial Mortgage Securities, Foreign Bond,
Global Bond, Global Bond II and International Bond Funds are "non-diversified"
for purposes of the Investment Company Act of 1940 ("1940 Act"), meaning that
they may invest a greater percentage of their assets in the securities of one
issuer than the other Funds. As "non-diversified" portfolios, these Funds may
be more susceptible to risks associated with a single economic, political or
regulatory occurrence than a diversified portfolio might be.
EQUITY FUNDS
The Equity Funds are the PIMCO StocksPLUS Fund and the PIMCO StocksPLUS
Short Strategy Fund. The investment objective of PIMCO StocksPLUS Fund is to
seek to achieve a total return which exceeds the total return performance of
the S&P 500 Index. The investment objective of the PIMCO StocksPLUS Short
Strategy Fund is to seek total return through the implementation of short
investment positions on the S&P 500 Index.
Each of the Equity Funds invests in common stocks, options, futures, options
on futures and swaps consistent with its portfolio management strategy as set
forth below. Assets not invested in equity securities may be invested in
securities eligible for purchase by the Fixed Income Funds. Each of the Equity
Funds may invest up to 10% of its assets in fixed income securities that are
below "investment grade," i.e., rated below Baa by Moody's or BBB by S&P, but
at least B (or, if unrated, determined by the Adviser to be of comparable
quality). In addition, each of the Equity Funds may lend its portfolio
securities to brokers, dealers and other financial institutions in order to
earn income. Each of the Equity Funds may invest all of its assets in
derivative instruments, as described below and under "Characteristics of
Securities and Investment Techniques--Derivative Instruments." Each of the
Equity Funds may invest up to 20% of its assets in securities of foreign
issuers, may purchase and sell options and futures on foreign currencies, and
may enter into forward currency contracts.
The Equity Funds differ in composition or strategy as follows:
PIMCO STOCKSPLUS FUND invests only in common stocks that are represented in
the S&P 500 ("S&P 500 stocks"), stock index futures, options on stock indexes,
and options on stock index futures that are based on the S&P 500 and swap
agreements with respect to the S&P 500 ("S&P 500 derivatives"). StocksPLUS is
the name of a proprietary portfolio management strategy which utilizes S&P 500
derivatives in addition to or in place of S&P 500 stocks to equal or exceed
the performance of the S&P 500. The Fund will seek to remain invested in S&P
500 stocks and S&P 500 derivatives even when the S&P 500 is declining.
The percentage of the PIMCO StocksPLUS Fund's assets invested directly in
S&P 500 stocks will vary depending primarily on whether S&P 500 derivatives
appear, in the Adviser's opinion, overvalued or undervalued with respect to
the stocks underlying the S&P 500. The Adviser expects that under normal
market conditions, the Fund will invest
22 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 Adviser in accordance with procedures
established by the Board of Trustees, or otherwise maintain offsetting
positions, to cover its open positions in S&P 500 derivatives. The Adviser
will actively manage the fixed income assets serving as cover for derivatives,
as well as any other fixed income assets held by the Fund, with a view toward
enhancing the Fund's total return investment performance, subject to an
overall portfolio duration which is normally not expected to exceed one year.
See "Appendix A--Description of Duration."
The S&P 500 is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. Standard and Poor's ("S&P") chooses the
stocks to be included in the S&P 500 solely on a statistical basis. The
weightings of stocks in the index are based on each stock's relative total
market value, that is, its market price per share times the number of shares
outstanding. Stocks represented currently in the S&P 500 represent
approximately two-thirds of the total market value of all U.S. common stocks.
The Fund is neither sponsored by nor affiliated with S&P.
When S&P 500 derivatives appear to be overvalued relative to the S&P 500,
the Fund may invest up to 100% of its assets in a "basket" of S&P 500 stocks.
The composition of this basket will be determined by standard statistical
techniques that analyze the historical correlation between the return of every
stock currently in the S&P 500 and the return on the S&P 500 itself. The
Adviser may employ fundamental stock analysis only to choose among stocks that
have already satisfied the statistical correlation tests. Stocks chosen for
the Fund are not limited to those with any particular weighting in the S&P
500.
Positions in S&P 500 futures and options on futures will be entered into
only to the extent they constitute permissible positions for the Fund
according to applicable rules of the Commodity Futures Trading Commission
("CFTC"). From time to time, the Adviser may be constrained in its ability to
use S&P 500 derivatives either by requirements of the Internal Revenue Code or
by an unanticipated inability to close out positions when it would be most
advantageous to do so. A large number of investors use S&P 500 derivatives for
both hedging and speculative purposes, and although generally this helps
guarantee a liquid market in those instruments, at times liquidity may be
limited. For more information about S&P 500 derivatives, see "Characteristics
and Risks of Securities and Investment Techniques--Derivative Instruments."
PIMCO STOCKSPLUS SHORT STRATEGY FUND invests primarily in S&P 500 short
positions such that the Fund's net asset value is generally expected to vary
inversely to the value of the S&P 500. The Fund is designed for investors
seeking to take advantage of declines in the value of the S&P 500, or
investors wishing to hedge existing long equity positions. The Fund will
generally realize gains only when the price of the S&P 500 Index is declining.
When the S&P 500 is rising, the Fund will generally incur a loss.
The Fund will maintain short positions through the use of a combination of
S&P 500 derivatives, including options, futures and swap agreements. All S&P
500 derivatives will be covered by the maintenance of a segregated account
consisting of assets determined to be liquid by the Adviser in accordance with
procedures established by the Board of Trustees, or through the maintenance of
offsetting positions. It is anticipated that the Fund will generally remain
fully invested in S&P 500 short positions at all times, even during periods
when the S&P 500 is rising. However, the Fund may purchase call options on S&P
500 futures contracts from time to time in an effort to limit the total
potential decline in the Fund's net asset value. There can be no assurance
that the use of such call options would be effective in limiting the potential
decline in net asset value of the Fund.
January 14, 1997 Prospectus 23
<PAGE>
The Adviser will actively manage the fixed income portion of the Fund's
investment portfolio that is used as coverage for S&P 500 derivatives in an
attempt to provide incremental returns. Thus, there will not be a perfect
inverse correlation between the performance of the S&P 500 and the performance
of the Fund. A perfect inverse correlation would exist if the net asset value
of the Fund, including the value of its dividend and capital gains
distributions, increased in exact proportion to decreases in the S&P 500 (or
decreased in exact proportion to increases in the S&P 500). Rather, because of
the Adviser's management of the fixed income securities that are held by the
Fund as cover for the Fund's short positions, it is expected that, if the
value of the S&P 500 were to decrease by 10%, for example, the amount by which
the Fund's net asset value would increase would be an amount slightly in
excess of 10%. Conversely, an increase in the S&P 500 of 10% would result in a
loss to the Fund of slightly less than this amount. There can be no assurance
that the use of such active fixed income management techniques will produce
the intended results.
BALANCED FUND
PIMCO STRATEGIC BALANCED FUND has as its investment objective the
maximization of total return, consistent with preservation of capital and
prudent investment management. In seeking to achieve this objective, the Fund
invests in the securities eligible for purchase by the PIMCO StocksPLUS Fund
and the PIMCO Total Return Fund. The percentage of the Fund's assets allocated
to equity or fixed income exposure will vary in accordance with an asset
allocation methodology developed by the Adviser. The methodology builds upon
the Adviser's long-standing process of economic forecasting of business cycle
stages by applying to this process a disciplined asset allocation model which
employs certain statistical variance techniques. Depending on the outcome of
this asset allocation methodology, the Fund's equity exposure will vary
between 45% and 75% of its total assets, and its fixed income exposure will
vary between 25% and 55%. There can be no assurance that the Adviser's asset
allocation methodology will be successful.
TOTAL RETURN AND REAL RETURN
The "total return" sought by certain of the Funds will consist of interest
and dividends from underlying securities, capital appreciation reflected in
unrealized increases in value of portfolio securities (realized by the
shareholder only upon selling shares), or realized from the purchase and sale
of securities and use of futures and options, or gains from favorable changes
in foreign currency exchange rates. Generally, over the long term, the total
return obtained by a portfolio investing primarily in fixed income securities
is not expected to be as great as that obtained by a portfolio that invests
primarily in equity securities. At the same time, the market risk and price
volatility of a fixed income portfolio is expected to be less than that of an
equity portfolio, so that a fixed income portfolio is generally considered to
be a more conservative investment. The change in market value of fixed income
securities (and therefore their capital appreciation or depreciation) is
largely a function of changes in the current level of interest rates.
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. Conversely, when interest rates are rising, a portfolio
with a shorter duration will generally outperform longer duration portfolios.
When interest rates are flat, shorter duration portfolios generally will not
generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates,
which is commonly the case). With respect to the composition of any fixed
income portfolio, the longer the duration of the portfolio, the greater the
anticipated potential for total return, with, however, greater attendant
market risk and price volatility than for a portfolio with a shorter duration.
The market value of fixed income securities denominated in currencies other
than the U.S. dollar also may be affected by movements in foreign currency
exchange rates.
The change in market value of equity securities (and therefore their capital
appreciation or depreciation) may depend upon a number of factors, including:
conditions in the securities markets, the business success of the security's
24 PIMCO Funds: Pacific Investment Management Series
<PAGE>
issuer, changing interest rates, real or perceived economic and competitive
industry conditions, and foreign currency exchange rates. Historically, the
total return performance of equity-oriented portfolios has generally been
greater over the long term than fixed income portfolios. However, the market
risk and price volatility of an equity portfolio is generally greater than
that of a fixed income portfolio, and is generally considered to be a more
aggressive investment.
"Real Return," or "Inflation Adjusted Return," as referenced in the name and
investment objective of the PIMCO 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
generating 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 approximately 3%. On the
other hand, an inflation-indexed instrument generating a 5% real return would
generate a 5% increase in purchasing 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)
attained by this Fund may be less than the total return attained by other of
the PIMCO Funds that do not invest primarily in inflation-indexed 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 decrease
in value of inflation-indexed bonds.
INVESTMENT RESTRICTIONS
Each Fund's investment objective (except the PIMCO Global Fund II) as set
forth under "Investment Objectives and Policies," and the investment
restrictions set forth below are fundamental policies of the Fund and may not
be changed with respect to a Fund without shareholder approval by vote of a
majority of the outstanding shares of that Fund. Under these restrictions, a
Fund may not:
(1) (a) invest in a security if, as a result of such investment, more
than 25% of its total assets (taken at market value at the time of such
investment) would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply (a) to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements with respect thereto) and
(b) with respect to the Money Market Fund, to securities or obligations
issued by U.S. banks;
(b) for the Global Bond Fund II, concentrate more than 25% of the
value of its total assets in any one industry (The SEC staff takes the
position that investments in government securities of a single foreign
country, including agencies and instrumentalities of such government, to
the extent such obligations are backed by the assets and revenues of such
government, represent investments in a separate industry for these
purposes.);
(2) with respect to 75% of its assets, invest in a security if, as a
result of such investment, more than 5% of its total assets (taken at
market value at the time of such investment) would be invested in the
securities of any one issuer, except that this restriction does not apply
to securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities (This investment restriction is not applicable to the
Commercial Mortgage Securities Fund, the Real Return Bond Fund, the Foreign
Bond Fund, the Global Bond Fund, the Global Bond Fund II or the
International Bond Fund.);
January 14, 1997 Prospectus 25
<PAGE>
(3) with respect to 75% of its assets, invest in a security if, as a
result of such investment, it would hold more than 10% (taken at the time
of such investment) of the outstanding voting securities of any one issuer
(This restriction is not applicable to the Commercial Mortgage Securities
Fund, the Real Return Bond Fund, the Foreign Bond Fund, the Global Bond
Fund, the Global Bond Fund II or the International Bond Fund.);
(4)(a) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate or interests therein;
(b) for the Global Bond Fund II, purchase or sell real estate, although
it may purchase securities of issuers which deal in real estate, including
securities of real estate investment trusts, and may purchase securities
which are secured by interests in real estate;
(5) purchase or sell commodities or commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit a Fund, subject to
restrictions described in this Prospectus and in the Statement of
Additional Information, from purchasing, selling or entering into futures
contracts, options on futures contracts, foreign currency forward
contracts, foreign currency options, or any interest rate, securities-
related or foreign currency-related hedging instrument, including swap
agreements and other derivative instruments, subject to compliance with any
applicable provisions of the federal securities or commodities laws (this
restriction is not applicable to the Global Bond Fund II.);
(6) for the High Yield, Total Return III, International Bond and
StocksPLUS Funds: purchase securities on margin, except for use of short-
term credit necessary for clearance of purchases and sales of portfolio
securities, but it may make margin deposits in connection with transactions
in options, futures, and options on futures;
(7)(a) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that a Fund may (i) borrow from banks or
enter into reverse repurchase agreements, or employ similar investment
techniques, and pledge its assets in connection therewith, but only if
immediately after each borrowing there is asset coverage of 300% and (ii)
enter into transactions in options, futures, options on futures, and other
derivative instruments as described in this Prospectus and in the Statement
of Additional Information (the deposit of assets in escrow in connection
with the writing of covered put and call options and the purchase of
securities on a when-issued or delayed delivery basis, collateral
arrangements with respect to initial or variation margin deposits for
futures contracts, and commitments entered into under swap agreements or
other derivative instruments will not be deemed to be pledges of a Fund's
assets);
(b) for the Global Bond Fund II: (i) borrow money in excess of 10% of the
value (taken at the lower of cost or current value) of the Fund's total
assets (not including the amount borrowed) at the time the borrowing is
made, and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might otherwise
require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes (Such borrowings will be repaid before
any additional investments are purchased.); or (ii) pledge, hypothecate,
mortgage or otherwise encumber its assets in excess of 10% of the Fund's
total assets (taken at cost) and then only to secure borrowings permitted
above; (The deposit of securities or cash or cash equivalents in escrow in
connection with the writing of covered call or put options, respectively,
is not deemed to be pledges or other encumbrances.) (For the purpose of
this restriction, collateral arrangements with respect to the writing of
options, futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not deemed to
be a pledge of assets and neither such arrangements nor the purchase or
sale of futures or related options are deemed to be the issuance of a
senior security.)
(8) lend any funds or other assets, except that a Fund may, consistent
with its investment objective and policies: (a) invest in debt obligations,
including bonds, debentures, or other debt securities, bankers' acceptances
26 PIMCO Funds: Pacific Investment Management Series
<PAGE>
and commercial paper, even though the purchase of such obligations may be
deemed to be the making of loans, (b) enter into repurchase agreements, and
(c) lend its portfolio securities in an amount not to exceed one-third of
the value of its total assets, provided such loans are made in accordance
with applicable guidelines established by the Securities and Exchange
Commission and the Trustees of the Trust. (This restriction is not
applicable to the Global Bond Fund II.)
(9) (a) act as an underwriter of securities of other issuers, except to
the extent that in connection with the disposition of portfolio securities,
it may be deemed to be an underwriter under the federal securities laws; or
(b) for the Global Bond Fund II, underwrite securities issued by other
persons except to the extent that, in connection with the disposition of
its portfolio investments, it may be deemed to be an underwriter under
federal securities laws; or
(10)(a) for the High Yield, Total Return III, and StocksPLUS Funds:
maintain a short position, or purchase, write or sell puts, calls,
straddles, spreads or combinations thereof, except as set forth in this
Prospectus and in the Statement of Additional Information for transactions
in options, futures, options on futures, and transactions arising under
swap agreements or other derivative instruments;
(b) for the Money Market, Short-Term, Low Duration, Low Duration II, Low
Duration III, Moderate Duration, Total Return, Total Return II, Commercial
Mortgage Securities, Long-Term U.S. Government, Real Return Bond, Foreign
Bond, Global Bond, International Bond, StocksPLUS Short Strategy, and
Strategic Balanced Funds: maintain a short position, or purchase, write or
sell puts, calls, straddles, spreads or combinations thereof, except on
such conditions as may be set forth in this Prospectus and in the Statement
of Additional Information.
Each Fund is also subject to non-fundamental restrictions and policies
(which may be changed without shareholder approval) relating to the investment
of its assets and activities. As indicated above, certain fundamental
investment restrictions do not apply to certain Funds. However, the Trust's
non-fundamental restrictions, set forth in the Statement of Additional
Information, may place comparable limitations on these Funds. See "Investment
Restrictions" in the Statement of Additional Information.
Unless otherwise indicated, all limitations applicable to Fund investments
(as stated above and elsewhere in this Prospectus and in the Statement of
Additional Information) apply only at the time a transaction is entered into.
Any subsequent change in a rating assigned by any rating service to a security
(or, if unrated, deemed to be of comparable quality), or change in the
percentage of Fund assets invested in certain securities or other instruments,
or change in the average duration of a Fund's investment portfolio, resulting
from market fluctuations or other changes in a Fund's total assets will not
require a Fund to dispose of an investment until the Adviser determines that
it is practicable to sell or close out the investment without undue market or
tax consequences to the Fund. In the event that ratings services assign
different ratings to the same security, the Adviser will determine which
rating it believes best reflects the security's quality and risk at that time,
which may be the higher of the several assigned ratings.
CHARACTERISTICS AND RISKS OF SECURITIES AND INVESTMENT TECHNIQUES
The following describes in greater detail different types of securities and
investment techniques used by the individual Funds, and discusses certain
concepts relevant to the investment policies of the Funds. Additional
information about the Funds' investments and investment practices may be found
in the Statement of Additional Information.
January 14, 1997 Prospectus 27
<PAGE>
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. U.S. Government securities include securities
that have no coupons, or have been stripped of their unmatured interest
coupons, individual interest coupons from such securities that trade
separately, and evidences of receipt of such securities. Such securities may
pay no cash income, and are purchased at a deep discount from their value at
maturity. Because interest on zero coupon securities is not distributed on a
current basis but is, in effect, compounded, zero coupon securities tend to be
subject to greater market risk than interest-paying securities of similar
maturities. Custodial receipts issued in connection with so-called trademark
zero coupon securities, such as CATs and TIGRs, are not issued by the U.S.
Treasury, and are therefore not U.S. Government securities, although the
underlying bond represented by such receipt is a debt obligation of the U.S.
Treasury. Other zero coupon Treasury securities (STRIPs and CUBEs) are direct
obligations of the U.S. Government.
CORPORATE DEBT SECURITIES
Corporate debt securities include corporate bonds, debentures, notes and
other similar corporate debt instruments, including convertible securities.
Debt securities may be acquired with warrants attached. Corporate income-
producing securities may also include forms of preferred or preference stock.
The rate of interest on a corporate debt security may be fixed, floating or
variable, and may vary inversely with respect to a reference rate. See
"Variable and Floating Rate Securities" below. The rate of return or return of
principal on some debt obligations may be linked or indexed to the level of
exchange rates between the U.S. dollar and a foreign currency or currencies.
Investments in corporate debt securities that are rated below investment
grade (rated below Baa (Moody's) or BBB (S&P)) are described as "speculative"
both by Moody's and S&P. Such securities are sometimes referred to as "junk
bonds," and may be subject to greater market fluctuations, less liquidity and
greater risk of loss of income or principal, including a greater possibility
of default or bankruptcy of the issuer of such securities, than are more
highly rated debt securities. Moody's also describes securities rated Baa as
having speculative characteristics. The Adviser seeks to minimize these risks
through diversification, in-depth credit analysis and attention to current
developments in interest rates and market conditions. See "Appendix B--
Description of Securities Ratings." Investments in high yield securities are
discussed separately below under "High Yield Securities ("Junk Bonds")."
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate securities provide for a periodic adjustment in
the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The
adjustment intervals may be regular, and range from daily up to annually, or
may be event based, such as based on a change in the prime rate. The PIMCO
Money Market 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 that
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
28 PIMCO Funds: Pacific Investment Management Series
<PAGE>
interest rate on a floater resets periodically, typically every six months.
While, because of the interest rate reset feature, floaters provide a Fund
with a certain degree of protection against rises in interest rates, a Fund
will participate in any declines in interest rates as well.
Each of the Fixed Income Funds (except the PIMCO Money Market Fund) may also
invest in inverse floating rate debt instruments ("inverse floaters"). The
interest rate on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floating rate security may exhibit greater price volatility than a fixed rate
obligation of similar credit quality. The Funds have adopted a policy under
which no Fund will invest more than 5% of its net assets in any combination of
inverse floater, interest only ("IO"), or principal only ("PO") securities.
See "Mortgage-Related and Other Asset-Backed Securities" for a discussion of
IOs and POs.
INFLATION-INDEXED BONDS
Inflation-indexed bonds are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation. Such bonds generally
are issued at an interest rate lower than typical bonds, but are expected to
retain their principal value over time. The interest rate on these bonds is
fixed at issuance, but over the life of the bond this interest may be paid on
an increasing principal value, which has been 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 future. The securities will pay interest on a
semi-annual basis, equal to a fixed percentage of the inflation-adjusted
principal amount. For example, if a Fund purchased an inflation-indexed bond
with a par value of $1,000 and a 3% real rate of return coupon (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%).
If the periodic adjustment rate measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward, 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 deflation. However,
the current market value of the bonds is not guaranteed, and will fluctuate.
The Funds may also invest in other inflation related bonds which may or may
not provide a similar guarantee. If a guarantee of principal is not provided,
the adjusted 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-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading 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 exchange rates), investors in these
securities may not be protected to the extent that the increase is not
reflected in the bond's inflation measure.
The U.S. Treasury has only recently begun issuing inflation-indexed bonds.
As such, there is no trading history of these securities, and there can be no
assurance that a liquid market in these instruments will develop, although one
is
January 14, 1997 Prospectus 29
<PAGE>
expected. Lack of a liquid market may impose the risk of higher transaction
costs and the possibility that a 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 particular amount of inflation-indexed
bonds. Certain foreign governments, 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 generally 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 country 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 investors do not receive their
principal until maturity. See "Dividends, Distributions and Taxes" for
information about the possible tax consequences of investing in the PIMCO Real
Return Bond Fund and in inflation-indexed bonds.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
Each of the Funds (except the PIMCO Money Market Fund) may invest all of its
assets in mortgage- or other asset-backed securities. The value of some
mortgage- or asset-backed securities in which the Funds invest may be
particularly sensitive to changes in prevailing interest rates, and, like the
other investments of the Funds, the ability of a Fund to successfully utilize
these instruments may depend in part upon the ability of the Adviser to
forecast interest rates and other economic factors correctly.
Mortgage Pass-Through Securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property
in which payments of both interest and principal on the securities are
generally made monthly, in effect "passing through" monthly payments made by
the individual borrowers on the mortgage loans which underlie the securities
(net of fees paid to the issuer or guarantor of the securities). Early
repayment of principal on some mortgage-related securities (arising from
prepayments of principal due to sale of the underlying property, refinancing,
or foreclosure, net of fees and costs which may be incurred) may expose a Fund
to a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, the value of the
premium would be lost in the event of prepayment. Like other fixed income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; however, when interest rates are declining, the value
of mortgage-related securities with prepayment features may not increase as
much as other fixed income securities. The rate of prepayments on underlying
mortgages will affect the price and volatility of a mortgage-related security,
and may have the effect of shortening or extending the effective maturity of
the security beyond what was anticipated at the time of purchase. To the
extent that unanticipated rates of prepayment on underlying mortgages increase
the effective maturity of a mortgage-related security, the volatility of such
security can be expected to increase.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government (in the case of securities
guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the
U.S. Government (in the case of securities
30 PIMCO Funds: Pacific Investment Management Series
<PAGE>
guaranteed by FNMA or the Federal Home Loan Mortgage Corporation ("FHLMC"),
which are supported only by the discretionary authority of the U.S. Government
to purchase the agency's obligations). Mortgage-related securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. Similar to a bond, interest and pre-paid principal on a CMO are
paid, in most cases, semi-annually. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are
structured into multiple classes, with each class bearing a different stated
maturity. Monthly payments of principal, including prepayments, are first
returned to investors holding the shortest maturity class; investors holding
the longer maturity classes receive principal only after the first class has
been retired. CMOs that are issued or guaranteed by the U.S. Government or by
any of its agencies or instrumentalities will be considered U.S. Government
securities by the Funds, while other CMOs, even if collateralized by U.S.
Government securities, will have the same status as other privately issued
securities for purposes of applying a Fund's diversification tests.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property.
The market for commercial mortgage-backed securities developed more recently
and in terms of total outstanding principal amount of issues is relatively
small compared to the market for residential single-family mortgage-backed
securities. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans. These risks reflect the effects of local and other
economic conditions on real estate markets, the ability of tenants to make
loan payments, and the ability of a property to attract and retain tenants.
Commercial mortgage-backed securities may be less liquid and exhibit greater
price volatility than other types of mortgage-related or asset-backed
securities.
Mortgage-Related Securities include securities other than those described
above that directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property, such as CMO residuals or
stripped mortgage-backed securities ("SMBS"), and may be structured in classes
with rights to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only,
or "IO" class), while the other class will receive all of the principal (the
principal-only, or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on a Fund's yield to maturity from
these securities. The Funds have adopted a policy under which no Fund will
invest more than 5% of its net assets in any combination of IO, PO, or inverse
floater securities. The Funds may invest in other asset-backed securities that
have been offered to investors. For a discussion of the characteristics of
some of these instruments, see the Statement of Additional Information.
REPURCHASE AGREEMENTS
For the purpose of achieving income, each of the Funds may enter into
repurchase agreements, which entail the purchase of a portfolio-eligible
security from a bank or broker-dealer that agrees to repurchase the security
at the Fund's
January 14, 1997 Prospectus 31
<PAGE>
cost plus interest within a specified time (normally one day). If the party
agreeing to repurchase should default, as a result of bankruptcy or otherwise,
the Fund will seek to sell the securities which it holds, which action could
involve procedural costs or delays in addition to a loss on the securities if
their value should fall below their repurchase price. No Fund will invest more
than 15% of its net assets (10% in the case of the PIMCO Money Market Fund)
(taken at current market value) in repurchase agreements maturing in more than
seven days.
REVERSE REPURCHASE AGREEMENTS, DOLLAR ROLLS, AND OTHER BORROWINGS
A reverse repurchase agreement may for some purposes be considered borrowing
that involves the sale of a security by a Fund and its agreement to repurchase
the instrument at a specified time and price. The Fund will maintain a
segregated account consisting of assets determined to be liquid by the Adviser
in accordance with procedures established by the Board of Trustees, maturing
not later than the expiration of the reverse repurchase agreement, to cover
its obligations under reverse repurchase agreements.
A Fund may enter into dollar rolls, in which the Fund sells mortgage-backed
or other securities for delivery in the current month and simultaneously
contracts to purchase substantially similar securities on a specified future
date. In the case of dollar rolls involving mortgage-backed securities, the
mortgage-backed securities that are purchased will be of the same type and
will have the same interest rate as those sold, but will be supported by
different pools of mortgages. The Fund forgoes principal and interest paid
during the roll period on the securities sold in a dollar roll, but the Fund
is compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the
proceeds of the securities sold. The Fund also could be compensated through
the receipt of fee income equivalent to a lower forward price. The Fund will
maintain a segregated account consisting of assets determined to be liquid by
the Adviser in accordance with procedures established by the Board of
Trustees, to cover its obligations under dollar rolls.
Dollar rolls and reverse repurchase agreements will be subject to the Funds'
limitations on borrowings, which will restrict the aggregate of such
transactions (plus any other borrowings) to 33 1/3% (for each Fund except the
PIMCO Global Bond Fund II ) of a Fund's total assets. Apart from transactions
involving reverse repurchase agreements and dollar rolls, a Fund will not
borrow money, except for temporary administrative purposes. The PIMCO Global
Bond Fund II may not borrow in excess of 10% of the value of its total assets
and then only from banks as a temporary measure to facilitate the meeting of
redemption requests (not for leverage) or for extraordinary or emergency
purposes.
LOANS OF PORTFOLIO SECURITIES
For the purpose of achieving income, the Funds may lend their portfolio
securities to brokers, dealers, and other financial institutions, provided:
(i) the loan is secured continuously by collateral consisting of U.S.
Government securities, cash or cash equivalents (negotiable certificates of
deposit, bankers' acceptances or letters of credit) maintained on a daily
mark-to-market basis in an amount at least equal to the current market value
of the securities loaned; (ii) the Fund may at any time call the loan and
obtain the return of the securities loaned; (iii) the Fund will receive any
interest or dividends paid on the loaned securities; and (iv) the aggregate
market value of securities loaned will not at any time exceed 33 1/3% (25% in
the case of the PIMCO Global Bond Fund II) of the total assets of the Fund.
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 securities. 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 securities loaned or
become insolvent. The Funds may pay lending fees to the party arranging the
loan.
32
PIMCO Funds: Pacific Investment Management Series
<PAGE>
DELAYED DELIVERY, WHEN-ISSUED, AND FORWARD COMMITMENT TRANSACTIONS
Each of the Funds may purchase or sell securities on a when-issued, delayed
delivery, or forward commitment basis. These transactions involve a commitment
by the Fund to purchase or sell securities for a predetermined price or yield,
with payment and delivery taking place more than seven days in the future, or
after a period longer than the customary settlement period for that type of
security. When such purchases are outstanding, the Fund will set aside and
maintain until the settlement date in a segregated account assets determined
to be liquid by the Adviser in accordance with procedures established by the
Board of Trustees, in an amount sufficient to meet the purchase price.
Typically, no income accrues on securities a Fund has committed to purchase
prior to the time delivery of the securities is made, although a Fund may earn
income on securities it has deposited in a segregated account. When purchasing
a security on a when-issued, delayed delivery, or forward commitment basis,
the Fund assumes the rights and risks of ownership of the security, including
the risk of price and yield fluctuations, and takes such fluctuations into
account when determining its net asset value. Because the Fund is not required
to pay for the security until the delivery date, these risks are in addition
to the risks associated with the Fund's other investments. If the Fund remains
substantially fully invested at a time when when-issued, delayed delivery, or
forward commitment purchases are outstanding, the purchases may result in a
form of leverage. When the Fund has sold a security on a when-issued, delayed
delivery, or forward commitment basis, the Fund does not participate in future
gains or losses with respect to the security. If the other party to a
transaction fails to deliver or pay for the securities, the Fund could miss a
favorable price or yield opportunity or could suffer a loss. A Fund may
dispose of or renegotiate a transaction after it is entered into, and may sell
when-issued or forward commitment securities before they are delivered, which
may result in a capital gain or loss. There is no percentage limitation on the
extent to which the Funds may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis.
SHORT SALES
Each of the Funds (except the PIMCO High Yield, Total Return III and
StocksPLUS Funds), and particularly the PIMCO StocksPLUS Short Strategy Fund,
may from time to time effect short sales as part of their overall portfolio
management strategies, including the use of derivative instruments, or to
offset potential declines in value of long positions in similar securities as
those sold short. A short sale (other than a short sale against the box) is a
transaction in which a Fund sells a security it does not own at the time of
the sale in anticipation that the market price of that security will decline.
To the extent that a Fund engages in short sales, it must (except in the case
of short sales "against the box") maintain asset coverage in the form of
assets determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees, in a segregated account, or otherwise
cover its position in a permissible manner. A short sale is "against the box"
to the extent that the Fund contemporaneously owns, or has the right to obtain
at no added cost, securities identical to those sold short. The PIMCO Global
Bond Fund II may only engage in short sales that are "against the box."
FOREIGN SECURITIES
Each of the Funds (except the PIMCO Low Duration II and Total Return II
Funds) may invest directly in fixed income securities of non-U.S. issuers. The
PIMCO Money Market, High Yield, Commercial Mortgage Securities and Long-Term
U.S. Government Funds may only invest in U.S. dollar-denominated fixed income
securities of non-U.S. issuers. Each of the Equity Funds may invest directly
in foreign equity securities.
Each of the Funds will limit its foreign investments to securities of
issuers based in developed countries (including Newly Industrialized Countries
("NICs"), such as Taiwan, South Korea and Mexico). The PIMCO Short-Term, Low
Duration and Low Duration III Funds limit their investments in securities of
issuers based in NICs to 5% of their assets,
January 14, 1997 Prospectus 33
<PAGE>
and the remaining Fixed Income Funds (except the PIMCO Foreign Bond, Global
Bond, Global Bond II and International Bond Funds), and limit their
investments in securities of issuers based in NICs to 10% of their assets. For
the purposes of this restriction, the term "NIC" is not meant to include a
defined set of countries selected according to specific criteria, but rather
is a broadly defined term which includes countries which are considered by the
Adviser to have sound economies and the potential for positive growth. In
determining which countries will be considered NICs, the Adviser 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 developing or emerging markets.
Investing in the securities of issuers in any foreign country involves
special risks and considerations not typically associated with investing in
U.S. companies. Shareholders should consider carefully the substantial risks
involved in investing in securities issued by companies and governments of
foreign nations. These risks include: differences in accounting, auditing and
financial reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country); and political instability which could affect U.S. investments
in foreign countries. Additionally, foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes,
including taxes withheld from payments on those securities. Foreign securities
often trade with less frequency and volume than domestic securities and
therefore may exhibit greater price volatility. Additional costs associated
with an investment in foreign securities may include higher custodial fees
than apply to domestic custodial arrangements and transaction costs of foreign
currency conversions. Changes in foreign exchange rates also will affect the
value of securities denominated or quoted in currencies other than the U.S.
dollar.
Each of the Fixed Income Funds (except the PIMCO Low Duration II and Total
Return II Funds) may invest in Brady Bonds. Brady Bonds are securities created
through the exchange of existing commercial bank loans to sovereign entities
for new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady. Brady Bonds have been issued only recently, and for that
reason do not have a long payment history. Brady Bonds may be collateralized
or uncollateralized, are issued in various currencies (but primarily the U.S.
dollar), and are actively traded in the over-the-counter secondary market.
Brady Bonds are not considered to be U.S. Government securities. In light of
the residual risk of Brady Bonds and, among other factors, the history of
defaults with respect to commercial bank loans by public and private entities
in countries issuing Brady Bonds, investments in Brady Bonds may be viewed as
speculative. There can be no assurance that Brady Bonds acquired by a Fund
will not be subject to restructuring arrangements or to requests for new
credit, which may cause the Fund to suffer a loss of interest or principal on
any of its holdings. For further information, see the Statement of Additional
Information.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by intervention (or the
failure to intervene) by U.S. or foreign governments or central banks, by
currency controls or political developments in the U.S. or abroad. Currencies
in which the Funds' assets are denominated may be devalued against the U.S.
dollar, resulting in a loss to the Funds.
34 PIMCO Funds: Pacific Investment Management Series
<PAGE>
All Funds that may invest in securities denominated in foreign currencies
may buy and sell foreign currencies on a spot and forward basis to reduce the
risks of adverse changes in foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. By entering into a forward foreign currency 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 exposure to changes in the value of the currency it will deliver
and increases its exposure to changes in the value of the currency it will
exchange into. The effect on the value of a Fund is similar to selling
securities denominated in one currency and purchasing securities denominated
in another. Contracts to sell foreign currency would limit any potential gain
which might be realized by a Fund if the value of the hedged currency
increases. A Fund may enter into these contracts for the purpose of hedging
against foreign exchange risk arising from the Fund's investment or
anticipated investment in securities denominated in foreign currencies. A Fund
also may enter into these contracts for purposes of increasing exposure to a
foreign currency or to shift exposure to foreign currency fluctuations from
one country to another. A Fund may use one currency (or a basket of
currencies) to hedge against adverse changes in the value of another currency
(or a basket of currencies) when exchange rates between the two currencies are
positively correlated. Each Fund will segregate assets determined to be liquid
by the Adviser in accordance with procedures established by the Board of
Trustees, in a segregated account to cover 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 currency warrants and other instruments
whose return is linked to foreign currency exchange rates. Each Fund that may
invest in securities denominated in foreign currencies, except the PIMCO
Global Bond Fund, will use these techniques to hedge at least 75% of its
exposure to foreign currency. For a description of these instruments, see
"Derivative Instruments" below and the Statement of Additional Information.
HIGH YIELD SECURITIES ("JUNK BONDS")
The PIMCO High Yield Fund invests at least 65% of its assets, and the PIMCO
Commercial Mortgage Securities Fund may invest up to 35% of its assets, in
fixed income securities rated lower than Baa by Moody's or lower than BBB by
S&P but rated at least B by Moody's or S&P (or, if not rated, of comparable
quality). In addition, each of the PIMCO Short-Term, Low Duration, Low
Duration III, Moderate Duration, Total Return, Total Return III, Foreign Bond,
Global Bond, Global Bond II, StocksPLUS, StocksPLUS Short Strategy and
Strategic Balanced Funds may invest up to 10% of its assets in such
securities. Securities rated lower than Baa by Moody's or lower than BBB by
S&P are sometimes referred to as "high yield" or "junk" bonds. Securities
rated Baa are considered by Moody's to have some speculative characteristics.
Investors should consider the following risks associated with high yield
securities before investing in these Funds.
Investing in high yield securities involves special risks in addition to the
risks associated with investments in higher rated fixed income securities.
High yield securities may be regarded as predominately speculative with
respect to the issuer's continuing ability to meet principal and interest
payments. Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and
the ability of a Fund to achieve its investment objective may, to the extent
of its investments in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest
January 14, 1997 Prospectus 35
<PAGE>
rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of high
yield securities defaults, a Fund may incur additional expenses to seek
recovery. In the case of high yield securities structured as zero coupon or
payment-in-kind securities, the market prices of such securities are affected
to a greater extent by interest rate changes, and therefore tend to be more
volatile than securities which pay interest periodically and in cash.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations
in the daily net asset value of a Fund's shares. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of high yield securities, especially in a
thinly traded market.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit
ratings in a timely fashion to reflect events since the security was last
rated. The Adviser does not rely solely on credit ratings when selecting
securities for the Funds, and develops its own independent analysis of issuer
credit quality. If a credit rating agency changes the rating of a portfolio
security held by a Fund, the Fund may retain the portfolio security if the
Adviser deems it in the best interest of shareholders.
During the year ended March 31, 1996 (September 30, 1996 for the PIMCO
Global Bond Fund II), based upon the dollar-weighted average ratings of the
Funds' portfolio holdings at the end of each month in the Funds' fiscal year,
each operational Fund that may invest greater than 5% of its assets in
securities rated below investment grade had the following percentages of its
net assets invested in securities rated in the categories indicated as rated
by Moody's (or, if unrated, determined by the Adviser to be of comparable
quality). See "Appendix B--Description of Securities Ratings," for further
information.
<TABLE>
<CAPTION>
RATING
--------------------------------------------------------------
BELOW
FUND PRIME 1 AAA AA A PRIME 1 BAA BA B CAA
- ---- ------- ----- ----- ----- ------- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term 12.89% 46.13% 2.85% 17.35% 0.00% 10.96% 6.63% 2.87% 0.31%
Low Duration 9.65 58.17 2.80 10.10 0.00 8.02 10.71 0.54 0.00
High Yield 2.66 1.20 0.00 0.90 0.00 4.17 41.24 49.84 0.00
Total Return 9.80 62.57 6.12 7.35 0.00 5.92 6.23 2.00 0.01
Total Return III 10.22 69.93 1.91 6.49 0.00 4.78 5.36 1.31 0.00
Foreign Bond 2.72 46.26 30.18 8.62 0.51 2.88 5.18 3.65 0.00
Global Bond 15.05 40.36 29.03 5.45 0.50 2.62 2.06 4.92 0.00
Global Bond II* 0.00 78.68 15.49 1.59 0.00 2.42 1.82 0.00 0.00
StocksPLUS 10.17 59.79 4.28 6.45 0.00 11.00 7.60 0.72 0.00
</TABLE>
- --------
* Reflects portfolio holdings of the PIMCO Advisors Global Income Fund for
its fiscal year ended September 30, 1996. The Global Income Fund was
reorganized as the Trust's Global Bond Fund II on January 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 approximately the same as represented by
such figures. In addition, the categories reflect ratings by Moody's, and
ratings assigned by S&P may not be consistent with ratings assigned by
Moody's or other credit ratings services, and the Adviser may not necessarily
agree with a rating assigned by any credit rating agency.
36 PIMCO Funds: Pacific Investment Management Series
<PAGE>
DERIVATIVE INSTRUMENTS
To the extent permitted by the investment objectives and policies of the
Funds, the Funds may (except the PIMCO Money Market Fund) purchase and write
call and put options on securities, securities indexes and foreign currencies,
and enter into futures contracts and use options on futures contracts as
further described below. The Funds (except the PIMCO Money Market Fund) also
may enter into swap agreements with respect to foreign currencies, interest
rates, and securities indexes. The Funds may use these techniques to hedge
against changes in interest rates, foreign currency exchange rates or
securities prices or as part of their overall investment strategies. The Funds
(except the PIMCO Money Market Fund) may also purchase and sell options
relating to foreign currencies for purposes of increasing exposure to a
foreign currency or to shift exposure to foreign currency fluctuations from
one country to another. Each Fund will maintain a segregated account
consisting of assets determined to be liquid by the Adviser in accordance with
procedures established by the Board of Trustees (or, as permitted by
applicable regulation, enter into certain offsetting positions) to cover its
obligations under options, futures, and swaps to avoid leveraging of the Fund.
The Funds consider derivative instruments to consist of securities or other
instruments whose value is derived from or related to the value of some other
instrument or asset, and not to include those securities whose payment of
principal and/or interest depend upon cash flows from underlying assets, such
as mortgage-related or asset-backed securities. Each Fund (except the PIMCO
Money Market Fund) may invest all of its assets in derivative instruments,
subject only to the Fund's investment objective and policies. The value of
some derivative instruments in which the Funds invest may be particularly
sensitive to changes in prevailing interest rates, and, like the other
investments of the Funds, the ability of a Fund to successfully utilize these
instruments may depend in part upon the ability of the Adviser to forecast
interest rates and other economic factors correctly. If the Adviser
incorrectly forecasts such factors and has taken positions in derivative
instruments contrary to prevailing market trends, the Funds could be exposed
to the risk of loss.
The Funds might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If the Adviser
incorrectly forecasts interest rates, market values or other economic factors
in utilizing a derivatives strategy for a Fund, the Fund might have been in a
better position if it had not entered into the transaction at all. The use of
these strategies involves certain special risks, including a possible
imperfect correlation, or even no correlation, between price movements of
derivative instruments and price movements of related investments. While some
strategies involving derivative instruments can reduce the risk of loss, they
can also reduce the opportunity for gain or even result in losses by
offsetting favorable price movements in related investments, or due to the
possible inability of a Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need
for a Fund to sell a portfolio security at a disadvantageous time, because the
Fund is required to maintain asset coverage or offsetting positions in
connection with transactions in derivative instruments, and the possible
inability of a Fund to close out or to liquidate its derivatives positions.
Options on Securities, Securities Indexes, and Currencies A Fund may
purchase put options on securities and indexes. One purpose of purchasing put
options is to protect holdings in an underlying or related security against a
substantial decline in market value. A Fund may also purchase call options on
securities and indexes. One purpose of purchasing call options is to protect
against substantial increases in prices of securities the Fund intends to
purchase pending its ability to invest in such securities in an orderly
manner. An option on a security (or index) is a contract that gives the holder
of the option, in return for a premium, the right to buy from (in the case of
a call) or sell to (in the case of a put) the writer of the option the
security underlying the option (or the cash value of the index) at a specified
exercise price at any time during the term of the option. The writer of an
option on a security has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to pay the
exercise price upon delivery of
January 14, 1997 Prospectus 37
<PAGE>
the underlying security. Upon exercise, the writer of an option on an index is
obligated to pay the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the index option. An
index is designed to reflect specified facets of a particular financial or
securities market, a specific group of financial instruments or securities, or
certain economic indicators.
A Fund may sell put or call options it has previously purchased, which could
result in a net gain or loss depending on whether the amount realized on the
sale is more or less than the premium and other transaction costs paid on the
put or call option which is sold. A Fund may write a call or put option only
if the option is "covered" by the Fund holding a position in the underlying
securities or by other means which would permit immediate satisfaction of the
Fund's obligation as writer of the option. Prior to exercise or expiration, an
option may be closed out by an offsetting purchase or sale of an option of the
same series.
The Funds may write covered straddles consisting of a combination of a call
and a put written on the same underlying security. A straddle will be covered
when sufficient assets are deposited to meet the Funds' immediate obligations.
The Funds may use the same liquid assets to cover both the call and put
options where the exercise price of the call and put are the same, or the
exercise price of the call is higher than that of the put. In such cases, the
Funds will also segregate liquid assets equivalent to the amount, if any, by
which the put is "in the money."
The purchase and writing of options involves certain risks. During the
option period, the covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price increase in the
underlying security above the exercise price, but, as long as its obligation
as a writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying 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 market will exist when a Fund seeks to close out an option position.
Furthermore, if trading restrictions or suspensions are imposed on the options
markets, a Fund may be unable to close out a position.
Funds that invest in foreign currency-denominated securities may buy or sell
put and call options on foreign currencies. Currency options traded on U.S. or
other exchanges may be subject to position limits which may limit the ability
of a Fund to reduce foreign currency risk using such options. Over-the-counter
options differ from traded options in that they are two-party contracts, with
price and other terms negotiated between buyer and seller, and generally do
not have as much market liquidity as exchange-traded options. The Funds may be
required to treat as illiquid over-the-counter options purchased and
securities being used to cover certain written over-the-counter options.
Swap Agreements The Funds may enter into interest rate, index, equity and
currency exchange rate swap agreements. These transactions would be entered
into in an attempt to obtain a particular return when it is considered
desirable to do so, possibly at a lower cost to the Fund than if the Fund had
invested directly in the asset that yielded the desired return. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard swap transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular
predetermined investments or instruments,
38 PIMCO Funds: Pacific Investment Management Series
<PAGE>
which may be adjusted for an interest factor. The gross returns to be
exchanged or "swapped" between the parties are generally calculated with
respect to a "notional amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index. Forms of swap agreements include interest rate caps, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates exceed a specified rate, or "cap"; interest
rate floors, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates fall below a specified
level, or "floor"; and interest rate collars, under which a party sells a cap
and purchases a floor or vice versa in an attempt to protect itself against
interest rate movements exceeding given minimum or maximum levels.
Most swap agreements entered into by the Funds calculate the obligations of
the parties to the agreement on a "net basis." Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). A Fund's current obligations under a swap agreement will be accrued
daily (offset against amounts owed to the Fund), and any accrued but unpaid
net amounts owed to a swap counterparty will be covered by the maintenance of
a segregated account consisting of assets determined to be liquid by the
Adviser in accordance with procedures established by the Board of Trustees, to
limit any potential leveraging of the Fund's portfolio. Obligations under swap
agreements so covered will not be construed to be "senior securities" for
purposes of the Funds' investment restriction concerning senior securities. A
Fund will not enter into a swap agreement with any single party if the net
amount owed or to be received under existing contracts with that party would
exceed 5% of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the Adviser's ability to predict correctly
whether certain types of investments are likely to produce greater returns
than other investments. Because they are two-party contracts and because they
may have terms of greater than seven days, swap agreements may be considered
to be illiquid investments. Moreover, a Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. The Funds will enter
into swap agreements only with counterparties that meet certain standards for
creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Funds' repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code may
limit the Funds' ability to use swap agreements. The swaps market is a
relatively new market and is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect a Fund's ability to terminate existing swap agreements
or to realize amounts to be received under such agreements.
Futures Contracts and Options on Futures Contracts Each of the Fixed Income
Funds (except the PIMCO Money Market Fund) may invest in interest rate futures
contracts and options thereon ("futures options"), and to the extent it may
invest in foreign currency-denominated securities, may also invest in foreign
currency futures contracts and options thereon. Each of the Equity Funds and
the PIMCO Strategic Balanced Fund may invest in interest rate, stock index and
foreign currency futures contracts and options thereon.
There are several risks associated with the use of futures and futures
options for hedging purposes. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the
portfolio securities being hedged. An incorrect correlation could result in a
loss on both the hedged securities in a Fund and the hedging vehicle so that
the portfolio return might have been greater had hedging not been attempted.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or a futures option position.
January 14, 1997 Prospectus 39
<PAGE>
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid market for any reason may prevent a Fund from
liquidating an unfavorable position, and the Fund would remain obligated to
meet margin requirements until the position is closed.
The Funds may write covered straddles consisting of a call and a put written
on the same underlying futures contract. A straddle will be covered when
sufficient assets are deposited to meet the Funds' immediate obligations. A
Fund may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise
price of the call is higher than that of the put. In such cases, the Funds
will also segregate liquid assets equivalent to the amount, if any, by which
the put is "in the money."
The Funds will only enter into futures contracts or futures options which
are standardized and traded on a U.S. or foreign exchange or board of trade,
or similar entity, or quoted on an automated quotation system. Each Fund will
use financial futures contracts and related options only for "bona fide
hedging" purposes, as such term is defined in applicable regulations of the
Commodity Futures Trading Commission ("CFTC"), or, with respect to positions
in financial futures and related options that do not qualify as "bona fide
hedging" positions, will enter such positions only to the extent that
aggregate initial margin deposits plus premiums paid by it for open futures
option positions, less the amount by which any such positions are "in-the-
money," would not exceed 5% of the Fund's net assets.
ILLIQUID SECURITIES
Each of the Funds may invest up to 15% of its net assets in illiquid
securities (10% in the case of the PIMCO Money Market Fund). Certain illiquid
securities may require pricing at fair value as determined in good faith under
the supervision of the Board of Trustees. The Adviser may be subject to
significant delays in disposing of illiquid securities, and transactions in
illiquid securities may entail registration expenses and other transaction
costs that are higher than transactions in liquid securities. The term
"illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which a Fund has valued the securities. Illiquid
securities are considered to include, among other things, written over-the-
counter options, securities or other liquid assets being used as cover for
such options, repurchase agreements with maturities in excess of seven days,
certain loan participation interests, fixed time deposits which are not
subject to prepayment or provide for withdrawal penalties upon prepayment
(other than overnight deposits), securities that are subject to legal or
contractual restrictions on resale (such as privately placed debt securities)
and other securities whose disposition is restricted under the federal
securities laws (other than securities issued pursuant to Rule 144A under the
Securities Act of 1933 and certain commercial paper that PIMCO has determined
to be liquid under procedures approved by the Board of Trustees).
MANAGEMENT OF THE TRUST
The business affairs of the Trust are managed under the direction of the
Board of Trustees. The Trustees are Guilford C. Babcock, Thomas P. Kemp, Brent
R. Harris, Vern O. Curtis, and William J. Popejoy. Additional information
about the Trustees and the Trust's executive officers may be found in the
Statement of Additional Information under the heading "Management--Trustees
and Officers."
INVESTMENT ADVISER
Pacific Investment Management Company ("PIMCO") serves as investment adviser
("Adviser") to the Funds pursuant to an investment advisory contract. The
Adviser is an investment counseling firm founded in 1971, and had
40 PIMCO Funds: Pacific Investment Management Series
<PAGE>
approximately $88.8 billion in assets under management as of November 30,
1996. PIMCO is a subsidiary partnership of PIMCO Advisors L.P. ("PIMCO
Advisors"). A majority interest in PIMCO Advisors is held by PIMCO Partners,
G.P., a general partnership between Pacific Investment Management Company, a
California corporation and indirect wholly owned subsidiary of Pacific Mutual
Life Insurance Company ("Pacific Mutual"), and PIMCO Partners, LLC, a limited
liability company controlled by the PIMCO Managing Directors. PIMCO's address
is 840 Newport Center Drive, Suite 360, Newport Beach, California 92660. PIMCO
is registered as an investment adviser with the Securities and Exchange
Commission ("SEC") and as a commodity trading advisor with the CFTC.
The Adviser manages the investment and reinvestment of the assets of each
Fund. The Adviser is responsible for placing orders for the purchase and sale
of each Fund's investments directly with brokers or dealers selected by it in
its discretion. See "Portfolio Transactions."
Information about the individual portfolio managers responsible for
management of the Trust's currently operational Funds, including their
occupations for the past five years, is provided below.
<TABLE>
<CAPTION>
PORTFOLIO MANAGER AND BUSINESS EXPERIENCE (PAST
FUND FIVE YEARS)
---- -----------------------------------------------
<C> <S>
Money Market Fund Leslie Barbi, Vice President, PIMCO. A Fixed
Income Portfolio Manager, Ms. Barbi has managed
the PIMCO Money Market Fund since November 1,
1995. Prior to joining PIMCO in 1993, Ms. Barbi
was associated with Salomon Brothers as a
proprietary Portfolio Manager.
Short-Term Fund David H. Edington, Managing Director, PIMCO. A
StocksPLUS Fund Fixed Income Portfolio Manager, Mr. Edington
Strategic Balanced Fund joined PIMCO in 1987 and has managed the PIMCO
Moderate Duration Fund Short-Term, StocksPLUS, Strategic Balanced and
Moderate Duration Funds since their inception,
October 7, 1987, May 14, 1993, June 28, 1996,
and January 2, 1997, respectively.
Low Duration Fund William H. Gross, Managing Director, PIMCO. A
Low Duration Fund II Fixed Income Portfolio Manager, Mr. Gross is
Low Duration Fund III one of the founders of PIMCO and has managed
Total Return Fund the PIMCO Low Duration, Low Duration II, Low
Total Return Fund II Duration III, Total Return, Total Return II and
Total Return Fund III Total Return III Funds since their inception,
May 11, 1987, November 1, 1991, December 27,
1996, May 11, 1987, December 30, 1991, and May
1, 1991, respectively.
High Yield Fund Benjamin Trosky, Managing Director, PIMCO. A
Fixed Income Portfolio Manager, Mr. Trosky
joined PIMCO in 1990 and has managed the PIMCO
High Yield Fund since its inception, December
16, 1992.
Long-Term U.S. Government Fund Frank B. Rabinovitch, Managing Director, PIMCO.
A Fixed Income Portfolio Manager, Mr.
Rabinovitch joined PIMCO in 1984 and has
managed the PIMCO Long-Term U.S. Government
Fund since its inception, July 1, 1991.
Real Return Bond Fund John Brynjolfsson, Vice President, PIMCO. A
Fixed Income Portfolio Manager, Mr.
Brynjolfsson joined PIMCO in 1989, and has
managed the PIMCO Real Return Bond Fund since
its inception, January 14, 1997.
Foreign Bond Fund Lee R. Thomas, III, Executive Vice President
Global Bond Fund and Senior International Portfolio Manager,
Global Bond Fund II PIMCO. A Fixed Income Portfolio Manager,
International Bond Fund Mr. Thomas has managed the PIMCO Foreign Bond,
Global Bond and International Bond Funds since
July 13, 1995, and the PIMCO Global Bond Fund
II since October 1, 1995. Prior to joining
PIMCO in 1995, Mr. Thomas was associated with
Investcorp as a member of the management
committee responsible for global securities and
foreign exchange trading. Prior to Investcorp,
he was associated with Goldman Sachs as an
Executive Director in foreign fixed income.
</TABLE>
January 14, 1997 Prospectus 41
<PAGE>
FUND ADMINISTRATOR
PIMCO also serves as administrator to the Funds pursuant to an
administration agreement with the Trust. PIMCO provides administrative
services to the Funds, which include clerical help and accounting,
bookkeeping, internal audit services, and certain other services required by
the Funds, preparation of reports to the Funds' shareholders and regulatory
filings. In addition, PIMCO, at its own expense, arranges for the provision of
legal, audit, custody, transfer agency and other services for the Funds, and
is responsible for the costs of registration of the Trust's shares and the
printing of prospectuses and shareholder reports for current shareholders.
The Funds (and not PIMCO) are responsible for the following expenses:
(i) salaries and other compensation of any of the Trust's executive officers
and employees who are not officers, directors, stockholders or employees of
PIMCO or its subsidiaries or affiliates; (ii) taxes and governmental fees;
(iii) brokerage fees and commissions and other portfolio transaction expenses;
(iv) the costs of borrowing money, including interest expenses; (v) fees and
expenses of the Trustees who are not "interested persons" of PIMCO or the
Trust, and any counsel retained exclusively for their benefit; (vi)
extraordinary expenses, including costs of litigation and indemnification
expenses; (vii) expenses, such as organizational expenses, which are
capitalized in accordance with generally accepted accounting principles; and
(viii) any expenses allocated or allocable to a specific class of shares,
which include fees payable with respect to the Administrative Class shares,
and may include certain other expenses as permitted by the Trust's Multi-Class
Plan adopted pursuant to Rule 18f-3 under the 1940 Act and subject to review
and approval by the Trustees.
ADVISORY AND ADMINISTRATIVE FEES
The Funds feature fixed advisory and administrative fee rates. For providing
investment advisory and administrative services to the Funds as described
above, PIMCO receives monthly fees from each Fund at an annual rate based on
the average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
ADVISORY
FUND FEE RATE
---- --------
<S> <C>
Money Market Fund............................................ 0.15%
Commercial Mortgage Securities, StocksPLUS, StocksPLUS Short
Strategy, and Strategic Balanced Funds...................... 0.40%
All other Funds.............................................. 0.25%
<CAPTION>
ADMINISTRATIVE
FUND FEE RATE
---- --------------
<S> <C>
Money Market, Short-Term and Moderate Duration Funds......... 0.20%
Low Duration Fund and Total Return Fund...................... 0.18%
Global Bond and Global Bond II Funds......................... 0.30%
All other Funds.............................................. 0.25%
</TABLE>
Both the investment advisory contract and administration agreement for the
Funds may be terminated by the Trustees at any time on 60 days' written
notice. The investment advisory contract may be terminated by PIMCO on 60
days' written notice. Following the expiration of the two-year period
commencing with the effectiveness of the administration agreement, it may be
terminated by PIMCO on 60 days' written notice. Following their initial two-
year terms, the investment advisory contract and administration agreement will
continue from year to year if approved by the Trustees.
SERVICE AND DISTRIBUTION FEES
The Trust has adopted an Administrative Services Plan and a Distribution
Plan (the "Plans") with respect to the Administrative Class shares of each
Fund. Under the terms of each Plan, the Trust is permitted to reimburse, out
of the
42
PIMCO Funds: Pacific Investment Management Series
<PAGE>
Administrative Class assets of each Fund, in an amount up to 0.25% on an
annual basis of the average daily net assets of that class, financial
intermediaries that provide services in connection with the distribution of
shares or administration of plans or programs that use Fund shares as their
funding medium, and to reimburse certain other distribution-related expenses.
The same entity may not receive both distribution and administrative services
fees with respect to the same assets but may with respect to separate assets
receive fees under both a Distribution Plan and Administrative Services Plan.
Fees paid pursuant to either type of Plan may be paid for shareholder service
and the maintenance of accounts and therefore may constitute "service fees"
for purposes of applicable rules of the National Association of Securities
Dealers, Inc. Each Plan has been adopted in accordance with the requirements
of Rule 12b-1 under the 1940 Act and will be administered in accordance with
the provisions of that rule, except that shareholders will not have the voting
rights set forth in Rule 12b-1 with respect to the Administrative Services
Plan that they will have with respect to the Distribution Plan. For more
complete disclosure regarding the Plans and their terms, see the Statement of
Additional Information.
Institutional Class shares of the Trust may also be offered through certain
brokers and financial intermediaries ("service agents") that have established
a shareholder servicing relationship with the Trust on behalf of their
customers. The Trust pays no compensation to such entities. Service agents may
impose additional or different conditions on the purchase or redemption of
Fund shares by their customers and may charge their customers transaction or
other account fees on the purchase and redemption of Fund shares. Each service
agent is responsible for transmitting to its customers a schedule of any such
fees and information regarding any additional or different conditions
regarding purchases and redemptions. Shareholders who are customers of service
agents should consult their service agent for information regarding these fees
and conditions.
DISTRIBUTOR
Shares of the Trust are distributed through PIMCO Funds Distribution Company
(the "Distributor"), a wholly owned subsidiary of PIMCO Advisors. The
Distributor, which is located at 2187 Atlantic Street, Stamford, Connecticut
06902, is a broker-dealer registered with the SEC.
PURCHASE OF SHARES
Each Fund offers its shares in up to five classes: "Institutional Class,"
"Administrative Class," "Class A," "Class B," and "Class C." This Prospectus
relates only to the Institutional Class and Administrative Class shares of the
Funds. For information regarding Class A, Class B, and Class C shares, see
"Other Information--Multiple Classes of Shares" below.
Shares of the Institutional Class are offered primarily for direct
investment by investors such as pension and profit-sharing plans, employee
benefit trusts, endowments, foundations, corporations and high net worth
individuals (Institutional Class shares may also be offered through certain
financial intermediaries that charge their customers transaction or other fees
with respect to their customers' investments in the Funds). Shares of the
Administrative Class are offered primarily through employee benefit plan
alliances broker-dealers, and other intermediaries, and each Fund pays service
and/or distribution fees to such entities for services they provide to
shareholders of that class.
Shares of either the Institutional Class or the Administrative Class of the
Funds may be purchased at the relevant net asset value of that class without a
sales charge. The minimum initial investment for shares of either class is $5
million. Shares of either class may also be offered to clients of the Adviser
and its affiliates. Shares of the PIMCO International Bond Fund are offered
only to clients of PIMCO who maintain separately managed private accounts. In
addition, the minimum initial investment does not apply to shares of the
Institutional Class offered through fee-based programs
January 14, 1997 Prospectus 43
<PAGE>
sponsored and maintained by a registered broker-dealer and approved by the
Distributor pursuant to which each investor pays an asset based fee at an
annual rate of at least .50% of the assets in the account to a financial
intermediary for investment advisory and/or administrative services.
Pension and profit-sharing plans, employee benefit trusts and employee
benefit plan alliances and "wrap account" programs established with broker-
dealers or other financial intermediaries may purchase shares of either class
only if the plan or program for which the shares are being acquired will
maintain an omnibus or pooled account for each Fund and will not require a
Fund to pay any type of administrative payment per participant account to any
third party.
INITIAL INVESTMENT
An account may be opened by completing and signing a Client Registration
Application and mailing it to PIMCO Funds at the following address: 840
Newport Center Drive, Suite 360, Newport Beach, California 92660. A Client
Registration Application may be obtained by calling (800) 800-0952.
Except as provided below, purchases of shares can only be made by wiring
federal funds to Investors Fiduciary Trust Company (the "Transfer Agent"), 127
West 10th Street, Kansas City, Missouri 64105. Before wiring federal funds,
the investor must first telephone the Trust at (800) 927-4648 to receive
instructions for wire transfer, and the following information will be
requested: name of authorized person; shareholder name; shareholder account
number; name of Fund and share class; amount being wired; and wiring bank
name.
Shares may be purchased without first wiring federal funds if the proceeds
of the investment are derived from an advisory account maintained by the
investor with PIMCO, PIMCO Advisors or one of their affiliates; from surrender
or other payment from an annuity, insurance, or other contract held by Pacific
Mutual Life Insurance Company; or from an investment by broker-dealers,
institutional clients or other financial intermediaries which have established
a shareholder servicing relationship with the Trust on behalf of their
customers.
A purchase order, together with payment in proper form, received by the
Transfer Agent prior to the close of business (ordinarily 4:00 p.m., Eastern
time) on a day the Trust is open for business will be effected at that day's
net asset value. In order to facilitate efficient operation of the PIMCO
StocksPLUS, StocksPLUS Short Strategy and Strategic Balanced Funds, the Trust
requests that all purchase or exchange orders for these Funds be received by
the Transfer Agent prior to 3:00 p.m., Eastern time. An order received after
the close of business will generally be effected at the net asset value
determined on the next business day. However, orders received by certain
retirement plans and other financial intermediaries by the close of business
and communicated to the Transfer Agent by 9:00 a.m., Eastern time, on the
following business day will be effected at the net asset value determined on
the prior business day. The Trust is "open for business" on each day the New
York Stock Exchange (the "Exchange") is open for trading, which excludes the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Purchase
orders will be accepted only on days on which the Trust is open for business.
With respect to the Funds whose policy is to declare dividends daily (i.e.,
each of the Fixed Income Funds except the PIMCO International Bond Fund), if a
purchase order for shares is received prior to 12:00 noon, Eastern time, and
payment in federal funds is received by the Transfer Agent by the close of the
federal funds wire on the day the purchase order is received, dividends will
accrue starting that day. If a purchase order is received after 12:00 noon,
Eastern time, and payment in federal funds is received by the Transfer Agent
by the close of the federal funds wire on the day the purchase order is
received, or as otherwise agreed to by the Trust, the order will be effected
at that day's net asset value, but dividends will not begin to accrue until
the following business day.
44 PIMCO Funds: Pacific Investment Management Series
<PAGE>
ADDITIONAL INVESTMENTS
Additional investments may be made at any time at the relevant net asset
value for that class by calling the Trust and wiring federal funds to the
Transfer Agent as outlined above.
OTHER PURCHASE INFORMATION
Purchases of a Fund's Institutional Class and Administrative Class shares
will be made in full and fractional shares. In the interest of economy and
convenience, certificates for shares will not be issued.
The Trust and the Distributor each reserves the right, in its sole
discretion, to suspend the offering of shares of the Funds or to reject any
purchase order, in whole or in part, when, in the judgment of management, such
suspension or rejection is in the best interests of the Trust; to waive the
minimum initial investment for certain investors; and to redeem shares if
information provided in the Client Registration Application should prove to be
incorrect in any manner judged by the Trust to be material (e.g., in a manner
such as to render the shareholder ineligible to purchase shares of the Trust).
Purchases and sales of Fund shares should be made for long-term investment
purposes only. The Trust and Adviser each reserves the right to restrict
purchases of Fund shares (including exchanges) when a pattern of frequent
purchases and sales made in response to short-term fluctuations in share price
appears evident.
Institutional Class and Administrative Class shares of the Trust are not
qualified or registered for sale in all states. Prospective investors should
inquire as to whether shares of a particular Fund are available for offer and
sale in their state of residence. Shares of the Trust may not be offered or
sold in any state unless registered or qualified in that jurisdiction or
unless an exemption from registration or qualification is available.
Investors may, subject to the approval of the Trust, purchase shares of a
Fund with liquid securities that are eligible for purchase by the Fund
(consistent with such Fund's investment policies and restrictions) and that
have a value that is readily ascertainable in accordance with the Trust's
valuation policies. These transactions will be effected only if the Adviser
intends to retain the security in the Fund as an investment. Assets so
purchased by a Fund will be valued in generally the same manner as they would
be valued for purposes of pricing the Fund's shares, if such assets were
included in the Fund's assets at the time of purchase. The Trust reserves the
right to amend or terminate this practice at any time.
RETIREMENT PLANS
Shares of the Funds are available for purchase by retirement plans,
including Keogh plans, 401(k) plans, 403(b) plans and Individual Retirement
Accounts. The administrator of a plan or employee benefits office can provide
participants or employees with detailed information on how to participate in
the plan and how to elect a Fund as an investment option. Participants in a
retirement or savings plan may be permitted to elect different investment
options, alter the amounts contributed to the plan, or change how
contributions are allocated among investment options in accordance with the
plan's specific provisions. The plan administrator or employee benefits office
should be consulted for details. For questions about participant accounts,
participants should contact their employee benefits office, the plan
administrator, or the organization that provides recordkeeping services for
the plan. Investors who purchase shares through retirement plans should be
aware that plan administrators may aggregate purchase and redemption orders
for participants in the plan. Therefore, there may be a delay between the time
the investor places an order with the plan administrator, and the time the
order is forwarded to the Transfer Agent for execution.
January 14, 1997 Prospectus 45
<PAGE>
REDEMPTION OF SHARES
REDEMPTIONS BY MAIL
Institutional Class and Administrative Class shares may be redeemed by
submitting a written request to PIMCO Funds, 840 Newport Center Drive, Suite
360, Newport Beach, California 92660, stating the Fund from which the shares
are to be redeemed, the class of shares, the number or dollar amount of the
shares to be redeemed and the account number. The request must be signed
exactly as the names of the registered owners appear on the Trust's account
records, and the request must be signed by the minimum number of persons
designated on the Client Registration Application that are required to effect
a redemption. In order to discourage short-term trading, the PIMCO StocksPLUS
Short Strategy Fund imposes a redemption fee, payable to the Fund, of 1% on
all shares of the Fund held for less than three months.
REDEMPTIONS BY TELEPHONE OR OTHER WIRE COMMUNICATION
If an election is made on the Client Registration Application (or
subsequently in writing), redemptions of shares may be requested by calling
the Trust at (800) 927-4648, by sending a facsimile to (714) 760-4456, or by
other means of wire communication. Investors should state the Fund and class
from which the shares are to be redeemed, the number or dollar amount of the
shares to be redeemed and the account number. Redemption requests of an amount
of $10 million or more may be initiated by telephone, but must be confirmed in
writing by an authorized party prior to processing.
In electing a telephone redemption, the investor authorizes PIMCO and the
Transfer Agent to act on telephone instructions from any person representing
himself to be the investor, and reasonably believed by PIMCO and the Transfer
Agent to be genuine. Neither the Trust nor its Transfer Agent will be liable
for any loss, cost or expense for acting on instructions (whether in writing
or by telephone) believed by the party receiving such instructions to be
genuine and in accordance with the procedures described in this Prospectus.
Shareholders should realize that by electing the telephone or wire redemption
option, they may be giving up a measure of security that they might have if
they were to redeem their shares in writing. Furthermore, interruptions in
telephone service may mean that a shareholder will be unable to effect a
redemption by telephone when desired. The Transfer Agent provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone instructions are genuine (written confirmation is also
provided for redemption requests received in writing). All telephone
transactions are recorded, and PIMCO or the Transfer Agent may request certain
information in order to verify that the person giving instructions is
authorized to do so. All redemptions, whether initiated by letter or
telephone, will be processed in a timely manner and proceeds will be forwarded
by wire in accordance with the redemption policies of the Trust detailed
below. See "Redemption of Shares--Other Redemption Information."
Shareholders may decline telephone exchange or redemption privileges after
an account is opened by instructing the Transfer Agent in writing at least
seven business days prior to the date the instruction is to be effective.
Shareholders may experience delays in exercising telephone redemption
privileges during periods of abnormal market activity. During periods of
volatile economic or market conditions, shareholders may wish to consider
transmitting redemption orders by telegram, facsimile or overnight courier.
OTHER REDEMPTION INFORMATION
Payment of the redemption price will ordinarily be wired to the investor's
bank one business day after the redemption request, but may take up to seven
business days. Redemption proceeds will be sent by wire only to the bank name
designated on the Client Registration Application. The Trust may suspend the
right of redemption or postpone the payment date at times when the Exchange is
closed, or during certain other periods as permitted under the federal
securities laws.
46 PIMCO Funds: Pacific Investment Management Series
<PAGE>
For shareholder protection, a request to change information contained in an
account registration (for example, a request to change the bank designated to
receive wire redemption proceeds) must be received in writing, signed by the
minimum number of persons designated on the Client Registration Application
that are required to effect a redemption, and accompanied by a signature
guarantee from any eligible guarantor institution, as determined in accordance
with the Trust's procedures. Shareholders should inquire as to whether a
particular institution is an eligible guarantor institution. A signature
guarantee cannot be provided by a notary public. In addition, corporations,
trusts, and other institutional organizations are required to furnish evidence
of the authority of the persons designated on the Client Registration
Application to effect transactions for the organization.
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem Institutional Class and Administrative Class
shares in any account for their then-current value (which will be promptly
paid to the investor) if at any time, due to redemption by the investor, the
shares in the account do not have a value of at least $100,000 ($10,000 with
respect to accounts opened before January 1, 1995). A shareholder will receive
advance notice of a mandatory redemption and will be given at least 30 days to
bring the value of its account up to at least $100,000, or $10,000, as the
case may be.
The Trust agrees to redeem shares of each Fund solely in cash up to the
lesser of $250,000 or 1% of the net assets during any 90-day period for any
one shareholder. In consideration of the best interests of the remaining
shareholders, the Trust reserves the right to pay any redemption proceeds
exceeding this amount in whole or in part by a distribution in kind of
securities held by a Fund in lieu of cash. It is highly unlikely that shares
would ever be redeemed in kind. If shares are redeemed in kind, however, the
redeeming shareholder should expect to incur transaction costs upon the
disposition of the securities received in the distribution.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for shares of the same class of any other
Fund based on the respective net asset values of the shares involved, except
that shares of the PIMCO International Fund are available only to private
account clients of PIMCO. An exchange may be made by following the redemption
procedure described above under "Redemptions by Mail" or, if the telephone
redemption option has been elected, by calling the Trust at (800) 927-4648.
Shares of a Fund may also be exchanged for shares of the same class of a
series (except the Opportunity Fund) of PIMCO Funds: Multi-Manager Series, an
affiliated mutual fund family comprised primarily of equity portfolios managed
by the subsidiary partnerships of PIMCO Advisors. Shareholders interested in
such an exchange may request a prospectus for these funds by contacting PIMCO
Funds at the same address and telephone number as the Trust.
Exchanges may be made only with respect to Funds, or series of PIMCO Funds:
Multi-Manager Series, registered in the state of residence of the investor or
where an exemption from registration is available. An exchange order is
treated the same for tax purposes as a redemption followed by a purchase and
may result in a capital gain or loss, and special rules may apply in computing
tax basis when determining gain or loss. See "Taxation" in the Statement of
Additional Information.
The Trust reserves the right to modify or revoke the exchange privilege of
any shareholder or to limit or reject any exchange. Although each Fund will
attempt to give shareholders prior notice whenever it is reasonably able to do
so, it may impose these restrictions at any time.
January 14, 1997 Prospectus 47
<PAGE>
PORTFOLIO TRANSACTIONS
Pursuant to the advisory contract, the Adviser places orders for the
purchase and sale of portfolio investments for the Funds' accounts with
brokers or dealers selected by it in its discretion. In effecting purchases
and sales of portfolio securities for the account of the Funds, the Adviser
will seek the best price and execution of the Funds' orders. In doing so, a
Fund may pay higher commission rates than the lowest available when the
Adviser believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction. The Adviser also may consider sales of shares of the Trust as a
factor in the selection of broker-dealers to execute portfolio transactions
for the Trust.
The Adviser manages the Funds without regard generally to restrictions on
portfolio turnover, except those imposed on its ability to engage in short-
term trading by provisions of the federal tax laws. The use of futures
contracts and other derivative instruments with relatively short maturities
may tend to exaggerate the portfolio turnover rate for some of the Funds.
Trading in fixed income securities does not generally involve the payment of
brokerage commissions, but does involve indirect transaction costs. The use of
futures contracts may involve the payment of commissions to futures commission
merchants. The higher the rate of portfolio turnover of a Fund, the higher all
these transaction costs borne by the Fund generally will be. The portfolio
turnover rate for each Fund for which financial highlights are provided in
this Prospectus is set forth under "Financial Highlights." Portfolio turnover
for the remaining Funds is incorporated by reference in the Statement of
Additional Information.
Some securities considered for investment by the Funds may also be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of a Fund and one or more
of these clients served by the Adviser is considered at or about the same
time, transactions in such securities will be allocated among the Fund and
clients in a manner deemed fair and reasonable by the Adviser.
NET ASSET VALUE
The net asset value per share of each of the Institutional Class and
Administrative Class of each Fund is determined as of the close of trading on
the Exchange (ordinarily 4:00 p.m., Eastern time) by dividing the total market
value of a Fund's portfolio investments and other assets attributable to that
class, less any liabilities, by the number of total outstanding shares of that
class. Net asset value will not be determined on days on which the Exchange is
closed.
The PIMCO Money Market Fund's securities are normally valued using the
amortized cost method of valuation. This involves valuing a security at cost
on the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity. See the Statement of
Additional Information for a description of certain conditions and procedures
followed by the PIMCO Money Market Fund in connection with amortized cost
valuation. For all other Funds, portfolio securities and other assets for
which market quotations are readily available are stated at market value.
Market value is determined on the basis of last reported sales prices, or if
no sales are reported, as is the case for most securities traded over-the-
counter, at the mean between representative bid and asked quotations obtained
from a quotation reporting system or from established market makers. Fixed
income securities, including those to be purchased under firm commitment
agreements (other than obligations having a maturity of 60 days or less), are
normally valued on the basis of quotations obtained from brokers and dealers
or pricing services, which take into account appropriate factors such as
institutional-sized trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data.
48 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Quotations of foreign securities in foreign currency are converted to U.S.
dollar equivalents using foreign exchange quotations received from independent
dealers. Short-term investments having a maturity of 60 days or less are
valued at amortized cost, when the Board of Trustees determines that amortized
cost is their fair value. Certain fixed income securities for which daily
market quotations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to fixed
income securities whose prices are more readily obtainable and whose durations
are comparable to the securities being valued. Subject to the foregoing, other
securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Board of Trustees.
Each Fund's liabilities are allocated among its classes. The total of such
liabilities allocated to a class plus that class's distribution and/or
servicing fees and any other expenses specially 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 "net asset value" per share. Under
certain circumstances, the per share net asset value of the Administrative
Class shares of the Funds that do not declare regular income dividends on a
daily basis may be lower than the per share net asset value of the
Institutional Class shares as a result of the daily expense accruals of the
service fee applicable to the Administrative Class shares. Generally, for
Funds that pay income dividends, those dividends are expected to differ over
time by approximately the amount of the expense accrual differential between a
particular Fund's classes.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Shares begin earning dividends on the effective date of purchase, provided
notification deadlines are met. See "Purchase of Shares." For the Fixed Income
Funds (other than the PIMCO International Bond Fund), dividends are declared
daily from net investment income to shareholders of record at the close of the
previous business day, and distributed to shareholders monthly. The PIMCO
International Bond, Strategic Balanced and Equity Funds intend to declare and
pay as a dividend substantially all of their net investment income on a
quarterly basis. Any net realized capital gains from the sale of portfolio
securities will be distributed no less frequently than once yearly. Dividend
and capital gain distributions of a Fund will be reinvested in additional
shares of that Fund unless the shareholder elects to have them paid in cash.
Dividends from net investment income with respect to Administrative Class
shares will be lower than those paid with respect to Institutional Class
shares, reflecting the payment of service and distribution fees by that class.
Each Fund intends to qualify as a regulated investment company annually and
to elect to be treated as a regulated investment company under the Internal
Revenue Code of 1986, as amended. As such, a Fund generally will not pay
federal income tax on the income and gains it pays as dividends to its
shareholders. In order to avoid a 4% federal excise tax, each Fund intends to
distribute each year substantially all of its net income and gains.
Distributions received by tax-exempt shareholders will not be subject to
federal income tax to the extent permitted under applicable tax law. To the
extent that a shareholder is not exempt from tax on Fund distributions, such
shareholder will be subject to tax on dividends received from a Fund,
regardless of whether received in cash or reinvested in additional shares. All
shareholders must treat dividends, other than capital gain dividends or
dividends that represent a return of capital to shareholders, as ordinary
income. Dividends designated by a Fund as capital gain dividends are taxable
to shareholders as long-term capital gain except as provided by an applicable
tax exemption. Any distributions that are not from a Fund's net investment
income or net capital gain may be characterized as a return of capital to
shareholders or, in some cases, as capital gain. Certain dividends declared in
October, November or December of a calendar year are taxable
January 14, 1997 Prospectus 49
<PAGE>
to shareholders (who otherwise are subject to tax on dividends) as though
received on December 31 of that year if paid to shareholders during January of
the following calendar year. For state income tax purposes, interest on some
Federal obligations generally is not exempt from taxation, whether received
directly by a shareholder or through distributions of investment company
taxable income (for example, interest on FNMA and GNMA Certificates). Each
Fund will advise shareholders annually of the amount and nature of the
dividends paid to them.
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 principal value of these securities
also may give rise to original issue 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 investment 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.
OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on February 19,
1987. The Board of Trustees may establish additional portfolios in the future.
The capitalization of the Trust consists solely of an unlimited number of
shares of beneficial interest with a par value of $0.0001 each. When issued,
shares of the Trust are fully paid, non-assessable and freely transferable.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust also provides for
indemnification out of Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. The risk
of a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which such disclaimer is inoperative or the
Trust itself is unable to meet its obligations, and thus should be considered
remote.
MULTIPLE CLASSES OF SHARES
In addition to Institutional Class and Administrative Class shares, certain
Funds offer Class A shares, Class B shares, and Class C shares. These other
classes of the Funds may have different sales charges and expense levels,
which will
50 PIMCO Funds: Pacific Investment Management Series
<PAGE>
affect performance accordingly. Investors may contact the Distributor at (800)
426-0107 for more information concerning other classes of shares of the Funds.
This Prospectus relates only to the Institutional Class shares and
Administrative Class shares of the Funds.
VOTING
Shareholders have the right to vote on the election of Trustees and on any
and all matters on which the law or the Declaration of Trust states they may
be entitled to vote. The Trust is not required to hold regular annual meetings
of Trust shareholders and does not intend to do so. Shareholders of a class of
shares 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 proportionate
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 Funds: California Community Foundation (Los Angeles, California)
and Marin Community Foundation (Larkspar, California) with respect to the
PIMCO Money Market Fund; Sprint Corporation (Westwood, Kansas) with respect to
PIMCO Low Duration Fund II; Archdiocese of Los Angeles (Los Angeles,
California) with respect to the PIMCO Total Return Fund III; Wendel & Co. (New
York, New York) with respect to the PIMCO 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 PIMCO Foreign Bond
Fund; and Pacific Financial Asset Management Corporation with respect to the
PIMCO Strategic Balanced Fund and the Global Income Fund (the predecessor of
the PIMCO Global Bond Fund II). To the extent such shareholders are also the
beneficial owners of such securities, they may be deemed to control (as that
term is defined in the 1940 Act) the relevant Fund. As used in this
Prospectus, the phrase "vote of a majority of the outstanding shares" of a
Fund (or the Trust) means the vote of the lesser of: (1) 67% of the shares of
the Fund (or the Trust) present at a meeting, if the holders of more than 50%
of the outstanding shares are present in person or by proxy; or (2) more than
50% of the outstanding shares of the Fund (or the Trust).
PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and total return for
each class of shares of its Funds in advertisements or reports to shareholders
or prospective investors. Yield quotations for the PIMCO Money Market Fund may
include current yield and effective yield. Current yield will be based on
income received by a hypothetical investment over a given seven-day period
(less expenses accrued during the period) and "annualized" (i.e., assuming
that the seven-day yield would be received for 52 weeks, stated in terms of an
annual percentage return on the investment). Effective yield for the Fund is
calculated in the manner similar to that used to calculate current yield, but
reflects the compounding effect on earnings of reinvested dividends. For the
remaining Funds, quotations of yield for a Fund or class will be based on the
investment income per share (as defined by the SEC) during a particular 30-day
(or one-month) period (including dividends and interest), less expenses
accrued during the period ("net investment income"), and will be computed by
dividing net investment income by the maximum public offering price per share
on the last day of the period. Quotations of average annual total return for a
Fund or class will be expressed in terms of the average annual compounded rate
of return of a hypothetical investment in the Fund or class over periods of
one, five and ten years (up to the life of the Fund), reflect the deduction of
a proportional share of Fund or class expenses (on an annual basis), and
January 14, 1997 Prospectus 51
<PAGE>
assume that all dividends and distributions are reinvested when paid.
Consistent with Securities and Exchange Commission rules and informal
guidance, for periods prior to the initial offering date of a particular
class, total return presentations for the class may 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), restated to
reflect current sales charges or redemption fees (if any), but not reflecting
different operating expenses (such as service or distribution fees and
administrative fee charges) associated with the newer class. All other things
being equal, higher expenses of an older class 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 investment in the Fund at the beginning
of the relevant period 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). The Funds may advertise total
return using alternative methods that reflect all elements of return, but that
may be adjusted to reflect the cumulative impact of alternative fee and
expense structures, such as the currently effective advisory and
administrative fees for the Funds.
The Trust also may provide current distribution information to its
shareholders in shareholder reports or other shareholder communications, or in
certain types of sales literature provided to prospective investors. Current
distribution information for a particular class of a Fund will be based on
distributions for a specified period (i.e., total dividends from net
investment income), divided by the relevant class net asset value per share on
the last day of the period and annualized. The rate of current distributions
does not reflect deductions for unrealized losses from transactions in
derivative instruments such as options and futures, which may reduce total
return. Current distribution rates differ from standardized yield rates in
that they represent what a class of a Fund has declared and paid to
shareholders as of the end of a specified period rather than the Fund's actual
net investment income for that period.
Performance information for the Trust may also be compared to various
unmanaged indices, such as the Standard & Poor's 500 Composite Stock Price
Index, the Lehman Brothers Aggregate Bond Index, the Merrill Lynch 1 to 3 Year
Treasury Index, the Lehman Intermediate and 20+ Year Treasury Blend Index, the
Lehman BB Intermediate Corporate Index, indexes prepared by Lipper Analytical
Services, the J.P. Morgan Global Index, the Salomon Brothers World Government
Bond Index-10 Non U.S.-Dollar Hedged and the J.P. Morgan Government Bond Index
Non U.S.-Dollar Hedged, and other entities or organizations which track the
performance of investment companies or investment advisers. Unmanaged indexes
(i.e., other than Lipper) generally do not reflect deductions for
administrative and management costs and expenses. PIMCO may also report to
shareholders or to the public in advertisements concerning the performance of
PIMCO as adviser to clients other than the Trust, and on the comparative
performance or standing of PIMCO in relation to other money managers. Such
comparative information may be compiled or provided by independent ratings
services or by news organizations. Any performance information, whether
related to the Funds or to the Adviser, should be considered in light of a
Fund's investment objectives and policies, characteristics and quality of the
portfolio, and the market conditions during the time period indicated, and
should not be considered to be representative of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the Funds, see the Statement of Additional Information.
Investment results of the Funds will fluctuate over time, and any
presentation of the Funds' total return or yield for any prior period should
not be considered as a representation of what an investor's total return or
yield may be in any future period. The Trust's Annual Report contains
additional performance information for the Funds and is available upon
request, without charge, by calling (800) 927-4648 (Current Shareholders), or
(800) 800-0952 (New Accounts).
52 PIMCO Funds: Pacific Investment Management Series
<PAGE>
APPENDIX A
DESCRIPTION OF DURATION
Duration is a measure of the expected life of a fixed income security that
was developed as a more precise alternative to the concept of "term to
maturity." Traditionally, a fixed income security's "term to maturity" has
been used as a proxy for the sensitivity of the security's price to changes in
interest rates (which is the "interest rate risk" or "volatility" of the
security). However, "term to maturity" measures only the time until a fixed
income security provides its final payment, taking no account of the pattern
of the security's payments prior to maturity. In contrast, duration
incorporates a bond's yield, coupon interest payments, final maturity and call
features into one measure. Duration management is one of the fundamental tools
used by the Adviser.
Duration is a measure of the expected life of a fixed income security on a
present value basis. Duration takes the length of the time intervals between
the present time and the time that the interest and principal payments are
scheduled or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any fixed income security with interest payments occurring
prior to the payment of principal, duration is always less than maturity. In
general, all other things being equal, the lower the stated or coupon rate of
interest of a fixed income security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a fixed income
security, the shorter the duration of the security.
Futures, options and options on futures have durations which, in general,
are closely related to the duration of the securities which underlie them.
Holding long futures or call option positions (backed by a segregated account
of cash and cash equivalents) will lengthen a Fund's duration by approximately
the same amount that holding an equivalent amount of the underlying securities
would.
Short futures or put option positions have durations roughly equal to the
negative duration of the securities that underlie these positions, and have
the effect of reducing portfolio duration by approximately the same amount
that selling an equivalent amount of the underlying securities would.
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. 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 Adviser will use more
sophisticated analytical techniques that incorporate the anticipated economic
life of a security into the determination of its interest rate exposure.
January 14, 1997 Prospectus A-1
<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
Adviser's view of their comparability to rated securities. A Fund's use of
average quality criteria is intended to be a guide for those institutional
investors whose investment guidelines require that assets be invested
according to comparable criteria. Reference to an overall average quality
rating for a Fund does not mean that all securities held by the Fund will be
rated in that category or higher. A Fund's investments may range in quality
from securities rated in the lowest category in which the Fund is permitted to
invest to securities rated in the highest category (as rated by Moody's or S&P
or, if unrated, determined by the Adviser to be of comparable quality). The
percentage of a Fund's assets invested in securities in a particular rating
category will vary. Following is a description of Moody's and S&P's ratings
applicable to fixed income securities.
MOODY'S INVESTORS SERVICE, INC.
CORPORATE AND MUNICIPAL BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present that make the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
January 14, 1997 Prospectus B-1
<PAGE>
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classified from Aa through B in its corporate bond rating system. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
CORPORATE SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as
letters of credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structure with moderate
reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S CORPORATION
CORPORATE AND MUNICIPAL BOND RATINGS
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
B-2 PIMCO Funds: Pacific Investment Management Series
<PAGE>
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating will also be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
January 14, 1997 Prospectus B-3
<PAGE>
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
The investor should exercise his own judgment with respect to such likelihood
and risk.
r: The "r" is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
COMMERCIAL PAPER RATING DEFINITIONS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into several categories, ranging from A for
the highest quality obligations to D for the lowest. These categories are as
follows:
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B: Issues rated B are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability
for a particular investor. The ratings are based on current information
furnished to Standard & Poor's by the issuer or obtained from other sources it
considers reliable. Standard & Poor's does not perform an audit in connection
with any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended, or withdrawn as a result of changes in
or unavailability of such information.
B-4 PIMCO Funds: Pacific Investment Management Series
<PAGE>
[LOGO OF PIMCO APPEARS HERE]
PIMCO FUNDS
Pacific Investment Management Series
INVESTMENT ADVISER AND ADMINISTRATOR
Pacific Investment Management Company
840 Newport Center Drive, Suite 360
Newport Beach, CA 92660
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, MO 64105
ACCOUNTANTS
Price Waterhouse LLP
1055 Broadway
Kansas City, MO 64105
COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W., Suite 500
Washington, DC 20005
PROSPECTUS
- --------------------------------------------------------------------------------
January 14, 1997
<PAGE>
PIMCO Funds:
Pacific Investment Management Series
Statement of Additional Information
PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund") currently consisting of twenty separate investment portfolios
(the "Funds"): the PIMCO Money Market Fund; the PIMCO Short-Term Fund; the PIMCO
Low Duration Fund; the PIMCO Low Duration Fund II; the PIMCO Low Duration Fund
III; the PIMCO Moderate Duration Fund; the PIMCO High Yield Fund; the PIMCO
Total Return Fund; the PIMCO Total Return Fund II; the PIMCO Total Return Fund
III; the PIMCO Commercial Mortgage Securities Fund; the PIMCO Long-Term U.S.
Government Fund; the PIMCO Real Return Bond Fund; the PIMCO Foreign Bond Fund;
the PIMCO Global Bond Fund; the PIMCO Global Bond Fund II; the PIMCO
International Bond Fund; the PIMCO StocksPLUS Fund; the PIMCO StocksPLUS Short
Strategy Fund; and the PIMCO Strategic Balanced Fund. Shares of the PIMCO
International Bond Fund are offered only to clients of PIMCO who maintain
separately managed private accounts.
The Trust's investment adviser is Pacific Investment Management Company
("PIMCO" or the "Adviser"), 840 Newport Center Drive, Suite 360, Newport Beach,
California 92660. PIMCO is a subsidiary partnership of PIMCO Advisors L.P.
("PIMCO Advisors").
This Statement of Additional Information is not a Prospectus, and should be
used in conjunction with a Prospectus for the Trust. The Funds offer five
classes of shares, offered through two Prospectuses. Class A, Class B, and
Class C shares are offered through the "Retail Prospectus" and Institutional
Class and Administrative Class shares are offered through the "Institutional
Prospectus," each dated January 14, 1997 (collectively, the "Prospectuses"). A
copy of the applicable Prospectus may be obtained free of charge at the address
and telephone number listed below.
Institutional Prospectus: Retail Prospectus:
PIMCO Funds PIMCO Funds Distribution Company
840 Newport Center Drive 2187 Atlantic Street
Suite 360 Stamford, Connecticut 06902
Newport Beach, California 92660 Telephone: (800) 426-0107
Telephone: (800) 927-4648 (Current Shareholders)
(800) 800-0952 (New Accounts)
January 14, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES........................................................ 1
Borrowing............................................................................ 1
Corporate Debt Securities............................................................ 2
Participation on Creditors Committee................................................. 3
Mortgage-Related and Other Asset-Backed Securities................................... 4
Foreign Securities................................................................... 8
Foreign Currency Exchange-Related Securities......................................... 10
Bank Obligations..................................................................... 12
Loan Participations.................................................................. 13
Short Sales.......................................................................... 14
Derivative Instruments............................................................... 15
Warrants to Purchase Securities...................................................... 22
Illiquid Securities.................................................................. 23
Social Investment Policies........................................................... 23
INVESTMENT RESTRICTIONS................................................................... 23
Fundamental Investment Restrictions.................................................. 23
Non-Fundamental Investment Restrictions.............................................. 26
MANAGEMENT OF THE TRUST................................................................... 30
Trustees and Officers................................................................ 30
Compensation Table................................................................... 33
Investment Adviser................................................................... 34
Fund Administrator................................................................... 36
DISTRIBUTION OF TRUST SHARES.............................................................. 39
Distributor and Multi-Class Plan..................................................... 39
Contingent Deferred Sales Charge and Initial Sales Charge............................ 40
Distribution and Servicing Plans for Class A, Class B and Class C Shares............. 41
Distribution and Administrative Services Plans for Administrative Class Shares....... 43
Purchases, Exchanges and Redemptions................................................. 44
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................................... 46
Investment Decisions................................................................. 46
Brokerage and Research Services...................................................... 46
Portfolio Turnover................................................................... 47
NET ASSET VALUE........................................................................... 48
TAXATION.................................................................................. 48
Distributions........................................................................ 49
Sales of Shares...................................................................... 50
Backup Withholding................................................................... 50
Options, Futures and Forward Contracts, and Swap Agreements.......................... 50
Short Sales.......................................................................... 51
Passive Foreign Investment Companies................................................. 51
Foreign Currency Transactions........................................................ 52
Foreign Taxation..................................................................... 52
Original Issue Discount.............................................................. 53
Other Taxation....................................................................... 53
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
OTHER INFORMATION......................................................................... 54
Capitalization....................................................................... 54
Performance Information.............................................................. 54
Voting Rights........................................................................ 63
Certain Ownership of Trust Shares.................................................... 63
The Reorganization of the PIMCO Money Market and Total Return II Funds............... 73
The Reorganization of the PIMCO Global Bond Fund II.................................. 73
Code of Ethics....................................................................... 73
Custodian, Transfer Agent and Dividend Disbursing Agent.............................. 73
Independent Accountants.............................................................. 74
Counsel.............................................................................. 74
Registration Statement............................................................... 74
Financial Statements................................................................. 74
</TABLE>
ii
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of each Fund are
described in the Prospectuses. Additional information concerning the
characteristics of certain of the Funds' investments is set forth below.
Borrowing
A Fund may borrow for temporary administrative purposes. This borrowing
may be unsecured. Provisions of the Investment Company Act of 1940 ("1940 Act")
require a Fund to maintain continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed, with an exception for borrowings not in excess of 5% of the
Fund's total assets made for temporary administrative purposes. Any borrowings
for temporary administrative purposes in excess of 5% of the Fund's total assets
must maintain continuous asset coverage. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, a Fund may be
required to sell some of its portfolio holdings within three days to reduce the
debt and restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time. Borrowing will
tend to exaggerate the effect on net asset value of any increase or decrease in
the market value of a Fund's portfolio. Money borrowed will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased. A Fund also may be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or other fee
to maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate.
In addition to borrowing for temporary purposes, a Fund may enter into
reverse repurchase agreements and mortgage dollar rolls. A reverse repurchase
agreement involves the sale of a portfolio-eligible security by a Fund, coupled
with its agreement to repurchase the instrument at a specified time and price.
The Fund will maintain a segregated account with its custodian consisting of
assets determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees, equal (on a daily mark-to-market basis) to
its obligations under reverse repurchase agreements with broker-dealers (but not
banks). However, reverse repurchase agreements involve the risk that the market
value of securities retained by the Fund may decline below the repurchase price
of the securities sold by the Fund which it is obligated to repurchase. Reverse
repurchase agreements will be subject to the Funds' limitations on borrowings,
which will restrict the aggregate of such transactions (plus any other
borrowings) to 33 1/3% (for each Fund except the PIMCO Global Bond Fund II) of a
Fund's total assets.
The PIMCO Global Bond Fund II may not borrow in excess of 10% of the value
of its total assets and then only from banks as a temporary measure to
facilitate the meeting of redemption requests (not for leverage) or for
extraordinary or emergency purposes.
A "mortgage dollar roll," is similar to reverse repurchase agreements in
certain respects. In a "dollar roll" transaction a Fund sells a mortgage-
related security, such as a security issued by the Government National Mortgage
Association ("GNMA"), to a dealer and simultaneously agrees to repurchase a
similar security (but not the same security) in the future at a pre-determined
price. A "dollar roll" can be viewed, like a reverse repurchase agreement, as a
collateralized borrowing in which a Fund pledges a mortgage-related security to
a dealer to obtain cash. Unlike in the case of reverse repurchase agreements,
the dealer with which a Fund enters into a dollar roll transaction is not
obligated to return the same securities as those originally sold by the Fund,
but only securities which are "substantially identical." To be considered
"substantially identical," the securities returned
1
<PAGE>
to a Fund generally must: (1) be collateralized by the same types of underlying
mortgages; (2) be issued by the same agency and be part of the same program; (3)
have a similar original stated maturity; (4) have identical net coupon rates;
(5) have similar market yields (and therefore price); and (6) satisfy "good
delivery" requirements, meaning that the aggregate principal amounts of the
securities delivered and received back must be within 2.5% of the initial amount
delivered.
A Fund's obligations under a dollar roll agreement must be covered by
liquid assets, such as cash or high quality debt securities equal in value to
the securities subject to repurchase by the Fund, maintained in a segregated
account. Dollar rolls will be subject to the Funds' limitations on borrowings,
which will restrict the aggregate of such transactions (plus any other
borrowings) to 331/3% (for each Fund except the PIMCO Global Bond Fund II) of a
Fund's total assets. Furthermore, because dollar roll transactions may be for
terms ranging between one and six months, dollar roll transactions may be deemed
"illiquid" and subject to a Fund's overall limitations on investments in
illiquid securities.
Corporate Debt Securities
A Fund's investments in U.S. dollar or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities) which meet the
minimum ratings criteria set forth for the Fund, or, if unrated, are in the
Adviser's opinion comparable in quality to corporate debt securities in which
the Fund may invest. The rate of return or return of principal on some debt
obligations may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies.
Among the corporate debt securities in which the Funds may invest are
convertible securities. A convertible debt security is a bond, debenture, note,
or other security that entitles the holder to acquire common stock or other
equity securities of the same or a different issuer. A convertible security
generally entitles the holder to receive interest paid or accrued until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
non-convertible debt securities. Convertible securities rank senior to common
stock in a corporation's capital structure and, therefore, generally entail less
risk than the corporation's common stock, although the extent to which such risk
is reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security.
A convertible security may be subject to redemption at the option of the
issuer at a predetermined price. If a convertible security held by a Fund is
called for redemption, the Fund would be required to permit the issuer to redeem
the security and convert it to underlying common stock, or would sell the
convertible security to a third party. A Fund generally would invest in
convertible securities for their favorable price characteristics and total
return potential and would normally not exercise an option to convert.
Securities rated Baa and BBB are the lowest which are considered
"investment grade" obligations. Moody's Investor Services, Inc. ("Moody's")
describes securities rated Baa as "medium-grade" obligations; they are "neither
highly protected nor poorly secured . . . [i]nterest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well." Standard & Poor's ("S&P") describes
securities rated BBB as "regarded as having an adequate capacity to pay interest
and repay principal . . . [w]hereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal . . .
than in higher rated categories."
2
<PAGE>
Investments in securities rated below investment grade that are eligible
for purchase by certain of the Funds (i.e., rated B or better by Moody's or
S&P), and in particular, by the PIMCO High Yield Fund, are described as
"speculative" by both Moody's and S&P. Investment in lower rated corporate debt
securities ("high yield securities") generally provides greater income and
increased opportunity for capital appreciation than investments in higher
quality securities, but they also typically entail greater price volatility and
principal and income risk. These high yield securities are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. The market for these securities is
relatively new, and many of the outstanding high yield securities have not
endured a major business recession. A long-term track record on default rates,
such as that for investment grade corporate bonds, does not exist for this
market. Analysis of the creditworthiness of issuers of debt securities that are
high yield may be more complex than for issuers of higher quality debt
securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of high yield securities have been found to be less sensitive to
interest-rate changes than higher-rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection
of an economic downturn or of a period of rising interest rates, for example,
could cause a decline in high yield security prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If an issuer of high
yield securities defaults, in addition to risking payment of all or a portion of
interest and principal, the Funds investing in such securities may incur
additional expenses to seek recovery. In the case of high yield securities
structured as zero-coupon or pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes, and therefore tend to be
more volatile than securities which pay interest periodically and in cash.
The secondary market on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Funds
could sell a high yield security, and could adversely affect the daily net asset
value of the shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of high
yield securities especially in a thinly-traded market. When secondary markets
for high yield securities are less liquid than the market for higher grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
The Adviser seeks to minimize the risks of investing in all securities through
diversification, in-depth credit analysis and attention to current developments
in interest rates and market conditions.
Participation on Creditors Committee
A Fund (in particular, the PIMCO High Yield Fund) may from time to time
participate on committees formed by creditors to negotiate with the management
of financially troubled issuers of securities held by the Fund. Such
participation may subject a Fund to expenses such as legal fees and may make a
Fund an "insider" of the issuer for purposes of the federal securities laws, and
therefore may restrict such Fund's ability to trade in or acquire additional
positions in a particular security when it might otherwise desire to do so.
Participation by a Fund on such committees also may expose the Fund to potential
liabilities under the federal bankruptcy laws or other laws governing the rights
of creditors and debtors. A Fund will participate on such committees only when
the Adviser believes that such participation is necessary or desirable to
enforce the Fund's rights as a creditor or to protect the value of securities
held by the Fund.
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Mortgage-Related and Other Asset-Backed Securities
Mortgage-related securities are interests in pools of residential or
commercial mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations, see "Mortgage Pass-Through
Securities." The Funds may also invest in debt securities which are secured
with collateral consisting of mortgage-related securities, see "Collateralized
Mortgage Obligations," and in other types of mortgage-related securities.
Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect,
these payments are a "pass-through" of the monthly payments made by the
individual borrowers on their residential or commercial mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some mortgage-related securities (such as securities issued by
GNMA) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether or not
the mortgagor actually makes the payment.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment
on underlying mortgages increase in the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
The principal governmental guarantor of mortgage-related securities is
GNMA. GNMA is a wholly owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of mortgages insured by the Federal Housing
Administration (the "FHA"), or guaranteed by the Department of Veterans Affairs
(the "VA").
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the United States Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a government-
sponsored corporation formerly owned by the twelve Federal Home Loan Banks and
now owned entirely by private stockholders. FHLMC
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issues Participation Certificates ("PCs") which represent interests in
conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but PCs are not
backed by the full faith and credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of these pools may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance and letters of credit. The insurance and guarantees are issued
by governmental entities, private insurers and the mortgage poolers. Such
insurance and guarantees and the creditworthiness of the issuers thereof will be
considered in determining whether a mortgage-related security meets the Trust's
investment quality standards. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. The Funds may buy mortgage-related securities
without insurance or guarantees if, through an examination of the loan
experience and practices of the originator/servicers and poolers, the Adviser
determines that the securities meet the Trust's quality standards. Although the
market for such securities is becoming increasingly liquid, securities issued by
certain private organizations may not be readily marketable. No Fund will
purchase mortgage-related securities or any other assets which in the Adviser's
opinion are illiquid if, as a result, more than 15% of the value of the Fund's
net assets will be illiquid (10% in the case of the PIMCO Money Market Fund.)
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Funds'
industry concentration restrictions, set forth below under "Investment
Restrictions," by virtue of the exclusion from that test available to all U.S.
Government securities. In the case of privately issued mortgage-related
securities, the Funds take the position that mortgage-related securities do not
represent interests in any particular "industry" or group of industries. The
assets underlying such securities may be represented by a portfolio of first
lien residential mortgages (including both whole mortgage loans and mortgage
participation interests) or portfolios of mortgage pass-through securities
issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a
mortgage-related security may in turn be insured or guaranteed by the FHA or the
VA. In the case of private issue mortgage-related securities whose underlying
assets are neither U.S. Government securities nor U.S. Government-insured
mortgages, to the extent that real properties securing such assets may be
located in the same geographical region, the security may be subject to a
greater risk of default than other comparable securities in the event of adverse
economic, political or business developments that may affect such region and,
ultimately, the ability of residential homeowners to make payments of principal
and interest on the underlying mortgages.
Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semi-annually. CMOs may
be collateralized by whole mortgage loans, but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs
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provide for a modified form of call protection through a de facto breakdown of
the underlying pool of mortgages according to how quickly the loans are repaid.
Monthly payment of principal received from the pool of underlying mortgages,
including prepayments, is first returned to investors holding the shortest
maturity class. Investors holding the longer maturity classes receive principal
only after the first class has been retired. An investor is partially guarded
against a sooner than desired return of principal because of the sequential
payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are
made semi-annually, as opposed to monthly. The amount of principal payable on
each semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of
all principal payments received on the collateral pool in excess of FHLMC's
minimum sinking fund requirement, the rate at which principal of the CMOs is
actually repaid is likely to be such that each class of bonds will be retired in
advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semi-annual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral
in the event of delinquencies and/or defaults.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property.
The market for commercial mortgage-backed securities developed more recently and
in terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage- or asset-backed securities.
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Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO Residuals. CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets.
In particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities--Stripped Mortgage-Backed Securities." In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are based. As described below with respect to stripped mortgage-
backed securities, in certain circumstances a Fund may fail to recoup fully its
initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended (the "1933 Act").
CMO residuals, whether or not registered under the 1933 Act, may be subject to
certain restrictions on transferability, and may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the "IO"
class), while the other class will receive all of the principal (the principal-
only or "PO" class). The yield to maturity on an IO class is extremely
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sensitive to the rate of principal payments (including pre payments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to recoup some or all of
its initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Other Asset-Backed Securities. Similarly, the Adviser expects that other
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including Certificates for Automobile Receivables/SM/
("CARS/SM/"). CARS/SM/ represent undivided fractional interests in a trust whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of
principal and interest on CARS/SM/ are passed through monthly to certificate
holders, and are guaranteed up to certain amounts and for a certain time period
by a letter of credit issued by a financial institution unaffiliated with the
trustee or originator of the trust. An investor's return on CARS/SM/ may be
affected by early prepayment of principal on the underlying vehicle sales
contracts. If the letter of credit is exhausted, the trust may be prevented from
realizing the full amount due on a sales contract because of state law
requirements and restrictions relating to foreclosure sales of vehicles and the
obtaining of deficiency judgments following such sales or because of
depreciation, damage or loss of a vehicle, the application of federal and state
bankruptcy and insolvency laws, or other factors. As a result, certificate
holders may experience delays in payments or losses if the letter of credit is
exhausted.
Consistent with a Fund's investment objectives and policies, the Adviser
also may invest in other types of asset-backed securities.
Foreign Securities
All Funds (except the PIMCO Low Duration II and Total Return II Funds) may
invest in U.S. dollar-or foreign currency-denominated corporate debt securities
of foreign issuers (including preferred or preference stock), certain foreign
bank obligations (see "Bank Obligations") and U.S. dollar-or foreign currency-
denominated obligations of foreign governments or their subdivisions, agencies
and instrumentalities, international agencies and supranational entities. The
PIMCO Money Market, High Yield, Commercial Mortgage Securities and Long-Term
U.S. Government Funds may invest in securities of foreign issuers only if they
are U.S. dollar-denominated. The PIMCO Short-Term Fund will limit its
investment in securities denominated in foreign currencies to no more than 5% of
the Fund's total assets. Each of the remaining Fixed Income Funds permitted to
invest in foreign securities, except the PIMCO Real Return Bond, Foreign Bond,
Global Bond, Global Bond II and International Bond Funds, will limit its
investment in securities denominated in foreign currencies to no more than 20%
of the Fund's total assets. The PIMCO Real Return Bond Fund will limit its
investment in securities denominated in foreign currencies to no more than 35%
of the Fund's total assets. Each of the Funds will limit its foreign
investments to securities of issuers based in developed countries (which include
Newly Industrialized Countries ("NICs") such as Mexico, Taiwan and South Korea).
The PIMCO Short-Term, Low Duration and Low Duration III Funds limit their
investments in securities of issuers based in NICs to 5% of their assets, and
the remaining Fixed Income Funds, except the PIMCO Foreign Bond, Global Bond,
Global Bond II and International Bond Funds, limit their investments in
securities of issuers based in NICs to 10% of their assets.
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Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
include: differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country), political instability which can
affect U.S. investments in foreign countries and potential restrictions on the
flow of international capital. In addition, foreign securities and dividends
and interest payable on those securities may be subject to foreign taxes,
including taxes withheld from payments on those securities. Foreign securities
often trade with less frequency and volume than domestic securities and
therefore may exhibit greater price volatility. Changes in foreign exchange
rates will affect the value of those securities which are denominated or quoted
in currencies other than the U.S. dollar.
Investing in developing countries involves certain risks not typically
associated with investing in U.S. securities, and imposes risks greater than, or
in addition to, risks of investing in foreign, developed countries. These risks
include: greater risk of nationalization or expropriation of assets or
confiscatory taxation; currency devaluations and other currency exchange rate
fluctuations; greater social, economic and political uncertainty and instability
(including the risk of war); more substantial government involvement in the
economy; higher rates of inflation; less government supervision and regulation
of the securities markets and participants in those markets; controls on foreign
investment and limitations on repatriation of invested capital and on a Fund's
ability to exchange local currencies for U.S. dollars; unavailability of
currency hedging techniques in certain developing countries; the fact that
companies in developing countries may be smaller, less seasoned and newly
organized companies; the difference in, or lack of, auditing and financial
reporting standards, which may result in unavailability of material information
about issuers; the risk that it may be more difficult to obtain and/or enforce
a judgment in a court outside the United States; and greater price volatility,
substantially less liquidity and significantly small market capitalization of
securities markets.
All Funds that may invest in foreign currency-denominated securities also
may purchase and sell foreign currency options and foreign currency futures
contracts and related options, see "Derivative Instruments," and enter into
forward foreign currency exchange contracts in order to protect against
uncertainty in the level of future foreign exchange rates in the purchase and
sale of securities. The Funds may also use foreign currency options and foreign
currency forward contracts to increase exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another.
A forward foreign currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts may be bought or sold to protect a Fund
against a possible loss resulting from an adverse change in the relationship
between foreign currencies and the U.S. dollar or to increase exposure to a
particular foreign currency. Open positions in forward contracts used for non-
hedging purposes will be covered by the segregation with the Trust's custodian
of assets determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees, and are marked to market daily. Although
forward contracts are intended to minimize the risk of loss due to a decline in
the value of the hedged currencies, at the same time, they tend to limit any
potential gain which might result should the value of such currencies increase.
Each of the Fixed Income Funds (except the PIMCO Low Duration II and Total
Return II Funds) may invest in Brady Bonds. Brady Bonds are securities created
through the exchange of
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existing commercial bank loans to sovereign entities for new obligations in
connection with debt restructurings under a debt restructuring plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Plan debt restructurings have been implemented in a number of countries,
including: Argentina, Bolivia, Bulgaria, Costa Rica, the Dominican Republic,
Ecuador, Jordan, Mexico, Niger, Nigeria, the Philippines, Poland, Uruguay, and
Venezuela. In addition, Brazil has concluded a Brady-like plan. It is expected
that other countries will undertake a Brady Plan in the future, including Panama
and Peru.
Brady Bonds have been issued only recently, and accordingly do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the over-the-counter secondary market. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are generally collateralized in full as to principal by U.S.
Treasury zero coupon bonds having the same maturity as the Brady Bonds.
Interest payments on these Brady Bonds generally are collateralized on a
one-year or longer rolling-forward basis by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's interest payments based on the applicable interest rate at that time
and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments but generally are not collateralized.
Brady Bonds are often viewed as having three or four valuation components: (i)
the collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest payments;
and (iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk").
Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments at
final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.
Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds. There can be no assurance that Brady
Bonds in which the Funds may invest will not be subject to restructuring
arrangements or to requests for new credit, which may cause the Funds to suffer
a loss of interest or principal on any of its holdings.
Foreign Currency Exchange-Related Securities
Foreign currency warrants. Foreign currency warrants such as Currency
Exchange Warrants/SM/("CEWs/SM/") are warrants which entitle the holder to
receive from their issuer an amount of cash (generally, for warrants issued in
the United States, in U.S. dollars) which is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified foreign
currency and the U.S. dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of
a specified date and time. Foreign currency warrants have been issued in
connection with U.S. dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of
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prospective purchasers of the securities, is inherent in the international
fixed-income marketplace. Foreign currency warrants may attempt to reduce the
foreign exchange risk assumed by purchasers of a security by, for example,
providing for a supplemental payment in the event that the U.S. dollar
depreciates against the value of a major foreign currency such as the Japanese
Yen or German Deutschmark. The formula used to determine the amount payable upon
exercise of a foreign currency warrant may make the warrant worthless unless the
applicable foreign currency exchange rate moves in a parti cular direction
(e.g., unless the U.S. dollar appreciates or depreciates against the particular
foreign currency to which the warrant is linked or indexed). Foreign currency
warrants are severable from the debt obligations with which they may be offered,
and may be listed on exchanges. Foreign currency warrants may be exercisable
only in certain minimum amounts, and an investor wishing to exercise warrants
who possesses less than the minimum number required for exercise may be required
either to sell the warrants or to purchase additional warrants, thereby
incurring additional transaction costs. In the case of any exercise of warrants,
there may be a time delay between the time a holder of warrants gives
instructions to exercise and the time the exchange rate relating to exercise is
determined, during which time the exchange rate could change significantly,
thereby affecting both the market and cash settlement values of the warrants
being exercised. The expiration date of the warrants may be accelerated if the
warrants should be delisted from an exchange or if their trading should be
suspended permanently, which would result in the loss of any remaining "time
value" of the warrants (i.e., the difference between the current market value
and the exercise value of the warrants), and, in the case the warrants were
"out-of-the-money," in a total loss of the purchase price of the warrants.
Warrants are generally unsecured obligations of their issuers and are not
standardized foreign currency options issued by the Options Clearing Corporation
("OCC"). Unlike foreign currency options issued by OCC, the terms of foreign
exchange warrants generally will not be amended in the event of governmental or
regulatory actions affecting exchange rates or in the event of the imposition of
other regulatory controls affecting the international currency markets. The
initial public offering price of foreign currency warrants is generally
considerably in excess of the price that a commercial user of foreign currencies
might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to significant foreign exchange risk, including risks arising from
complex political or economic factors.
Principal exchange rate linked securities. Principal exchange rate linked
securities ("PERLs/SM"/) are debt obligations the principal on which is payable
at maturity in an amount that may vary based on the exchange rate between the
U.S. dollar and a particular foreign currency at or about that time. The return
on "standard" principal exchange rate linked securities is enhanced if the
foreign currency to which the security is linked appreciates against the U.S.
dollar, and is adversely affected by increases in the foreign exchange value of
the U.S. dollar; "reverse" principal exchange rate linked securities are like
the "standard" securities, except that their return is enhanced by increases in
the value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in
U.S. dollars at rates that reflect the degree of foreign currency risk assumed
or given up by the purchaser of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based on the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.
Performance indexed paper. Performance indexed paper ("PIPs/SM/") is U.S.
dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on performance
indexed paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range
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stipulated at the time of purchase of the obligation, generally with a
guaranteed minimum rate of return that is below, and a potential maximum rate of
return that is above, market yields on U.S. dollar-denominated commercial paper,
with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity.
Bank Obligations
Bank obligations in which the Funds may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. A Fund will not invest in
fixed time deposits which (1) are not subject to prepayment or (2) provide for
withdrawal penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more than 15% of its net assets (10% in the case of the PIMCO Money
Market Fund) would be invested in such deposits, repurchase agreements maturing
in more than seven days and other illiquid assets.
Each Fund limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. A Fund
also may invest in certificates of deposit of savings and loan associations
(federally or state chartered and federally insured) having total assets in
excess of $1 billion.
Each Fund (except the PIMCO Money Market, High Yield, Commercial Mortgage
Securities and Long-Term U.S. Government Funds) limits its investments in
foreign bank obligations to United States dollar-or foreign currency-denominated
obligations of foreign banks (including United States branches of foreign banks)
which at the time of investment (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) in terms of assets are
among the 75 largest foreign banks in the world; (iii) have branches or agencies
(limited purpose offices which do not offer all banking services) in the United
States; and (iv) in the opinion of the Adviser, are of an investment quality
comparable to obligations of United States banks in which the Funds may invest.
The PIMCO Money Market, High Yield, Commercial Mortgage Securities and Long-Term
U.S. Government Funds may invest in the same types of bank obligations as the
other Funds, but they must be U.S. dollar-denominated. Subject to the Trust's
limitation on concentration of no more than 25% of its assets in the securities
of issuers in a particular industry, there is no limitation on the amount of a
Fund's assets which may be invested in obligations of foreign banks which meet
the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized
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or nationalized, that foreign governmental restrictions such as exchange
controls may be adopted which might adversely affect the payment of principal
and interest on those obligations and that the selection of those obligations
may be more difficult because there may be less publicly available information
concerning foreign banks or the accounting, auditing and financial reporting
standards, practices and requirements applicable to foreign banks may differ
from those applicable to United States banks. Foreign banks are not generally
subject to examination by any U.S. Government agency or instrumentality.
Loan Participations
Each Fund may purchase participations in commercial loans. Such
indebtedness may be secured or unsecured. Loan participations typically
represent direct participation in a loan to a corporate borrower, and generally
are offered by banks or other financial institutions or lending syndicates.
When purchasing loan participations, a Fund assumes the credit risk associated
with the corporate borrower and may assume the credit risk associated with an
interposed bank or other financial intermediary. The participation interests in
which a Fund intends to invest may not be rated by any nationally recognized
rating service.
A loan is often administered by an agent bank acting as agent for all
holders. The agent bank administers the terms of the loan, as specified in the
loan agreement. In addition, the agent bank is normally responsible for the
collection of principal and interest payments from the corporate borrower and
the apportionment of these payments to the credit of all institutions which are
parties to the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the corporate borrower, the
Fund may have to rely on the agent bank or other financial intermediary to apply
appropriate credit remedies against a corporate borrower.
A financial institution's employment as agent bank might be terminated in
the event that it fails to observe a requisite standard of care or becomes
insolvent. A successor agent bank would generally be appointed to replace the
terminated agent bank, and assets held by the agent bank under the loan
agreement should remain available to holders of such indebtedness. However, if
assets held by the agent bank for the benefit of a Fund were determined to be
subject to the claims of the agent bank's general creditors, the Fund might
incur certain costs and delays in realizing payment on a loan or loan
participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance
company or governmental agency) similar risks may arise.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the corporate borrower for payment of principal and
interest. If a Fund does not receive scheduled interest or principal payments
on such indebtedness, the Fund's share price and yield could be adversely
affected. Loans that are fully secured offer a Fund more protection than an
unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the corporate borrower's obligation, or that the collateral
can be liquidated.
The Funds may invest in loan participations with credit quality comparable
to that of issuers of its securities investments. Indebtedness of companies
whose creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Some companies may never pay off their indebtedness, or may
pay only a small fraction of the amount owed. Consequently, when investing in
indebtedness of companies with poor credit, a Fund bears a substantial risk of
losing the entire amount invested.
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Each Fund limits the amount of its total assets that it will invest in any
one issuer or in issuers within the same industry (see "Investment
Restrictions"). For purposes of these limits, a Fund generally will treat the
corporate borrower as the "issuer" of indebtedness held by the Fund. In the
case of loan participations where a bank or other lending institution serves as
a financial intermediary between a Fund and the corporate borrower, if the
participation does not shift to the Fund the direct debtor-creditor relationship
with the corporate borrower, Securities and Exchange Commission ("SEC")
interpretations require the Fund to treat both the lending bank or other lending
institution and the corporate borrower as "issuers" for the purposes of
determining whether the Fund has invested more than 5% of its total assets in a
single issuer. Treating a financial intermediary as an issuer of indebtedness
may restrict a Funds' ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
Loans and other types of direct indebtedness may not be readily marketable
and may be subject to restrictions on resale. In some cases, negotiations
involved in disposing of indebtedness may require weeks to complete.
Consequently, some indebtedness may be difficult or impossible to dispose of
readily at what the Adviser believes to be a fair price. In addition, valuation
of illiquid indebtedness involves a greater degree of judgment in determining a
Fund's net asset value than if that value were based on available market
quotations, and could result in significant variations in the Fund's daily share
price. At the same time, some loan interests are traded among certain financial
institutions and accordingly may be deemed liquid. As the market for different
types of indebtedness develops, the liquidity of these instruments is expected
to improve. In addition, the Funds currently intend to treat indebtedness for
which there is no readily available market as illiquid for purposes of the
Funds' limitation on illiquid investments.
Investments in loans through a direct assignment of the financial
institution's interests with respect to the loan may involve additional risks to
the Funds. For example, if a loan is foreclosed, a Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, a Fund could be held liable
as co-lender. It is unclear whether loans and other forms of direct
indebtedness offer securities law protections against fraud and
misrepresentation. In the absence of definitive regulatory guidance, the Funds
rely on the Adviser's research in an attempt to avoid situations where fraud or
misrepresentation could adversely affect the Funds.
Short Sales
Certain of the Funds, particularly the PIMCO StocksPLUS Short Strategy
Fund, may make short sales of securities as part of their overall portfolio
management strategies involving the use of derivative instruments and to offset
potential declines in long positions in similar securities. A short sale is a
transaction in which a Fund sells a security it does not own in anticipation
that the market price of that security will decline.
When a Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any accrued interest on such borrowed securities.
If the price of the security sold short increases between the time of the
short sale and the time and the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. The successful use of short selling may be
adversely affected
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by imperfect correlation between movements in the price of the security sold
short and the securities being hedged.
To the extent that a Fund engages in short sales, it will provide
collateral to the broker-dealer and (except in the case of short sales "against
the box") will maintain additional asset coverage in the form of assets
determined to be liquid by the Adviser in accordance with procedures established
by the Board of Trustees, in a segregated account. Each Fund, except the PIMCO
StocksPLUS Short Strategy Fund, does not intend to enter into short sales (other
than those "against the box") if immediately after such sale the aggregate of
the value of all collateral plus the amount in such segregated account exceeds
one-third of the value of the Fund's net assets. This percentage may be varied
by action of the Trustees. A short sale is "against the box" to the extent that
the Fund contemporaneously owns, or has the right to obtain at no added cost,
securities identical to those sold short. The Funds will engage in short
selling to the extent permitted by the 1940 Act and rules and interpretations
thereunder. The PIMCO Global Bond Fund II may only engage in short sales that
are "against the box."
With respect to each Fund, except the PIMCO StocksPLUS Short Strategy Fund,
the Trust has agreed with a state securities commission that as an operating
policy, the dollar amount of short sales (other than short sales against the
box) at any time shall not exceed 25% of the net equity of a Fund, and the value
of securities of any one issuer in which a Fund is short shall not exceed 2% of
the Fund's net assets or 2% of the securities of any class of any issuer.
Derivative Instruments
In pursuing their individual objectives the Funds may, as described in the
Prospectuses, purchase and sell (write) both put options and call options on
securities, securities indexes, and foreign currencies, and enter into interest
rate, foreign currency and index futures contracts and purchase and sell options
on such futures contracts ("futures options") for hedging purposes, except that
those Funds that may not invest in foreign currency-denominated securities may
not enter into transactions involving currency futures or options. The Funds
also may purchase and sell foreign currency options for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another. The Funds also may enter into swap
agreements with respect to foreign currencies, interest rates and indexes of
securities. The Funds may invest in structured notes. If other types of
financial instruments, including other types of options, futures contracts, or
futures options are traded in the future, a Fund may also use those instruments,
provided that the Trustees determine that their use is consistent with the
Fund's investment objective, and provided that their use is consistent with
restrictions applicable to options and futures contracts currently eligible for
use by the Trust (i.e., that written call or put options will be "covered" or
"secured," and that futures and futures options will be used only for hedging
purposes).
Options on Securities and Indexes. A Fund may, to the extent specified for
the Fund in the Prospectuses, purchase and sell both put and call options on
fixed income or other securities or indexes in standardized contracts traded on
foreign or domestic securities exchanges, boards of trade, or similar entities,
or quoted on NASDAQ or on a regulated foreign over-the-counter market, and
agreements, sometimes called cash puts, which may accompany the purchase of a
new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the
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exercise price or to pay the exercise price upon delivery of the underlying
security. Upon exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect features of a particular financial or securities market, a
specific group of financial instruments or securities, or certain economic
indicators.)
A Fund will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or other assets determined to be liquid by
the Adviser in accordance with procedures established by the Board of Trustees,
in such amount are placed in a segregated account by its custodian) upon
conversion or exchange of other securities held by the Fund. For a call option
on an index, the option is covered if the Fund maintains with its custodian
assets determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees, in an amount equal to the contract value
of the index. A call option is also covered if the Fund holds a call on the
same security or index as the call written where the exercise price of the call
held is (i) equal to or less than the exercise price of the call written, or
(ii) greater than the exercise price of the call written, provided the
difference is maintained by the Fund in assets determined to be liquid by the
Adviser in accordance with procedures established by the Board of Trustees, in a
segregated account with its custodian. A put option on a security or an index
is "covered" if the Fund maintains assets determined to be liquid by the Adviser
in accordance with procedures established by the Board of Trustees, equal to the
exercise price in a segregated account with its custodian. A put option is also
covered if the Fund holds a put on the same security or index as the put written
where the exercise price of the put held is (i) equal to or greater than the
exercise price of the put written, or (ii) less than the exercise price of the
put written, provided the difference is maintained by the Fund in assets
determined to be liquid by the Adviser in accordance with procedures established
by the Board of Trustees, in a segregated account with its custodian.
If an option written by a Fund expires unexercised, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by a Fund expires unexercised, the Fund realizes a
capital loss equal to the premium paid. Prior to the earlier of exercise or
expiration, an exchange traded option may be closed out by an offsetting
purchase or sale of an option of the same series (type, exchange, underlying
security or index, exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when the
Fund desires.
A Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or
index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset
of the Fund. The premium received for an option written by a Fund is recorded
as a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
The Funds may write covered straddles consisting of a combination of a call
and a put written on the same underlying security. A straddle will be covered
when sufficient assets are deposited to
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meet the Funds' immediate obligations. The Funds may use the same liquid assets
to cover both the call and put options where the exercise price of the call and
put are the same, or the exercise price of the call is higher than that of the
put. In such cases, the Funds will also segregate liquid assets equivalent to
the amount, if any, by which the put is "in the money."
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call.
If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were imposed,
the Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
Foreign Currency Options. A Fund may buy or sell put and call options on
foreign currencies either on exchanges or in the over-the-counter market. A put
option on a foreign currency gives the purchaser of the option the right to sell
a foreign currency at the exercise price until the option expires. A call
option on a foreign currency gives the purchaser of the option the right to
purchase the currency at the exercise price until the option expires. Currency
options traded on U.S. or other exchanges may be subject to position limits
which may limit the ability of a Fund to reduce foreign currency risk using such
options. Over-the-counter options differ from traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller, and generally do not have as much market liquidity as exchange-traded
options.
Futures Contracts and Options on Futures Contracts. A Fund may use
interest rate, foreign currency or index futures contracts, as specified for
that Fund in the Prospectuses. An interest rate, foreign currency or index
futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument, foreign
currency or the cash value of an index at a specified price and time. A futures
contract on an index is an agreement pursuant to which two parties agree to take
or make delivery of an amount of cash equal to the difference between the value
of the index at the close of the last trading day of the contract and the price
at which the index contract was originally written. Although the value of an
index might be a function of the value of certain specified securities, no
physical delivery of these securities is made. A public market exists in
futures contracts covering a number of indexes as well as finan cial instruments
and foreign currencies, including: the S&P 500; the S&P Midcap 400; the Nikkei
225; the NYSE composite; U.S. Treasury bonds; U.S. Treasury notes; GNMA
Certificates; three-month U.S. Treasury bills; 90-day commercial paper; bank
certificates of deposit; Eurodollar certificates of deposit; the Australian
dollar; the Canadian dollar; the British pound; the German mark; the Japanese
yen; the
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French franc; the Swiss franc; the Mexican peso; and certain multinational
currencies, such as the European Currency Unit ("ECU"). It is expected that
other futures contracts will be developed and traded in the future.
A Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities and
indexes (discussed above). A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true.
To comply with applicable rules of the Commodity Futures Trading Commission
("CFTC") under which the Trust and the Funds avoid being deemed a "commodity
pool" or a "commodity pool operator," each Fund intends generally to limit its
use of futures contracts and futures options to "bona fide hedging"
transactions, as such term is defined in applicable regulations, interpretations
and practice. For example, a Fund might use futures contracts to hedge against
anticipated changes in interest rates that might adversely affect either the
value of the Fund's securities or the price of the securities which the Fund
intends to purchase. A Fund's hedging activities may include sales of futures
contracts as an offset against the effect of expected increases in interest
rates, and purchases of futures contracts as an offset against the effect of
expected declines in interest rates. Although other techniques could be used to
reduce that Fund's exposure to interest rate fluctuations, the Fund may be able
to hedge its exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
A Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of assets determined to be liquid by the Adviser in accordance
with procedures established by the Board of Trustees ("initial margin"). The
margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. Margin
requirements on foreign exchanges may be different than U.S. exchanges. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. Each Fund
expects to earn interest income on its initial margin deposits. A futures
contract held by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking to market." Variation margin does not
represent a borrowing or loan by a Fund but is instead a settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract expired. In computing daily net asset value, each Fund will mark to
market its open futures positions.
A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching
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futures contracts (same exchange, underlying security or index, and delivery
month). If an offsetting purchase price is less than the original sale price,
the Fund realizes a capital gain, or if it is more, the Fund realizes a capital
loss. Conversely, if an offsetting sale price is more than the original purchase
price, the Fund realizes a capital gain, or if it is less, the Fund realizes a
capital loss. The transaction costs must also be included in these calculations.
The Funds may write covered straddles consisting of a call and a put
written on the same underlying futures contract. A straddle will be covered
when sufficient assets are deposited to meet the Funds' immediate obligations.
A Fund may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
Limitations on Use of Futures and Futures Options. In general, the Funds
intend to enter into positions in futures contracts and related options only for
"bona fide hedging" purposes. With respect to positions in futures and related
options that do not constitute bona fide hedging positions, a Fund will not
enter into a futures contract or futures option contract if, immediately
thereafter, the aggregate initial margin deposits relating to such positions
plus premiums paid by it for open futures option positions, less the amount by
which any such options are "in-the-money," would exceed 5% of the Fund's net
assets. A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.
When purchasing a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by the
Adviser in accordance with procedures established by the Board of Trustees,
that, when added to the amounts deposited with a futures commission merchant as
margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high or higher than the price of the contract
held by the Fund.
When selling a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by the
Adviser in accordance with procedures established by the Board of Trustees, that
are equal to the market value of the instruments underlying the contract.
Alternatively, the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures contract, a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based), or by holding a call option permitting the Fund
to purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by the Adviser in accordance with procedures established by the Board of
Trustees, that, when added to the amounts deposited with a futures commission
merchant as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by the Adviser in accordance with procedures established by the Board of
Trustees, that equal the purchase price of the futures
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contract, less any margin on deposit. Alternatively, the Fund may cover the
position either by entering into a short position in the same futures contract,
or by owning a separate put option permitting it to sell the same futures
contract so long as the strike price of the purchased put option is the same or
higher than the strike price of the put option sold by the Fund.
As an operating policy, the Adviser will generally use cash and cash
equivalents in establishing and maintaining segregated accounts to cover each
Fund's obligations under futures contracts and related options. The Adviser
defines cash equivalents to include high grade liquid debt securities with
maturities of one year or less. To the extent that securities with maturities
greater than one year are used, such use will not eliminate the risk of a form
of leverage, which may tend to exaggerate the effect on net asset value of any
increase or decrease in the market value of a Fund's portfolio, and may require
liquidation of portfolio positions when it is not advantageous to do so.
However, any potential risk of leverage resulting from the use of securities
with maturities greater than one year may be mitigated by the overall duration
limit on a Fund's portfolio securities. Thus, the use of a longer-term security
may require a Fund to hold offsetting short-term securities to balance the
Fund's portfolio such that the Fund's duration does not exceed the maximum
permitted for the Fund in the Prospectuses.
The requirements for qualification as a regulated investment company also
may limit the extent to which a Fund may enter into futures, futures options or
forward contracts. See "Taxation."
Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund securities being hedged. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given hedge
not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or a futures option position, and that Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
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Additional Risks of Options on Securities, Futures Contracts, Options on
Futures Contracts, and Forward Currency Exchange Contracts and Options Thereon.
Options on securities, futures contracts, options on futures contracts, and
options on currencies may be traded on foreign exchanges. Such transactions may
not be regulated as effectively as similar transactions in the United States;
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Trust's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lesser trading
volume.
Swap Agreements. The Funds may enter into interest rate, index and
currency exchange rate swap agreements. These transactions are entered into in a
attempt to obtain a particular return when it is considered desirable to do so,
possibly at a lower cost to the Fund than if the Fund had invested directly in
an instrument that yielded that desired return. Swap agreements are two party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments, which
may be adjusted for an interest factor. The gross returns to be exchanged or
"swapped" between the parties are generally calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. Forms
of swap agreements include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or "cap"; interest rate floors, under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates fall below a specified rate, or "floor"; and
interest rate collars, under which a party sells a cap and purchases a floor or
vice versa in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels.
Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of assets determined to be liquid
by the Adviser in accordance with procedures established by the Board of
Trustees, to avoid any potential leveraging of the Fund's portfolio. Obligations
under swap agreements so covered will not be construed to be "senior securities"
for purposes of the Funds' investment restriction concerning senior securities.
A Fund will not enter into a swap agreement with any single party if the net
amount owed or to be received under existing contracts with that party would
exceed 5% of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective of total return will depend on the Adviser's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid. Moreover, a Fund bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. The Funds will enter
into swap agreements only with counterparties that meet certain standards of
creditworthiness (generally, such counterparties would have to be eligible
counterparties
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under the terms of the Funds' repurchase agreement guidelines). Certain
restrictions imposed on the Funds by the Internal Revenue Code may limit the
Funds' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the CFTC
effective February 22, 1993. To qualify for this exemption, a swap agreement
must be entered into by "eligible participants," which includes the following,
provided the participants' total assets exceed established levels: a bank or
trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through
a multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
Structured Notes. Structured notes are derivative debt securities, the
interest rate or principal of which is determined by an unrelated indicator.
Indexed securities include structured notes as well as securities other than
debt securities, the interest rate or principal of which is determined by an
unrelated indicator. Indexed securities may include a multiplier that
multiplies the indexed element by a specified factor and, therefore, the value
of such securities may be very volatile. To the extent a Fund invests in these
securities, however, the Adviser analyzes these securities in its overall
assessment of the effective duration of the Fund's portfolio in an effort to
monitor the Fund's interest rate risk.
Warrants to Purchase Securities
The Funds may invest in or acquire warrants to purchase equity or fixed
income securities. Bonds with warrants attached to purchase equity securities
have many characteristics of convertible bonds and their prices may, to some
degree, reflect the performance of the underlying stock. Bonds also may be
issued with warrants attached to purchase additional fixed income securities at
the same coupon rate. A decline in interest rates would permit a Fund to buy
additional bonds at the favorable rate or to sell the warrants at a profit. If
interest rates rise, the warrants would generally expire with no value.
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A Fund will not invest more than 5% of its net assets, valued at the lower
of cost or market, in warrants to purchase securities. Included within that
amount, but not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on the New York or American Stock Exchanges. Warrants acquired in
units or attached to securities will be deemed to be without value for purposes
of this restriction.
Illiquid Securities
The Funds may invest up to 15% of their net assets in illiquid securities
(10% in the case of the PIMCO Money Market Fund). The term "illiquid
securities" for this purpose means securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which a Fund has valued the securities. Illiquid securities are considered to
include, among other things, written over-the-counter options, securities or
other liquid assets being used as cover for such options, repurchase agreements
with maturities in excess of seven days, certain loan participation interests,
fixed time deposits which are not subject to prepayment or provide for
withdrawal penalties upon prepayment (other than overnight deposits), and other
securities whose disposition is restricted under the federal securities laws
(other than securities issued pursuant to Rule 144A under the 1933 Act and
certain commercial paper that the Adviser has determined to be liquid under
procedures approved by the Board of Trustees).
Social Investment Policies
The PIMCO Low Duration III and Total Return III Funds will not, as a matter
of non-fundamental operating policy, invest in the securities of any issuer
determined by the Adviser to be engaged principally in the provision of
healthcare services, the manufacture of alcoholic beverages, tobacco products,
pharma ceuticals, military equipment, or the operation of gambling casinos. The
Funds will also avoid, to the extent possible on the basis of information
available to the Adviser, the purchase of securities of issuers engaged in the
production or trade of pornographic materials. An issuer will be deemed to be
principally engaged in an activity if it derives more than 10% of its gross
revenues from such activities. Evaluation of any particular issuer with respect
to these criteria may involve the exercise of subjective judgment by the
Adviser. The Adviser's determination of issuers engaged in such activities at
any given time will, however, be based upon its good faith interpretation of
available information and its continuing and reasonable best efforts to obtain
and evaluate the most current information available, and to utilize such
information, as it becomes available, promptly and expeditiously in portfolio
management for the Funds. In making its analysis, the Adviser may rely, among
other things, upon information contained in such publications as those produced
by the Investor Responsibility Research Center, Inc.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
Each Fund's investment objective, except for the PIMCO Global Bond Fund II,
as set forth in the Prospectuses under "Investment Objectives and Policies,"
together with the investment restrictions set forth below, are fundamental
policies of the Fund and may not be changed with respect to a Fund without
shareholder approval by vote of a majority of the outstanding shares of that
Fund. Under these restrictions a Fund may not:
(1)(a) invest in a security if, as a result of such investment, more than 25%
of its total assets (taken at market value at the time of such investment) would
be invested in the securities of issuers in any particular industry, except that
this restriction does not apply (a) to securities issued or
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guaranteed by the U.S. Government or its agencies or instrumentalities (or
repurchase agreements with respect thereto) and (b) with respect to the Money
Market Fund, to securities or obligations issued by U.S. banks;
(b) for the Global Bond Fund II, concentrate more than 25% of the value of
its total assets in any one industry (The SEC staff takes the position that
investments in government securities of a single foreign country (including
agencies and instrumentalities of such government, to the extent such
obligations are backed by the assets and revenues of such government) represent
investments in a separate industry for these purposes.);
(2) with respect to 75% of its assets, invest in a security if, as a result of
such investment, more than 5% of its total assets (taken at market value at the
time of such investment) would be invested in the securities of any one issuer,
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities (This investment
restriction is not applicable to the Real Return Bond Fund, the Commercial
Mortgage Securities Fund, the Foreign Bond Fund, the Global Bond Fund, Global
Bond Fund II or the International Bond Fund.);
(3) with respect to 75% of its assets, invest in a security if, as a result of
such investment, it would hold more than 10% (taken at the time of such
investment) of the outstanding voting securities of any one issuer (This
restriction is not applicable to the Real Return Bond Fund, the Commercial
Mortgage Securities Fund, the Foreign Bond Fund, the Global Bond Fund, Global
Bond Fund II or the International Bond Fund);
(4)(a) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein;
(b) for the Global Bond Fund II, purchase or sell real estate, although it
may purchase securities of issuers which deal in real estate, including
securities of real estate investment trusts, and may purchase securities which
are secured by interests in real estate;
(5) purchase or sell commodities or commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit a Fund, subject to
restrictions described in the Prospectuses and elsewhere in this Statement of
Additional Information, from purchasing, selling or entering into futures
contracts, options on futures contracts, foreign currency forward contracts,
foreign currency options, or any interest rate, securities-related or foreign
currency-related hedging instrument, including swap agreements and other
derivative instruments, subject to compliance with any applicable provisions of
the federal securities or commodities laws (This restriction is not applicable
to the Global Bond Fund II, but see non-fundamental restriction "L".);
(6) for the High Yield, Total Return III, International and StocksPLUS Funds:
purchase securities on margin, except for use of short-term credit necessary for
clearance of purchases and sales of portfolio securities, but it may make margin
deposits in connection with transactions in options, futures, and options on
futures;
(7)(a) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that a Fund may (i) borrow from banks or enter
into reverse repurchase agreements, or employ similar investment techniques, and
pledge its assets in connection therewith, but only if immediately after each
borrowing there is asset coverage of 300% and (ii) enter into transactions in
options, futures, options on futures, and other derivative instruments as
described in the Prospectuses and in this Statement of Additional Information
(the deposit of assets in escrow in connection with the writing of covered put
and call options and the purchase of securities on a when-issued or delayed
delivery basis, collateral arrangements with respect to initial or variation
margin deposits for futures
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contracts and commitments entered into under swap agreements or other derivative
instruments, will not be deemed to be pledges of a Fund's assets);
(b) for the Global Bond Fund II, borrow money in excess of 10% of the value
(taken at the lower of cost or current value) of the Fund's total assets (not
including the amount borrowed) at the time the borrowing is made, and then only
from banks as a temporary measure to facilitate the meeting of redemption
requests (not for leverage) which might otherwise require the untimely
disposition of portfolio investments or for extraordinary or emergency purposes
(Such borrowings will be repaid before any additional investments are
purchased.); or pledge, hypothecate, mortgage or otherwise encumber its assets
in excess of 10% of the Fund's total assets (taken at cost) and then only to
secure borrowings permitted above (The deposit of securities or cash or cash
equivalents in escrow in connection with the writing of covered call or put
options, respectively, is not deemed to be pledges or other encumbrances. For
the purpose of this restriction, collateral arrangements with respect to the
writing of options, futures contracts, options on futures contracts, and
collateral arrangements with respect to initial and variation margin are not
deemed to be a pledge of assets and neither such arrangements nor the purchase
or sale of futures or related options are deemed to be the issuance of a senior
security.);
(8) lend any funds or other assets, except that a Fund may, consistent with
its investment objective and policies: (a) invest in debt obligations,
including bonds, debentures, or other debt securities, bankers' acceptances and
commercial paper, even though the purchase of such obligations may be deemed to
be the making of loans, (b) enter into repurchase agreements, and (c) lend its
portfolio securities in an amount not to exceed one-third of the value of its
total assets, provided such loans are made in accordance with applicable
guidelines established by the Securities and Exchange Commission and the
Trustees of the Trust (This restriction is not applicable to the Global Bond
Fund II, but see non-fundamental restriction "M".);
(9)(a) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under the federal securities laws;
(b) for the Global Bond Fund II, underwrite securities issued by other
persons except to the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter under federal
securities laws; or
(10)(a) for the High Yield, Total Return III, and StocksPLUS Funds: maintain
a short position, or purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except as set forth in the Prospectuses and in this
Statement of Additional Information for transactions in options, futures,
options on futures, and transactions arising under swap agreements or other
derivative instruments;
(b) for the Money Market, Short-Term, Low Duration, Low Duration II, Low
Duration III, Moderate Duration, Total Return, Total Return II, Commercial
Mortgage Securities, Long-Term U.S. Government, Foreign Bond, Global Bond,
International, StocksPLUS Short Strategy and Strategic Balanced Funds: maintain
a short position, or purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except on such conditions as may be set forth in the
Prospectuses and in this Statement of Additional Information.
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Non-Fundamental Investment Restrictions
Each Fund is also subject to the following non-fundamental restrictions and
policies (which may be changed without shareholder approval) relating to the
investment of its assets and activities. Unless otherwise indicated, a Fund may
not:
(A)(a) invest for the purpose of exercising control or management;
(b) for the Global Bond Fund II, make investments for the purpose of
gaining control of a company's management;
(B)(a) purchase securities of other investment companies, except that a Fund
may, for temporary purposes, purchase shares of money market mutual funds,
subject to such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder, or by any State in which shares of the Fund are
registered (collateral arrangements with respect to securities on loan from a
Fund are not considered to involve the purchase of securities by the Fund and
are not subject to this restriction);
(b) for the Global Bond Fund II, invest in securities of other investment
companies, except by purchase in the open market involving only customary
brokers' commissions (For purposes of this restriction, foreign banks and
foreign insurance companies or their respective agents or subsidiaries are not
considered investment companies. Under the 1940 Act no registered investment
company may (a) invest more than 10% of its total assets (taken at current
value) in securities of other investment companies, (b) own securities of any
one investment company having a value in excess of 5% of its total assets (taken
at current value), or (c) own more than 3% of the outstanding voting stock of
any one investment company.);
(C)(a) invest more than 15% of the net assets of a Fund (10% in the case of
the PIMCO Money Market Fund) (taken at market value at the time of the
investment) in "illiquid securities," illiquid securities being defined to
include securities subject to legal or contractual restrictions on resale (which
may include private placements), repurchase agreements maturing in more than
seven days, certain loan participation interests, fixed time deposits which are
not subject to prepayment or provide for withdrawal penalties upon prepayment
(other than overnight deposits), certain options traded over the counter that a
Fund has purchased, securities or other liquid assets being used to cover such
options a Fund has written, securities for which market quotations are not
readily available, or other securities which legally or in the Adviser's opinion
may be deemed illiquid (other than securities issued pursuant to Rule 144A under
the Securities Act of 1933 and certain commercial paper that PIMCO has
determined to be liquid under procedures approved by the Board of Trustees);
(b) for the Global Bond Fund II, invest in (a) securities which at the time
of such investment are not readily marketable, (b) securities the disposition of
which is restricted under federal securities laws, (c) repurchase agreements
maturing in more than seven days (d) OTC options (to the extent described
above), and (e) IO/PO Strips (as defined in the Prospectuses) if, as a result,
more than 15% of the Fund's net assets, taken at current value, would then be
invested in securities described in (a), (b), (c), (d) and (e) above (For the
purpose of this restriction securities subject to a 7-day put option or
convertible into readily saleable securities or commodities are not included
with subsections (a) or (b).); or purchase securities the disposition of which
is restricted under the federal securities laws (excluding for purposes of this
restriction securities offered and sold pursuant to Rule 144A of the Securities
Act of 1933 and Section 4(2) commercial paper) if, as a result, such investments
would
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exceed 10% of the value of the net assets of the Fund; provided, however, that
so long as a similar restriction applies under the Ohio Administrative Code, the
Fund will invest no more than 15% of its total assets in the securities of
issuers which together with any predecessors have a record of less than
three years continuous operation or securities of issuers which are restricted
as to disposition (including Rule 144A securities and Section 4(2) commercial
paper);
(D)(a) invest in a security if, as a result of such investment, more than 5%
of its total assets (taken at market value at the time of such investment) would
be invested in securities of issuers (other than issuers of Federal agency
obligations) having a record, together with predecessors or unconditional
guarantors, of less than three years of continuous operation;
(b) for the Global Bond Fund II, invest in securities of an issuer, which,
together with any predecessors or controlling persons, has been in operation for
less than three consecutive years and in equity securities for which market
quotations are not readily available (excluding restricted securities) if, as a
result, the aggregate of such investments would exceed 5% of the value of the
Fund's net assets; provided, however, that this restriction shall not apply to
any obligation of the U.S. Government or its instrumentalities or agencies (Debt
securities having equity features are not considered "equity securities" for
purposes of this restriction.);
(E)(a) purchase or retain securities of any issuer if 5% of the securities of
such issuer are owned by those officers and directors or trustees of the Trust
or of the Adviser who each own beneficially more than one-half of 1% of its
securities;
(b) for the Global Bond Fund II, invest in securities of any issuer if, to
the knowledge of the Trust, any officers and Trustees of the Trust and officers
and directors of the Adviser who individually own beneficially more than 1/2 of
1% of the securities of that issuer, own beneficially in the aggregate more than
5% of the securities of such issuer;
(F) purchase securities for the Fund from, or sell portfolio securities to,
any of the officers and directors or trustees of the Trust or of the Adviser
(This restriction is not applicable to the Global Bond Fund II.);
(G)(a) for the PIMCO Money Market, Short-Term, Low Duration, Low Duration II,
Low Duration III, Moderate Duration, Total Return, Total Return II, Commercial
Mortgage Securities, Long-Term U.S. Government, Foreign Bond, Global Bond,
StocksPLUS Short Strategy and Strategic Balanced Funds: purchase securities on
margin, except for use of short-term credit necessary for clearance of purchases
and sales of portfolio securities, but it may make margin deposits in connection
with covered transactions in options, futures, options on futures and short
positions;
(b) for the Global Bond Fund II, purchase securities on margin, except such
short-term credits as may be necessary for the clearance of purchases and sales
of securities (For this purpose, the deposit or payment by the Fund of initial
or variation margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin.);
(H) invest more than 5% of the assets of a Fund (taken at market value at the
time of investment) in any combination of interest only, principal only, or
inverse floating rate securities (This restriction is not applicable to the
Global Bond Fund II, but see fundamental investment restriction 7(b).);
(I) borrow money (excluding dollar rolls and reverse repurchase agreements,
which are subject to the Fund's fundamental borrowing restriction), except for
temporary administrative purposes (This restriction is not applicable to the
Global Bond Fund II, but see fundamental investment restriction 7(b).);
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(J)(a) for the PIMCO Short-Term, Low Duration and Low Duration III Funds,
invest greater than 5% of its assets in the securities of issuers based in Newly
Industrialized Countries ("NICs"); and
(b) for the remaining Fixed Income Funds, except for the PIMCO Foreign
Bond, Global Bond, Global Bond II and International Bond Funds, invest greater
than 10% of its assets in the securities of issuers based in NICs.
(K) for the Global Bond Fund II, make short sales of securities or maintain a
short position for the account of the Fund unless at all times when a short
position is open the Fund owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are convertible
into or exchangeable for securities of the same issue as, and equal in amount
to, the securities sold short;
(L) for the Global Bond Fund II, purchase or sell commodities or commodity
contracts except that the Fund may purchase and sell financial futures contracts
and related options;
(M) for the Global Bond Fund II, make loans, except by purchase of debt
obligations or by entering into repurchase agreements or through the lending of
the Fund's portfolio securities with respect to not more than 25% of its total
assets;
(N) for the Global Bond Fund II, invest in warrants or rights excluding
options (other than warrants or rights acquired by the Fund as a part of a unit
or attached to securities at the time of purchase) if as a result such
investments (valued at the lower of cost or market) would exceed 5% of the value
of the Fund's net assets; provided that not more than 2% of the Fund's net
assets may be invested in warrants not listed on the New York or American Stock
Exchanges;
(O) for the Global Bond Fund II, write (sell) or purchase options except that
the Fund may (a) write covered call options or covered put options on securities
that it is eligible to purchase (and on stock indices) and enter into closing
purchase transactions with respect to such options, and (b) in combination
therewith, or separately, purchase put and call options on securities it is
eligible to purchase, provided that the premiums paid by the Fund on all
outstanding options it has purchased do not exceed 5% of its total assets (The
Fund may enter into closing sale transactions with respect to options it has
purchased.);
(P) for the Global Bond Fund II, buy or sell oil, gas or other mineral
leases, rights or royalty contracts;
(Q) for the Global Bond Fund II, purchase or sell real estate, including
investments in limited partnerships that invest directly in real estate;
provided, however, that the Fund may invest in readily marketable interests in
real estate investment trusts or readily marketable securities of companies that
invest in real estate; or
(R) for the Global Bond Fund II, engage in short-term trading as a matter of
policy; provided, however, that in pursuing the Fund's investment objective, the
Adviser will continue to monitor all securities positions of the Fund and will
seek to dispose of any position that it believes is no longer consistent with
achieving optimum performance.
In addition, the Trust has adopted a non-fundamental policy pursuant to
which each Fund that may invest in securities denominated in foreign currencies,
except the PIMCO Global Bond Fund, will hedge at least 75% of its exposure to
foreign currency using the techniques described in the Prospectuses. There can
be no assurance that currency hedging techniques will be successful.
28
<PAGE>
Under the 1940 Act, a "senior security" does not include any promissory
note or evidence of indebtedness where such loan is for temporary purposes only
and in an amount not exceeding 5% of the value of the total assets of the issuer
at the time the loan is made. A loan is presumed to be for temporary purposes
if it is repaid within sixty days and is not extended or renewed.
Notwithstanding the provisions of fundamental investment restriction (7)(a)
above, a Fund may borrow money for temporary administrative purposes. To the
extent that borrowings for temporary administrative purposes exceed 5% of the
total assets of a Fund (except the PIMCO Global Bond Fund II), such excess shall
be subject to the 300% asset coverage requirement of that restriction.
The staff of the SEC has taken the position that purchased over-the-counter
("OTC") options and the assets used as cover for written OTC options are
illiquid securities. Therefore, the Funds have adopted an investment policy
pursuant to which a Fund will not purchase or sell OTC options if, as a result
of such transactions, the sum of the market value of OTC options currently
outstanding which are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding which were sold by
the Fund and margin deposits on the Fund's existing OTC options on futures
contracts exceeds 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund which are illiquid or are otherwise
not readily marketable. However, if an OTC option is sold by the Fund to a
primary U.S. Government securities dealer recognized by the Federal Reserve Bank
of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities equal to
the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying securities minus the option's
strike price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium received for
the option, plus the amount by which the option is "in-the-money." This policy
is not a fundamental policy of the Funds and may be amended by the Trustees
without the approval of shareholders. However, the Funds will not change or
modify this policy prior to the change or modification by the SEC staff of its
position.
The Trust has undertaken with a state securities commission that it will
interpret the provisions of fundamental investment restriction (5) to prohibit
the Trust's investment in oil, gas or other mineral leases and that it will
interpret the provisions of investment restriction (4)(a) to prohibit the
Trust's investment in real estate limited partnerships.
With respect to each Fund, except the PIMCO StocksPLUS Short Strategy Fund,
the Trust has agreed with a state securities commission that as an operating
policy, the dollar amount of short sales (other than short sales against the
box) at any time shall not exceed 25% of the net equity of a Fund, and the value
of securities of any one issuer in which a Fund is short shall not exceed 2% of
the Fund's net assets or 2% of the securities of any class of any issuer.
The Trust has undertaken to a state securities commission that the
aggregate premiums paid on all options held at any time by the Trust will be
limited to 20% of the Trust's total net asset value, and that the Trust will
engage in writing options on securities only if such options are issued by the
Options Clearing Corporation or are written by the Trust with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York. Furthermore, pursuant to a restriction imposed by a state securities
commission, the Adviser waives its fee on all Trust assets invested temporarily
in shares of money market mutual funds pursuant to restriction (B)(a), above.
The Trust has undertaken to a state securities commission that the Funds
will limit their investment in restricted securities (defined as securities in
which the Trust is restricted from selling to the public without registration
under the 1933 Act) to no more than 10% of their total assets.
29
<PAGE>
Unless otherwise indicated, all limitations applicable to Fund investments
(as stated above and elsewhere in this Statement of Additional Information)
apply only at the time a transaction is entered into. Any subsequent change in
a rating assigned by any rating service to a security (or, if unrated, deemed to
be of comparable quality), or change in the percentage of Fund assets invested
in certain securities or other instruments, or change in the average duration of
a Fund's investment portfolio, resulting from market fluctuations or other
changes in a Fund's total assets will not require a Fund to dispose of an
investment until the Adviser determines that it is practicable to sell or close
out the investment without undue market or tax consequences to the Fund. In the
event that ratings services assign different ratings to the same security, the
Adviser will determine which rating it believes best reflects the security's
quality and risk at that time, which may be the higher of the several assigned
ratings.
MANAGEMENT OF THE TRUST
Trustees and Officers
The Trustees and Executive Officers of the Trust, their business address
and principal occupations during the past five years are as follows (unless
otherwise indicated, the address of all persons below is 840 Newport Center
Drive, Suite 360, Newport Beach, California 92660):
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- --------------------------------------------------------------------------------
<S> <C> <C>
Brent R. Harris* Chairman of the Managing Director, PIMCO;
Age 37 Board and Trustee Director, Harris Holdings;
Director, Harris Oil
Company; Chairman and
Director, PIMCO Commercial
Mortgage Securities Trust,
Inc. Formerly Principal,
Senior Vice President and
Vice President of PIMCO.
Guilford C. Babcock Trustee Associate Professor of
School of Business Finance, University of
Administration, University Southern California;
of Director, PIMCO Commercial
Southern California, Mortgage Securities Trust,
Los Angeles, California Inc.; Director, AMCAP Fund
90089-1421 and Fundamental Investors
Age 65 Fund of the Capital Group;
Director, Good Hope
Medical Foundation.
Vern O. Curtis Trustee Private Investor; Director
15213 N.W. Francesca Drive of 16 Real Estate
Portland, Oregon Investment Trusts
97229 affiliated with Public
Age 62 Storage, Inc.; Director,
PIMCO Commercial Mortgage
Securities Trust, Inc.
Formerly Charitable Work,
The Church of Jesus Christ
of Latter Day Saints.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Positions with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- --------------------------------------------------------------------------------
<S> <C> <C>
Thomas P. Kemp Trustee Co-Chairman, U.S. Committee
359 San Miguel Assist Russian Reform;
Suite 110 Director
Newport Beach, California Union Financial Corp;
92660-7807 Director
Age 66 PIMCO Commercial Mortgage
Securities Trust, Inc.
Formerly Senior Consultant,
World Cup 1994 Organizing
Committee; Chairman and CEO
of Coca Cola Bottling
Company of L.A.
William J. Popejoy Trustee Chairman, Western Vinyl
10036 Freeman Avenue Manufacturing; Partner,
Santa Fe Springs, Butler Popejoy Group;
California Director, PIMCO Commercial
90670 Mortgage Securities Trust,
Age 58 Inc. Formerly Chief
Executive Officer, Orange
County, California;
Principal, Castine Partners.
R. Wesley Burns President Executive Vice President,
Age 37 PIMCO. Formerly Vice
President, PIMCO.
William H. Gross Senior Vice President Managing Director, PIMCO.
Age 52
Margaret Isberg Senior Vice President Executive Vice President,
Age 40 PIMCO.
Leland T. Scholey Senior Vice President Senior Vice President,
Age 44 PIMCO. Formerly Vice
President, PIMCO.
Andrew C. Ward Senior Vice President Vice President, PIMCO.
Age 36
Michael G. Dow Vice President Account Manager, PIMCO.
Age 33 Formerly Fixed Income
Specialist, Salomon
Brothers, Inc.; Vice
President Operations,
Citibank NA Global Consumer
Banking Group.
U. Teri Frisch Vice President Account Manager, PIMCO.
Age 43
Raymond C. Hayes Vice President Account Manager, PIMCO.
Age 52 Formerly Marketing
Director, Pacific Financial
Asset Management
Corporation.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Positions with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- --------------------------------------------------------------------------------
<S> <C> <C>
Dean S. Meiling Vice President Managing Director, PIMCO.
Age 48
James F. Muzzy Vice President Managing Director, PIMCO.
Age 57
Douglas J. Ongaro Vice President Account Manager, PIMCO.
Age 35 Formerly Regional Marketing
Manager, Charles Schwab &
Co., Inc.
Jeffrey M. Sargent Vice President Vice President and Manager
Age 34 of Fund Shareholder
Servicing, PIMCO. Formerly
Project Specialist, PIMCO.
William S. Thompson, Jr. Vice President Chief Executive Officer and
Age 51 Managing Director, PIMCO.
Formerly Managing Director,
Salomon Brothers, Inc.
Teresa A. Wagner Vice President Vice President and Manager
Age 34 of Fund Administration,
PIMCO. Vice President and
Assistant Clerk, PIMCO
Funds: Multi-Manager
Series; Assistant Clerk,
Cash Accumulation Trust.
Formerly Vice President,
PIMCO Advisors
Institutional Services;
Finance Director, Pacific
Financial Asset Management
Corporation.
Kristen M. Wilsey Vice President Vice President, PIMCO.
Age 36 Formerly Account Manager,
PIMCO; Vice President,
Pacific Financial Asset
Management Corporation.
John P. Hardaway Treasurer Vice President and Manager
Age 39 of Fund Operations, PIMCO.
Garlin G. Flynn Secretary Senior Fund Administrator,
Age 50 PIMCO. Formerly Senior
Mutual Fund Analyst, PIMCO
Advisors Institutional
Services; Senior Mutual
Fund Analyst, Pacific
Financial Asset Management
Corporation.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- --------------------------------------------------------------------------------
<S> <C> <C>
Joseph D. Hattesohl Assistant Treasurer Manager of Fund Taxation,
Age 33 PIMCO. Formerly Director of
Financial Reporting, Carl I.
Brown & Co.; Tax Manager,
Price Waterhouse LLP.
Michael J. Willemsen Assistant Secretary Project Lead, PIMCO.
Age 37 Formerly Shareholder Services
Specialist, PIMCO.
</TABLE>
- --------------------
*Mr. Harris is an "interested person" of the Trust (as that term is
defined in the 1940 Act) because of his affiliations with PIMCO.
Compensation Table
The following table sets forth information regarding compensation
received by the Trustees for the year ended March 31, 1996.
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Trust and Fund Complex
Name and Position from Trust/1/ Paid to Trustees/2/
----------------- ------------- -------------------
<S> <C> <C>
Guilford C. Babcock $ 22,500 $ 32,500
Trustee
Vern O. Curtis $ 22,500 $ 32,500
Trustee
Thomas P. Kemp $ 22,500 $ 32,500
Trustee
William J. Popejoy $18,167/3/ $25,167/3/
Trustee
</TABLE>
- --------------------
/1/ Effective October 1, 1995, Trustees, other than those affiliated with
the Adviser or its affiliates, receive an annual retainer of $20,000 plus $2,500
for each Board of Trustees meeting attended, plus reimbursement of related
expenses. For the fiscal year ended March 31, 1996, the unaffiliated Trustees
as a group received reimbursement of such fees and expenses aggregating $85,667.
/2/ Each Trustee also serves as a Director of PIMCO Commercial Mortgage
Securities Trust, Inc., a registered closed-end management investment company.
For their services, the Directors who are unaffiliated with the Adviser or its
affiliates receive an annual retainer of $6,000 plus $1,000 for each Board of
Directors meeting attended, plus reimbursement of related expenses. For the
fiscal year ended December 31, 1995, the unaffiliated Trustees as a group
received reimbursement of such fees and expenses aggregating $32,000.
33
<PAGE>
/3/ Mr. Popejoy resigned as a Trustee in February 1995, and rejoined the
Boards of both the Trust and PIMCO Commercial Mortgage Securities Trust, Inc. in
August, 1995, and thus received a pro rata portion of his annual retainers.
Investment Adviser
PIMCO serves as investment adviser to the Funds pursuant to an investment
advisory contract ("Advisory Contract") between PIMCO and the Trust. PIMCO is a
subsidiary partnership of PIMCO Advisors. A majority interest of PIMCO Advisors
is held by PIMCO Partners, G.P., a general partnership between Pacific
Investment Management Company, a California corporation and indirect wholly
owned subsidiary of Pacific Mutual Life Insurance Company ("Pacific Mutual"),
and PIMCO Partners, LLC ("PIMCO Partners"), a limited liability company
controlled by the PIMCO Managing Directors.
PIMCO is responsible for making investment decisions and placing orders for
the purchase and sale of the Trust's investments directly with the issuers or
with brokers or dealers selected by it in its discretion. See "Portfolio
Transactions." PIMCO also furnishes to the Board of Trustees, which has overall
responsibility for the business and affairs of the Trust, periodic reports on
the investment performance of each Fund.
Under the terms of the Advisory Contract, PIMCO is obligated to manage the
Funds in accordance with applicable laws and regulations. The investment
advisory services of PIMCO to the Trust are not exclusive under the terms of the
Advisory Contract. PIMCO is free to, and does, render investment advisory
services to others. The current Advisory Contract was approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Advisory Contract or interested persons of such parties ("Independent
Trustees"), at a meeting held on May 31, 1994, as supplemented at a meeting held
on May 23, 1995, and was last approved by the Trustees on August 27, 1996 and by
shareholders of all then-operational Funds on October 17, 1994.
The Advisory Contract will continue in effect on a yearly basis provided
such continuance is approved annually (i) by the holders of a majority of the
outstanding voting securities of the Trust or by the Board of Trustees and (ii)
by a majority of the Independent Trustees. The Advisory Contract may be
terminated without penalty by vote of the Trustees or the shareholders of the
Trust, or by the Adviser, on 60 days' written notice by either party to the
contract and will terminate automatically if assigned.
The current Advisory Contract was executed in connection with the
consolidation of PIMCO, Pacific Investment Administrative Services Company
("PIASCo"), Thomson Advisory Group L.P. and certain other affiliated entities
(the "Consolidation"). Prior to the Consolidation, and since the inception of
each of the Funds, PIMCO had served as investment adviser to the Funds, pursuant
to an advisory contract, last approved by the Trustees April 14, 1993, and by
shareholders of the then-operational Funds on August 21, 1992 (the "Prior
Advisory Contract"). The terms and conditions of the Advisory Contract are
identical in all material respects to the Prior Advisory Contract, with the
exception of the identity of the service provider, its effective date and
termination date, and the amendment recently effected in connection with the
adoption of a new service and fee arrangement for the Funds.
The Adviser currently receives a monthly investment advisory fee from each
Fund at an annual rate based on average daily net assets of the Funds as
follows:
34
<PAGE>
<TABLE>
<CAPTION>
Advisory
Fund Fee Rate
- ---- --------
<S> <C>
Money Market Fund ..................................................... 0.15%
Commercial Mortgage Securities, StocksPLUS, StocksPLUS Short Strategy,
and Strategic Balanced Funds.......................................... 0.40%
All other Funds........................................................ 0.25%
</TABLE>
For the fiscal years ended March 31, 1996, 1995, and 1994, the aggregate
amount of the advisory fees paid by each operational Fund was as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/96 3/31/95 3/31/94
- ---- ------- ------- -------
<S> <C> <C> <C>
Money Market Fund* $ 10,118 $ N/A $ N/A
Short-Term Fund 249,319 383,063 158,599
Low Duration Fund 6,267,607 5,756,981 4,844,060
Low Duration Fund II 575,730 461,261 379,106
High Yield Fund 1,186,819 830,832 320,749
Total Return Fund 22,775,075 15,223,950 10,647,574
Total Return Fund II* 486,935 N/A N/A
Total Return Fund III 327,029 258,080 229,699
Long-Term U.S. Government Fund 101,042 91,533 72,884
Foreign Bond Fund 640,157 921,902 977,658
Global Bond Fund 264,783 177,065 28,608
Global Bond Fund II** N/A N/A N/A
International Bond Fund 4,937,820 1,142,716 6,831,045
StocksPLUS Fund 324,388 109,177 30,476
</TABLE>
- --------------------
*The PIMCO Money Market Fund, for the fiscal years ended October 31,
1995 and 1994, paid aggregate advisory fees in the amount of $14,500 and $9,903,
respectively. The PIMCO Total Return Fund II, for the fiscal years ended
October 31, 1995 and 1994, paid aggregate advisory fees in the amount of
$1,009,081 and $907,044, respectively. See "The Reorganization of the PIMCO
Money Market and Total Return II Funds" for additional information.
**The PIMCO Global Bond Fund II, for the fiscal year ended September
30, 1996, paid aggregate management fees in the amount of $54,325, pursuant to a
management contract between PIMCO Advisors Funds and PIMCO Advisors, under which
PIMCO Advisors provided or procured investment advisory services for the Fund.
See "The Reorganization of the PIMCO Global Bond Fund II" for additional
information.
In connection with the former expense limitation provision, which was
terminated October 1, 1995, the Adviser reimbursed advisory fees for the fiscal
years ended March 31, 1996, 1995, and 1994, in the following amounts:
35
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/96 3/31/95 3/31/94
- ---- ------- ------- -------
<S> <C> <C> <C>
Short-Term Fund $ 10,244 $ 8,045 $ 24,770
Low Duration Fund 0 0 0
High Yield Fund 0 (42,986) 27,055
Low Duration Fund II 0 (16,480) (20,008)
Total Return Fund 0 0 0
Total Return Fund III 1,775 (633) 11,945
Long-Term U.S. Government Fund 13,554 23,964 29,521
Foreign Bond Fund 0 0 0
Global Bond Fund (17,114) (34,409) 40,281
International Bond Fund 0 0 0
StocksPLUS Fund 26,176 53,148 43,574
</TABLE>
Fund Administrator
PIMCO also serves as Administrator to the Funds pursuant to an
administration agreement dated November 15, 1994, as amended (the
"Administration Agreement"). PIMCO provides the Funds with certain
administrative and shareholder services necessary for Fund operations and is
responsible for the supervision of other Fund service providers. PIMCO may in
turn use the facilities or assistance of its affiliates to provide certain
services under the Administration Agreement, on terms agreed between PIMCO and
such affiliates. The administrative services provided by PIMCO include but are
not limited to: (1) shareholder servicing functions, including preparation of
shareholder reports and communications, (2) regulatory compliance, such as
reports and filings with the SEC and state securities commissions, and (3)
general supervision of the operations of the Funds, including coordination of
the services performed by the Funds' transfer agent, custodian, legal counsel,
independent accountants, and others. PIMCO (or an affiliate of PIMCO) also
furnishes the Funds with office space facilities required for conducting the
business of the Funds, and pays the compensation of those officers, employees
and Trustees of the Trust affiliated with PIMCO. In addition, PIMCO, at its own
expense, arranges for the provision of legal, audit, custody, transfer agency
and other services for the Funds, and is responsible for the costs of
registration of the Trust's shares and the printing of prospectuses and
shareholder reports for current shareholders. PIMCO has contractually agreed to
provide these services, and to bear these expenses, at the following rates for
each Fund (each expressed as a percentage of the Fund's average daily net assets
attributable to its classes of shares on an annual basis):
<TABLE>
<CAPTION>
Administrative Fee Rate
-----------------------
<S> <C> <C>
Institutional and Class A,
Fund Administrative Class B and C
- ---- -------------------- -------
Money Market Fund and Short-Term Fund 0.20% 0.35%
Moderate Duration Fund 0.20% 0.40%
Low Duration Fund and Total Return Fund 0.18% 0.40%
Global Bond Fund and Global Bond Fund II 0.30% 0.45%
Foreign Bond Fund and International Bond Fund 0.25% 0.45%
All other Funds 0.25% 0.40%
</TABLE>
Except for the expenses paid by PIMCO, the Trust bears all costs of
its operations. The Funds are responsible for: (i) salaries and other
compensation of any of the Trust's executive officers and employees who are not
officers, directors, stockholders, or employees of PIMCO or its subsidiaries
36
<PAGE>
or affiliates; (ii) taxes and governmental fees; (iii) brokerage fees and
commissions and other portfolio transaction expenses; (iv) costs of borrowing
money, including interest expenses; (v) fees and expenses of the Trustees who
are not "interested persons" of PIMCO or the Trust, and any counsel retained
exclusively for their benefit; (vi) extraordinary expenses, including costs of
litigation and indemnification expenses; (vii) expenses, such as organizational
expenses, which are capitalized in accordance with generally accepted accounting
principles; and (viii) any expenses allocated or allocable to a specific class
of shares ("Class-specific expenses").
Class-specific expenses include distribution and service fees payable
with respect to different classes of shares and may include certain other
expenses as permitted by the Trust's Amended and Restated Multi-Class Plan
adopted pursuant to Rule 18f-3 under the 1940 Act and subject to review and
approval by the Trustees.
With respect to the Institutional and Administrative Class shares of
each Fund, except the PIMCO Global Bond Fund II, the Administration Agreement
may be terminated by the Trustees, or by a vote of the outstanding voting
securities of the Trust, or Class as applicable, at any time on 60 days' written
notice. Following the expiration of the two-year period commencing with the
effectiveness of the agreement, it may be terminated by PIMCO, also on 60 days'
written notice. Following its initial two-year term, the agreement will continue
from year to year if approved by the Trustees.
With respect to the Class A, Class B and Class C shares of the PIMCO
High Yield, Total Return, Low Duration and Money Market Funds, or with respect
to any class of shares of the PIMCO Global Bond Fund II, the Administration
Agreement may be terminated by the Trustees, or by a vote of the outstanding
voting securities of the Trust, Fund, or Class as applicable, at any time on 60
days' written notice. Following the expiration of the one year period
commencing with the effectiveness of the amendment making the Administration
Agreement effective with respect to such Funds or Classes, the Agreement may be
terminated by PIMCO on 60 days' written notice. With respect to the Class A,
Class B and Class C shares of each Fund other than those listed above, the
Administration Agreement may be terminated by the Trustees, or by a vote of the
outstanding securities of the Trust, or Class as applicable, at any time on 60
days' written notice, or by PIMCO on 60 days' written notice.
The Administration Agreement is subject to annual approval by the
Board, including a majority of the Trust's Independent Trustees (as that term is
defined in the 1940 Act). The current Administration Agreement was approved by
the Board of Trustees, including all of the Independent Trustees at a meeting
held on August 22, 1995. In approving the Administration Agreement, the
Trustees determined that: (1) the Administration Agreement is in the best
interests of the Funds and their shareholders; (2) the services to be performed
under the Agreement are services required for the operation of the Funds; (3)
PIMCO is able to provide, or to procure, services for the Funds which are at
least equal in nature and quality to services that could be provided by others;
and (4) the fees to be charged pursuant to the Agreement are fair and reasonable
in light of the usual and customary charges made by others for services of the
same nature and quality. The preceding Administrative Services Contract between
the Trust and PIMCO was approved by the Trustees at their meeting held on May
31, 1994, and was approved by shareholders of all then-operational Funds on
October 17, 1994.
A previous Administrative Services Contract ("Prior Contact") between
the Trust and PIASCo was initially approved by the Trustees at a meeting held on
April 29, 1987 (and by the then-sole shareholder of the Trust at a meeting held
on April 30, 1987). The Prior Contract was last approved by the Board of
Trustees on February 23, 1993. PIASCo was a wholly owned subsidiary of the
37
<PAGE>
predecessor of PIMCO. In connection with the Consolidation, PIMCO assumed the
duties of PIASCo as Administrator to the Funds. The terms and conditions of the
Administrative Services Contract are substantially identical in all material
respects to those of the Prior Contract, with the primary exception of the
identity of the service provider, its effective date and termination date, and
the amendment recently effected in connection with the adoption of a new service
and fee arrangement for the Funds.
For the fiscal years ended March 31, 1996, 1995, and 1994, the
aggregate amount of the administration fees paid by each operational Fund was as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/96 3/31/95 3/31/94
- ---- ----------- ---------- ----------
<S> <C> <C> <C>
Money Market Fund* $ 13,462 $ N/A $ N/A
Short-Term Fund 137,477 129,554 52,866
Low Duration Fund 3,520,078 2,272,874 1,907,377
Low Duration Fund II 391,248 154,668 126,369
High Yield Fund 842,032 302,332 109,187
Total Return Fund 13,084,413 6,059,785 4,228,783
Total Return Fund II* 486,935 N/A N/A
Total Return Fund III 217,584 86,027 76,566
Long-Term U.S. Government Fund 65,155 30,511 24,295
Foreign Bond Fund 428,175 324,043 361,063
Global Bond Fund 208,234 57,732 9,536
Global Bond Fund II** N/A N/A N/A
International Bond Fund 3,800,674 440,899 2,702,418
StocksPLUS Fund 149,888 24,261 6,772
</TABLE>
____________________
*The PIMCO Money Market Fund, for the fiscal years ended October 31,
1995 and 1994, paid aggregate administration fees in the amount of $24,166 and
$16,506, respectively. The PIMCO Total Return Fund II, for the fiscal years
ended October 31, 1995 and 1994, paid aggregate administration fees in the
amount of $1,009,081 and $907,044, respectively. See "The Reorganization of the
PIMCO Money Market and Total Return II Funds" for additional information.
**The PIMCO Global Bond Fund II, for the fiscal year ended September
30, 1996, paid aggregate management fees in the amount of $54,325, pursuant to a
management contract between PIMCO Advisors Funds and PIMCO Advisors, under which
PIMCO Advisors provided or procured administrative services for the Fund. See
"The Reorganization of the PIMCO Global Bond Fund II" for additional
information.
In connection with the former expense limitation provision which was
terminated October 1, 1995, the Administrator reimbursed administration fees for
the fiscal years ended March 31, 1996, 1995, and 1994, in the following amounts:
38
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/96 3/31/95 3/31/94
- ---- -------- -------- --------
<S> <C> <C> <C>
Short-Term Fund $ 2,923 $ 2,295 $ 7,068
Low Duration Fund 0 0 0
Low Duration Fund II 0 (4,703) (5,709)
High Yield Fund 0 (12,266) 7,720
Total Return Fund 0 0 0
Total Return Fund III 507 (181) 3,408
Long-Term U.S. Government Fund 3,867 6,838 8,424
Foreign Bond Fund 0 0 0
Global Bond Fund (4,884) (9,818) 11,494
International Bond Fund 0 0 0
StocksPLUS Fund 7,469 15,165 12,574
</TABLE>
DISTRIBUTION OF TRUST SHARES
Distributor and Multi-Class Plan
PIMCO Funds Distribution Company (the "Distributor") serves as the
distributor of each class of the Trust's shares pursuant to a distribution
contract ("Distribution Contract") with the Trust which is subject to annual
approval by the Board. The Distributor is a wholly owned subsidiary of PIMCO
Advisors. The Distribution Contract is terminable with respect to a Fund or
class without penalty, at any time, by the Fund or class by not more than 60
days' nor less than 30 days' written notice to the Distributor, or by the
Distributor upon not more than 60 days' nor less than 30 days' written notice to
the Trust. The Distributor is not obligated to sell any specific amount of
Trust shares.
The Distribution Contract will continue in effect with respect to each
Fund and each class of shares thereof for successive one-year periods, provided
that each such continuance is specifically approved (i) by the vote of a
majority of the Trustees who are not interested persons of the Trust (as defined
in the 1940 Act) and who have no direct or indirect financial interest in the
Distribution Contract or the Distribution and/or Servicing Plans described
below; and (ii) by the vote of a majority of the entire Board of Trustees cast
in person at a meeting called for that purpose. If the Distribution Contract is
terminated (or not renewed) with respect to one or more Funds or classes
thereof, it may continue in effect with respect to any class of any Fund as to
which it has not been terminated (or has been renewed).
Prior to the Consolidation, Pacific Equities Network ("PEN"), an
indirect subsidiary of Pacific Mutual, served as the Trust's Distributor,
pursuant to a contract approved by the Board of Trustees, including a majority
of the Independent Trustees, at its meeting held on April 29, 1987 (and by the
then-sole shareholder of the Trust at a meeting held on April 30, 1987) (the
"Prior Distribution Contract"). The Prior Distribution Contract was last
approved by the Board of Trustees on February 23, 1993 and by shareholders of
the Trust on November 1, 1988.
The Trust offers five classes of shares: Class A, Class B, Class C,
the Institutional Class and the Administrative Class. Class A, Class B and Class
C shares of the Trust are offered through firms ("participating brokers") which
are members of the National Association of Securities Dealers, Inc. ("NASD"),
and which have dealer agreements with the Distributor, or which have agreed to
act as introducing brokers for the Distributor ("introducing brokers"). Shares
of the Institutional Class are offered primarily for direct investment by
investors such as pension and profit sharing plans, employee
39
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benefit trusts, endowments, foundations, corporations and high net individuals.
(Institutional Class shares may also be offered through certain financial
intermediaries that charge their customers transaction or other fees with
respect to the customer's investment in the Funds. Shares of the Administrative
Class are offered primarily through employee benefit plans alliances, broker-
dealers, and other intermediaries, and each Fund pays service or distribution
fees to such entities for services they provide to shareholders of that
class.)
The Trust has adopted an Amended and Restated Multi-Class Plan
("Multi-Class Plan") pursuant to Rule 18f-3 under the 1940 Act. Under the
Multi-Class Plan, shares of each class of each Fund represent an equal pro rata
interest in such Fund and, generally, have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications and terms and conditions, except that: (a) each class has a
different designation; (b) each class of shares bears any class-specific
expenses allocated to it; and (c) each class has exclusive voting rights on any
matter submitted to shareholders that relates solely to its distribution or
service arrangements, and each class has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class. In addition, each class may have a differing
sales charge structure, and differing exchange and conversion features.
Contingent Deferred Sales Charge and Initial Sales Charge
As described in the Retail Prospectus under the caption "How to
Redeem," a contingent deferred sales charge is imposed upon certain redemptions
of the Class A, Class B and Class C shares. No contingent deferred sales charge
is currently imposed upon redemptions of Institutional Class or Administrative
Class shares. Because contingent deferred sales charges are calculated on a
Fund-by-Fund basis, shareholders should consider whether to exchange shares of
one Fund for shares of another Fund prior to redeeming an investment if such an
exchange would reduce the contingent deferred sales charge applicable to such
redemptions.
For the fiscal year ended September 30, 1996, the Distributor received
$2,704 in contingent deferred sales charges on Class C shares of the Global Bond
Fund II while the Fund was a series of PIMCO Advisors Funds ("PAF"). See "The
Reorganization of the PIMCO Global Bond Fund II." For the fiscal year ended
September 30, 1996, the Distributor received $0 in contingent deferred sales
charges on Class A shares of the Fund and $1,946 in contingent deferred sales
charges on Class B shares of the Fund.
In certain cases described in the Retail Prospectus, the contingent
deferred sales charge is waived on redemptions of Class A, Class B or Class C
shares for certain classes of individuals or entities on account of (i) the fact
that the Trust's sales-related expenses are lower for certain of such classes
than for classes for which the contingent deferred sales charge is not waived,
(ii) waiver of the contingent deferred sales charge with respect to certain of
such classes is consistent with certain Internal Revenue Code policies
concerning the favored tax treatment of accumulations, and (iii) with respect to
certain of such classes, considerations of fairness, and competitive and
administrative factors.
As described in the Retail Prospectus under the caption "Alternative
Purchase Arrangements -- Initial Sales Charge Alternative - Class A Shares,"
Class A shares of the Trust (except with respect to the Money Market Fund) are
sold pursuant to an initial sales charge, which declines as the amount of
purchase reaches certain defined levels. For the fiscal year ended September
30, 1996, the Distributor received $48,106, and retained $9,896, in initial
sales charges paid by shareholders of the Global Bond Fund II while the Fund was
a series of PAF.
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Distribution and Servicing Plans for Class A, Class B and Class C Shares
As stated in the text of the Retail Prospectus under the caption
"Distributor and Distribution and Servicing Plans," Class A, Class B and Class C
shares of the Trust are continuously offered through participating brokers which
are members of the NASD and which have dealer agreements with the Distributor,
or which have agreed to act as introducing brokers.
Pursuant to separate Distribution and Servicing Plans for Class A,
Class B and Class C shares (the "Retail Plans"), as described in the Retail
Prospectus, in connection with the distribution of Class B and Class C shares of
the Trust, the Distributor receives certain distribution fees from the Trust,
and in connection with personal services rendered to Class A, Class B and Class
C shareholders of the Trust and the maintenance of shareholder accounts, the
Distributor receives certain servicing fees from the Trust. Subject to the
percentage limitations on these distribution and servicing fees set forth in the
Retail Prospectus, the distribution and servicing fees may be paid with respect
to services rendered and expenses borne in the past with respect to Class A,
Class B and Class C shares as to which no distribution and servicing fees were
paid on account of such limitations. As described in the Retail Prospectus, the
Distributor pays (i) all or a portion of the distribution fees it receives from
the Trust to participating and introducing brokers, and (ii) all or a portion of
the servicing fees it receives from the Trust to participating and introducing
brokers, certain banks and other financial intermediaries.
Each Retail Plan may be terminated with respect to any Fund to which
the Plan relates by vote of a majority of the Trustees (disinterested Trustees)
who are not interested persons of the Trust (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or
the Distribution Contract or by vote of a majority of the outstanding voting
securities of the relevant class of that Fund. Any change in any Retail Plan
that would materially increase the cost to the class of shares of any Fund to
which the Plan relates requires approval by the affected class of shareholders
of that Fund. The Trustees review quarterly written reports of such costs and
the purposes for which such costs have been incurred. Each Retail Plan may be
amended by vote of the disinterested Trustees defined above cast in person at a
meeting called for the purpose. As long as the Retail Plans are in effect,
selection and nomination of those Trustees who are not interested persons of the
Trust shall be committed to the discretion of such disinterested persons.
The Retail Plans will continue in effect with respect to each Fund and
each class of shares thereof for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of a majority of the
disinterested Trustees defined above and (ii) by the vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that
purpose.
If a Retail Plan is terminated (or not renewed) with respect to one or
more Funds, it may continue in effect with respect to any class of any Fund as
to which it has not been terminated (or has been renewed).
The Retail Plans went into effect for the Funds in January 1997 and no
payments were made thereunder prior to the date of this Statement of Additional
Information.
For the fiscal year ended September 30, 1996, PAF paid the Distributor
$42,194,641, pursuant to a similar Distribution and Servicing Plan (the "PAF
Class C Plan") applicable to the Class C shares of PAF of which $18,448 was
allocated to the Global Bond Fund II (which was formerly a PAF Fund which
reorganized as a series of the Trust on January 17, 1997).
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The remainder of the total payments made under the PAF Class C Plan
for such fiscal years was allocated among other series of PAF which either
merged with Funds of the Trust or merged with/reorganized as series of PIMCO
Funds: Multi-Manager Series, an affiliated mutual fund family, in transactions
which took place on January 17, 1997.
During the fiscal year ended September 30, 1996, the amounts collected
pursuant to the PAF Class C Plan and the contingent deferred sales charge
imposed on Class C shares of the former PAF Funds were used as follows by the
Distributor: sales commissions and other compensation to sales personnel,
$32,453,000; preparing, printing and distributing sales material and advertising
(including preparing, printing and distributing prospectuses to non-
shareholders), and other expenses (including data processing, legal and
operations), $8,605,000. The total, if allocated to the Global Bond Fund II
based on the net assets attributable to its Class C shares at September 30,
1996, would have been as follows: compensation -- $24,000; sales material and
other expenses -- $6,000; total -- $30,000.
During the fiscal year ended September 30, 1996, unreimbursed expenses
of PAF's principal underwriter under the PAF Class C Plan were reduced from
$4,191,000 to $2,822,000.
For the fiscal year ended September 30, 1996, PAF paid the Distributor
an aggregate of $1,567,984, pursuant to a Distribution and Servicing Plan
applicable to the Class A shares of PAF (the "PAF Class A Plan"), which is
similar to the Class A Retail Plan of the Trust. The payments allocated to the
Global Bond Fund II were $11,772.
The remainder of the total payments made under the PAF Class A Plan
for such fiscal years was allocated among other series of PAF which either
merged with Funds of the Trust or merged with/reorganized as series of PIMCO
Funds: Multi-Manager Series, an affiliated mutual fund family, in transactions
which took place on January 17, 1997.
During the fiscal year ended September 30, 1996, the amounts collected
pursuant to the PAF Class A Plan [and the front-end sales charge imposed on
Class A shares] were used as follows: commissions and other compensation to
dealers, $1,786,000; preparing, printing and distributing materials to
shareholders, and other expenses (including data processing, legal and
operations), $2,483,000. The total, if allocated to the Global Bond Fund II
based on the net assets attributable to its Class A shares at September 30,
1996, would have been as follows: compensation -- $17,000; sales material and
other expenses -- $24,000; total -- $41,000.
For the fiscal year ended September 30, 1996, PAF paid the Distributor an
aggregate of $2,107,430, pursuant to a Distribution and Servicing Plan
applicable to the Class B shares of PAF (the "PAF Class B Plan") which is
similar to the Class B Retail Plan of the Trust. The payments allocated to the
Global Bond Fund II were $16,642.
The remainder of the total payments made under the PAF Class B Plan for
such fiscal years was allocated among other series of PAF which either merged
with Funds of the Trust or merged with/reorganized as series of PIMCO Funds:
Multi-Manager Series, an affiliated mutual fund family, in transactions which
took place on January 17, 1997.
During the fiscal year ended September 30, 1996, the amounts collected
pursuant to the PAF Class B Plan and the contingent deferred sales charge
imposed on Class B shares of the former PAF Funds were used as follows by the
Distributor: sales commissions and other compensation to sales personnel,
$8,961,000; preparing, printing and distributing sales material and advertising
(including preparing, printing and distributing prospectuses to non-
shareholders), and other expenses (including data processing, legal and
operations), $2,003,000. The total, if allocated to the Global Bond Fund
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II based on the net assets attributable to its Class B shares at September 30,
1996, would have been as follows: compensation -- $101,000; sales material and
other expenses -- $23,000; total -- $124,000.
The Trustees believe that the Distribution and Servicing Plans will provide
benefits to the Trust. The Trustees believe that the Class A, Class B and Class
C Plans will result in greater sales and/or fewer redemptions of Trust shares,
although it is impossible to know for certain the level of sales and redemptions
of Trust shares that would occur in the absence of the Plans or under
alternative distribution schemes. Although the Funds' expenses are essentially
fixed, the Trustees believe that the effect of the Retail Plans on sales and/or
redemptions may benefit the Trust by reducing Fund expense ratios and/or by
affording greater flexibility to Portfolio Managers. From time to time,
expenses of the Distributor incurred in connection with the sale of Class B and
Class C shares of the Funds, and in connection with the servicing of Class B and
Class C shareholders of the Funds and the maintenance of shareholder accounts,
may exceed the distribution and servicing fees collected by the Distributor.
The Trustees consider such unreimbursed amounts, among other factors, in
determining whether to cause the Funds to continue payments of distribution and
servicing fees in the future with respect to Class B and Class C shares.
Distribution and Administrative Services Plans for Administrative Class Shares
The Trust has adopted an Administrative Services Plan and a Distribution
Plan (together, the "Administrative Plans") with respect to the Administrative
Class shares of each Fund. Under the terms of each Administrative Plan, the
Trust is permitted to reimburse, out of the assets attributable to the
Administrative Class shares of each Fund, in an amount up to 0.25% on an annual
basis of the average daily net assets of that class, financial intermediaries
that provide services in connection with the distribution of Administrative
Class shares or administration of plans or programs that use Administrative
Class of the Funds shares as their funding medium, and to reimburse certain
other distribution related expenses. Under the terms of the Administrative
Class Distribution Plan, these services may include, but are not limited to, the
following functions: providing facilities to answer questions from prospective
investors about a Fund; receiving and answering correspondence, including
requests for prospectuses and statements of additional information; preparing,
printing and delivering prospectuses and shareholder reports to prospective
shareholders; complying with federal and state securities laws pertaining to the
sale of Administrative Class shares; and assisting investors in completing
application forms and selecting dividend and other account options.
Under the terms of the Administrative Services Plan, the services may
include, but are not limited to, the following functions: receiving,
aggregating and processing shareholder orders; furnishing shareholder sub-
accounting; providing and maintaining elective shareholder services such as
check writing and wire transfer services; providing and maintaining pre-
authorized investment plans; communicating periodically with shareholders;
acting as the sole shareholder of record and nominee for shareholders;
maintaining accounting records for shareholders; answering questions and
handling correspondence from shareholders about their accounts; and performing
similar account administrative services.
The same entity may be the recipient of fees under both the Administrative
Class Distribution Plan and the Administrative Services Plan, but may not
receive fees under both plans with respect to the same assets.
Each Administrative Plan provides that it may not be amended to materially
increase the costs which Administrative Class shareholders may bear under the
Plan without the approval of a majority of the outstanding voting securities of
the Administrative Class, and by vote of a majority of both (i) the Trustees of
the Trust and (ii) those Trustees who are not "interested persons" of the Trust
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the "Plan
Trustees"), cast in person at a meeting called for the purpose of voting on the
Plan and any related amendments.
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Each Administrative Plan provides that it may not take effect until
approved by vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Trustees defined above. The Administrative Class Distribution
Plan further provides that it may not take effect unless approved by the vote of
a majority of the outstanding voting securities of the Administrative Class.
The Administrative Plans were approved by the Trustees, including the
disinterested Trustees, at a meeting held on May 31, 1994.
Each Administrative Plan provides that it shall continue in effect so long
as such continuance is specifically approved at least annually by the Trustees
and the disinterested Trustees defined above. Each Administrative Plan provides
that any person authorized to direct the disposition of monies paid or payable
by a class pursuant to the Plan or any related agreement shall provide to the
Trustees, and the Board shall review at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made.
Each Administrative Plan provides that expenses payable under the Plan may
be carried forward for reimbursement for up to twelve months beyond the date in
which the expense is incurred, subject to the limit that not more that 0.25% of
the average daily net assets of Administrative Class shares may be used in any
month to pay expenses under the Plan. Each Plan requires that Administrative
Class shares incur no interest or carrying charges.
Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to both Administrative Plans will qualify as
"service fees" and therefore will not be limited by NASD rules.
For the fiscal year ended March 31, 1996, the Administrative Class shares
of the PIMCO Money Market, Short-Term, Low Duration, High Yield, Total Return
and Total Return II Funds paid aggregate fees under the Distribution Plan to
qualified service providers in the amount of $11, $1,003, $3,442, $701,
$141,529, and $3,408, respectively. All of these amounts constituted "service
fees" under applicable NASD rules.
Purchases, Exchanges and Redemptions
Purchases, exchanges and redemptions of Class A, Class B and Class C shares
are discussed in the Retail Prospectus under the headings "How to Buy Shares,"
"Exchange Privilege," and "How to Redeem," and that information is incorporated
herein by reference. Purchases, exchanges and redemptions of Institutional and
Administrative Class shares are discussed in the Institutional Prospectus under
the headings "Purchase of Shares," "Redemption of Shares," and "Net Asset
Value," and that information is incorporated herein by reference.
Certain managed account clients of the Adviser may purchase shares of the
Trust. To avoid the imposition of duplicative fees, the Adviser may be required
to make adjustments in the management fees charged separately by the Adviser to
these clients to offset the generally higher level of management fees and
expenses resulting from a client's investment in the Trust.
Certain clients of the Adviser whose assets would be eligible for purchase
by one or more of the Funds may purchase shares of the Trust with such assets.
Assets so purchased by a Fund will be valued in accordance with procedures
adopted by the Board of Trustees.
Certain shares of the Funds are not qualified or registered for sale in all
states. Prospective investors should inquire as to whether shares of a
particular Fund or class are available
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for offer and sale in their state of domicile or residence. Shares of a Fund may
not be offered or sold in any state unless registered or qualified in that
jurisdiction, unless an exemption from registration or qualification is
available.
Independent financial intermediaries unaffiliated with PIMCO may perform
shareholder servicing functions with respect to certain of their clients whose
assets may be invested in the Funds. These services, normally provided by PIMCO
directly to Trust shareholders, may include the provision of ongoing information
concerning the Funds and their investment performance, responding to shareholder
inquiries, assisting with purchases, redemptions and exchanges of Trust shares,
and other services. PIMCO may pay fees to such entities for the provision of
these services which PIMCO normally would perform, out of PIMCO's own resources.
As described in the Retail Prospectus under the caption "Exchange
Privilege," and in the Institutional Prospectus under the caption "Redemption of
Shares," a shareholder may exchange shares of any Fund for shares of any other
Fund of the Trust (except the International Fund, which is only available to
private account clients of PIMCO) or any series (except the Opportunity Fund) of
PIMCO Funds: Multi-Manager Series, within the same class on the basis of their
respective net asset values. The original purchase date(s) of shares exchanged
for purposes of calculating any contingent deferred sales charge will carry over
to the investment in the new Fund. For example, if a shareholder invests in the
Class C shares of one Fund and 6 months later (when the contingent deferred
sales charge upon redemption would normally be 1%) exchanges his shares for
Class C shares of another Fund, no sales charge would be imposed upon the
exchange but the investment in the other Fund would be subject to the 1%
contingent deferred sales charge until one year after the date of the
shareholder's investment in the first Fund as described in the Retail Prospectus
under "Alternative Purchase Arrangements." With respect to Class B or Class C
shares, or Class A shares subject to a contingent deferred sales charge, if less
than all of an investment is exchanged out of a Fund, any portion of the
investment attributable to capital appreciation and/or reinvested dividends or
capital gains distributions will be exchanged first, and thereafter any portions
exchanged will be from the earliest investment made in the Fund from which the
exchange was made.
Orders for exchanges accepted prior to the close of regular trading on the
New York Stock Exchange on any day the Trust is open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after the close of regular
trading on the Exchange on any business day will be executed at the respective
net asset values determined at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to adopt a policy of terminating the exchange privilege of any
shareholder who makes more than a specified number of exchanges in a 12-month
period or in any calendar quarter; provided, that if such a limitation on
exchanges is adopted, exchanges into the PIMCO Money Market Fund from any other
Fund would not be counted. The Trust reserves the right to modify or
discontinue the exchange privilege at any time.
The Trust reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed for other than customary
weekend and holiday closings; (b) the SEC has by order permitted such
suspension; or (c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
The Trust is committed to paying in cash all requests for redemptions by
any shareholder of record of the Funds, limited in amount with respect to each
shareholder during any 90-day period to
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the lesser of (i) $250,000, or (ii) 1% of the net asset value of the Trust at
the beginning of such period. Although the Trust will normally redeem all shares
for cash, it may, in unusual circumstances, redeem amounts in excess of the
lesser of (i) or (ii) above by payment in kind of securities held in the Funds'
portfolios.
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time, due to shareholder
redemption, the shares in the account do not have a value of at least a
specified amount, currently set at $250 for Class A, Class B and Class C shares,
and $100,000 for Institutional Class and Administrative Class shares ($10,000
with respect to Institutional Class and Administrative Class accounts opened
before January 1, 1995). An investor will be notified that the value of his
account is less than the minimum and allowed at least 30 days to bring the value
of the account up to at least the specified amount before the redemption is
processed. The Declaration of Trust also authorizes the Trust to redeem shares
under certain other circumstances as may be specified by the Board of Trustees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions
Investment decisions for the Trust and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved (including the
Trust). Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling the security. In some instances, one
client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which event each day's transactions in such security are, insofar
as possible, averaged as to price and allocated between such clients in a manner
which in the Adviser's opinion is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients.
Brokerage and Research Services
There is generally no stated commission in the case of fixed income
securities, which are traded in the over-the-counter markets, but the price paid
by the Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency trans actions involve the payment by the
Trust of negotiated brokerage commissions. Such commissions vary among
different brokers. Also, a particular broker may charge different commissions
according to such factors as the difficulty and size of the transaction.
Transactions in foreign securities generally involve the payment of fixed
brokerage commissions, which are generally higher than those in the United
States.
The Adviser places all orders for the purchase and sale of portfolio
securities, options and futures contracts for the relevant Fund and buys and
sells such securities, options and futures for the Trust through a substantial
number of brokers and dealers. In so doing, the Adviser uses its best efforts
to obtain for the Trust the most favorable price and execution available, except
to the extent it may be permitted to pay higher brokerage commissions as
described below. In seeking the most
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favorable price and execution, the Adviser, having in mind the Trust's best
interests, considers all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience and financial
stability of the broker-dealer involved and the quality of service rendered by
the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Adviser receives research services from many broker-dealers with which the
Adviser places the Trust's portfolio transactions. These services, which in
some cases may also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews, evaluations
of securities and recommendations as to the purchase and sale of securities.
Some of these services are of value to the Adviser in advising various of its
clients (including the Trust), although not all of these services are
necessarily useful and of value in managing the Trust. The management fee paid
by the Trust is not reduced because the Adviser and its affiliates receive such
services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Adviser may cause the Trust to pay a broker-dealer which provides "brokerage and
research services" (as defined in the Act) to the Adviser an amount of disclosed
commission for effecting a securities transaction for the Trust in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
Consistent with the Rules of the NASD and subject to seeking the most
favorable price and execution available and such other policies as the Trustees
may determine, the Adviser may also consider sales of shares of the Trust as a
factor in the selection of broker-dealers to execute portfolio transactions for
the Trust.
Portfolio Turnover
The Adviser manages the Funds without regard generally to restrictions on
portfolio turnover, except those imposed on their ability to engage in short-
term trading by provisions of the federal tax laws, see "Taxation." The use of
futures contracts and other derivative instruments with relatively short
maturities may tend to exaggerate the portfolio turnover rate for some of the
Funds. Trading in fixed income securities does not generally involve the
payment of brokerage commissions, but does involve indirect transaction costs.
The use of futures contracts may involve the payment of commissions to futures
commission merchants. The higher the rate of portfolio turnover of a Fund, the
higher these transaction costs borne by the Fund generally will be.
The portfolio turnover rate of a Fund is calculated by dividing (a) the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by (b) the monthly average of the value of the portfolio securities owned
by the Fund during the particular fiscal year. In calculating the rate of
portfolio turnover, there is excluded from both (a) and (b) all securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less. Proceeds from short sales and assets used to
cover short positions undertaken are included in the amounts of securities sold
and purchased, respectively, during the year.
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NET ASSET VALUE
As indicated under "Net Asset Value" in the Institutional Prospectus and
"How Net Asset Value is Determined" in the Retail Prospectus, the Trust's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined at 4:00 p.m. (Eastern time) on each day the New York Stock
Exchange is open for trading. Net asset value will not be determined on the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The PIMCO Money Market Fund's securities are valued using the amortized
cost method of valuation. This involves valuing a security at cost on the date
of acquisition and thereafter assuming a constant accretion of a discount or
amortization of a premium to maturity, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During such periods the yield to investors
in the Fund may differ somewhat from that obtained in a similar investment
company which uses available market quotations to value all of its portfolio
securities.
The SEC's regulations require the PIMCO Money Market Fund to adhere to
certain conditions. The Trustees, as part of their responsibility within the
overall duty of care owed to the shareholders, are required to establish
procedures reasonably designed, taking into account current market conditions
and the Fund's investment objective, to stabilize the net asset value per share
as computed for the purpose of distribution and redemption at $1.00 per share.
The Trustees' procedures include a requirement to periodically monitor, as
appropriate and at such intervals as are reasonable in light of current market
conditions, the relationship between the amortized cost value per share and the
net asset value per share based upon available indications of market value. The
Trustees will consider what steps should be taken, if any, in the event of a
difference of more than 1/2 of 1% between the two. The Trustees will take such
steps as they consider appropriate, (e.g., selling securities to shorten the
average portfolio maturity) to minimize any material dilution or other unfair
results which might arise from differences between the two. The Fund also is
required to maintain a dollar-weighted average portfolio maturity of 90 days or
less, to limit its investments to instruments having remaining maturities of 397
days or less (except securities held subject to repurchase agreements having 397
days or less maturity) and to invest only in securities determined by the
Adviser under procedures established by the Board of Trustees to be of high
quality with minimal credit risks.
TAXATION
The following discussion is general in nature and should not be regarded as
an exhaustive presentation of all possible tax ramifications. All shareholders
should consult a qualified tax adviser regarding their investment in a
Fund.
Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, each Fund generally
must, among other things, (a) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities or currencies ("Qualifying Income Test");
(b) derive in each taxable year less than 30% of its gross income from
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the sale or other disposition of certain assets held less than three months,
namely (1) stocks or securities, (2) options, futures, or forward contracts
(other than those on foreign currencies), and (3) foreign currencies (or
options, futures, and forward contracts on foreign currencies) not directly
related to the Fund's principal business of investing in stock or securities;
(c) diversify its holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of the Fund's assets is represented
by cash, U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (d) distribute at least 90% of its investment company taxable
income (which includes dividends, interest and net short-term capital gains in
excess of any net long-term capital losses) each taxable year. The Treasury
Department is authorized to promulgate regulations under which gains from
foreign currencies (and options, futures, and forward contracts on foreign
currency) would constitute qualifying income for purposes of the Qualifying
Income Test only if such gains are directly relating to investing in securities.
To date, such regulations have not been issued.
As a regulated investment company, a Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers from prior years) designated by the
Fund as capital gain dividends, if any, that it distributes to shareholders on a
timely basis. Each Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable income and any net
capital gains. In addition, amounts not distributed by a Fund on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To avoid the tax, a Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (and adjusted for certain ordinary losses) for the twelve month period
ending on October 31 of the calendar year, and (3) all ordinary income and
capital gains for previous years that were not distributed during such years. A
distribution will be treated as paid on December 31 of the calendar year if it
is declared by a Fund in October, November, or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be taxable to
shareholders (other than those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received. To avoid application of the
excise tax, each Fund intends to make its distributions in accordance with the
calendar year distribution requirement.
Distributions
Dividends paid out of a Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions received by
tax-exempt shareholders will not be subject to federal income tax to the extent
permitted under the applicable tax exemption.
A portion of the dividends paid by the PIMCO StocksPLUS Fund may qualify
for the deduction for dividends received by corporations. Dividends paid by the
other Funds generally are not expected to qualify for the deduction for
dividends received by corporations, although certain distributions from the
PIMCO High Yield Fund may qualify. Distributions of net capital gains, if any,
designated as capital gain dividends, are taxable as long-term capital gains,
regardless of how long the shareholder has held a Fund's shares and are not
eligible for the dividends received deduction. Any distributions that are not
from a Fund's investment company taxable income or net realized capital
49
<PAGE>
gains may be characterized as a return of capital to shareholders or, in some
cases, as capital gain. The tax treatment of dividends and distributions will be
the same whether a shareholder reinvests them in additional shares or elects to
receive them in cash.
Sales of Shares
Upon the disposition of shares of a Fund (whether by redemption, sale or
exchange), a shareholder will realize a gain or loss. Such gain or loss will be
capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Any loss realized on a disposition
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
a disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.
Backup Withholding
A Fund may be required to withhold 31% of all taxable distributions payable
to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code generally are exempt from such backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal tax liability.
Options, Futures and Forward Contracts, and Swap Agreements
Some of the options, futures contracts, forward contracts, and swap
agreements used by the Funds may be "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally considered 60% long-term and 40%
short-term capital gains or losses ("60/40") although certain foreign currency
gains and losses from such contracts may be treated as ordinary in character.
Also, section 1256 contracts held by a Fund at the end of each taxable year
(and, for purposes of the 4% excise tax, on certain other dates as prescribed
under the Code) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as ordinary or 60/40 gain or loss.
Generally, the hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by a Fund, may result in
"straddles" for U.S. federal income tax purposes. In some cases, the straddle
rules also could apply in connection with swap agreements. The straddle rules
may affect the character of gains (or losses) realized by a Fund. In addition,
losses realized by a Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures,
forward contracts, and swap agreements to a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules
50
<PAGE>
that vary according to the election(s) made. The rules applicable under certain
of the elections operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
Rules governing the tax aspects of swap agreements are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Funds intend to account for such transactions in a manner they deem to be
appropriate, the Internal Revenue Service might not accept such treatment. If
it did not, the status of a Fund as a regulated investment company might be
affected. The Trust intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for a Fund to qualify as a
regulated investment company may limit the extent to which a Fund will be able
to engage in swap agreements.
The 30% limit on gains from the disposition of certain options, futures,
forward contracts, and swap agreements held less than three months and the
qualifying income and diversification requirements applicable to a Fund's assets
may limit the extent to which a Fund will be able to engage in transactions in
options, futures contracts, forward contracts, and swap agreements.
Short Sales
Certain Funds may make short sales of securities. Short sales may increase
the amount of short-term capital gain realized by a Fund, which is taxed as
ordinary income when distributed to shareholders. Moreover, the 30% limit on
gains from the disposition of securities held less than three months may limit
the extent to which a Fund will be able to engage in short sales.
Passive Foreign Investment Companies
Certain Funds may invest in the stock of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC for a taxable year if at
least one-half of its assets constitute investment-type assets or 75% or more of
its gross income is investment-type income. If a Fund receives a so-called
"excess distribution" with respect to PFIC stock, the Fund itself may be subject
to tax on a portion of the excess distribution, whether or not the corre
sponding income is distributed by the Fund to stockholders. In general, under
the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Fund held the PFIC stock. A Fund
itself will be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior taxable years and an interest factor will be added
to the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC stock are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election may be available
that would involve marking to market a Fund's PFIC shares at the end of each
taxable year (and on certain other dates prescribed in the Code), with the
51
<PAGE>
result that unrealized gains are treated as though they were realized. If this
election were made, tax at the Fund level under the PFIC rules would generally
be eliminated, but the Fund could, in limited circumstances, incur nondeductible
interest charges. A Fund's intention to qualify annually as a regulated
investment company may limit its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other things,
the character of gains and the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, and may subject a Fund itself
to tax on certain income from PFIC shares, the amount that must be distributed
to shareholders and will be taxed to shareholders as ordinary income or long-
term capital gain may be increased or decreased substantially as compared to a
fund that did not invest in PFIC shares.
Foreign Currency Transactions
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on disposition of certain
other instruments, gains or losses attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security or contract
and the date of disposition also are treated as ordinary gain or loss. These
gains and losses, referred to under the Code as "section 988" gains or losses,
may increase or decrease the amount of a Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
Foreign Taxation
Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Adviser intends to manage the Funds with the intention
of minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of the PIMCO Foreign Bond, Global Bond, Global Bond
II or International Bond Funds' total assets at the close of their taxable year
consists of securities of foreign corporations, such Fund will be eligible to
elect to "pass-through" to the Fund's shareholders the amount of foreign income
and similar taxes paid by the Fund. If this election is made, a shareholder
generally subject to tax will be required to include in gross income (in
addition to taxable dividends actually received) his pro rata share of the
foreign taxes paid by the Fund, and may be entitled either to deduct (as an
itemized deduction) his or her pro rata share of foreign taxes in computing his
taxable income or to use it (subject to limitations) as a foreign tax credit
against his or her U.S. federal income tax liability. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Each
shareholder will be notified within 60 days after the close of the Fund's
taxable year whether the foreign taxes paid by the Fund will "pass-through" for
that year.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the pass-through election
is made, the source of the PIMCO Foreign Bond, Global Bond, Global Bond II, or
International Bond Funds' income will flow through to shareholders of the Trust.
With respect to such Funds, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency fluctuation gains, including fluc
tuation gains from foreign currency-denominated debt securities, receivables and
payables will be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income, and
52
<PAGE>
to certain other types of income. Shareholders may be unable to claim a credit
for the full amount of their proportionate share of the foreign taxes paid by
the Fund. The foreign tax credit can be used to offset only 90% of the revised
alternative minimum tax imposed on corporations and individuals and foreign
taxes generally are not deductible in computing alternative minimum taxable
income.
Original Issue Discount
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities may be treated as a dividend for Federal
income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. A Fund
may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
A Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Under the laws of
various states, distributions of investment company taxable income generally are
taxable to shareholders even though all or a substantial portion of such distri
butions may be derived from interest on certain federal obligations which, if
the interest were received directly by a resident of such state, would be exempt
from such state's income tax ("qualifying federal obligations"). However, some
states may exempt all or a portion of such distributions from income tax to the
extent the shareholder is able to establish that the distribution is derived
from qualifying federal obligations. Moreover, for state income tax purposes,
interest on some federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on FNMA Certificates
and GNMA Certificates). Each Fund will provide information annually to
shareholders indicating the amount and percentage of a Fund's dividend
distribution which is attri-
53
<PAGE>
butable to interest on federal obligations, and will indicate to the extent
possible from what types of federal obligations such dividends are derived.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under a Declaration
of Trust dated February 19, 1987. The capitalization of the Trust consists
solely of an unlimited number of shares of beneficial interest with a par value
of $0.0001 each. The Board of Trustees may establish additional series (with
different investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional series will not alter the
rights of the Trust's shareholders. When issued, shares are fully paid, non-
assessable, redeemable and freely transferable. Shares do not have preemptive
rights or subscription rights. In liquidation of a Fund, each shareholder is
entitled to receive his pro rata share of the net assets of that Fund.
Expenses incurred by the Trust in connection with its organization and the
public offering of its shares were deferred and amortized on a straight line
basis over a period not less than five years. Expenses incurred in the
organization of subsequently offered Funds are charged to those Funds and are
being amortized on a straight line basis over a period not less than five
years.
Performance Information
The Trust may, from time to time, include the yield and effective yield of
the PIMCO Money Market Fund, and the yield and total return for each class of
shares of all of the Funds, computed in accordance with SEC-prescribed formulas,
in advertisements or reports to shareholders or prospective investors. As noted
below, in accordance with methods approved by the Securities and Exchange
Commission in various pronouncements, total return presentations for periods
prior to the inception date of a particular class of a Fund are based on the
historical performance of an older class of the Fund (specified below) restated
to reflect the 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 administration fees associated with the newer class. All
other things being equal, such higher expenses would have adversely affected
(i.e., reduced) total return for the newer classes by the amount of such higher
expenses compounded over the relevant periods. The Funds also may compute
current distribution rates and use this information in their prospectuses and
statement of additional information, in reports to current shareholders, or in
certain types of sales literature provided to prospective investors.
Current yield for the PIMCO Money Market Fund will be based on the change
in the value of hypothetical investment (exclusive of capital changes) over a
particular 7-day period less a pro-rata share of Fund expenses accrued over that
period (the "base period"), and stated as a percentage of the investment at the
start of the base period (the "base period return"). The base period return is
then annualized by multiplying by 365/7, with the resulting yield figure carried
to at least the nearest hundredth of one percent. "Effective yield" for the
PIMCO Money Market Fund assumes that all dividends received during an annual
period have been reinvested. Calculation of "effective yield" begins with the
same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return +1)/365/7/] - 1
54
<PAGE>
The yield of the PIMCO Money Market Fund for the seven day period ended
September 30, 1996 was 5.39% and 5.13% for the Institutional Class and
Administrative Class, respectively. The effective yield of the PIMCO Money
Market Fund for the seven day period ended September 30, 1996 was 5.54% and
5.26% for the Institutional Class and Administrative Class, respectively. Class
A, B and C shares of the PIMCO Money Market Fund have not previously been
offered.
Quotations of yield for the remaining Funds will be based on all investment
income per share (as defined by the SEC) during a particular 30-day (or one
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and are computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2[( a-b + 1)/6/-1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
For the one month period ended September 30, 1996, the yield of the Funds
was as follows (all numbers are annualized):
<TABLE>
<CAPTION>
Yield for Period
Ended September 30, 1996
------------------------
Fund Institutional Class Administrative Class
---- ------------------- --------------------
<S> <C> <C>
Money Market Fund 5.15% 4.91%
Short-Term Fund 6.09% 5.82%
Low Duration Fund 6.20% 5.95%
Low Duration Fund II 6.16% N/A
High Yield Fund 8.54% 8.23%
Total Return Fund 6.57% 6.32%
Total Return Fund II 6.19% 5.93%
Total Return Fund III 6.12% N/A
Long-Term U.S. Government Fund 6.90% N/A
Foreign Bond Fund 5.70% N/A
Global Bond Fund 5.69% 5.62%
International Bond Fund 5.80% N/A
StocksPLUS Fund 5.77% N/A
Strategic Balanced Fund 6.30% N/A
</TABLE>
Class A, Class B and Class C shares of the Funds have not previously been
offered. For the one month period ended September 30, 1996, the yield of the
Global Bond Fund II which was a series of PAF for such period and reorganized as
a Fund of the Trust on January 17, 1997) was 3.68%, 2.95%, and 2.96%, for Class
A, Class B and Class C, respectively.
Quotations of average annual total return for a Fund or class will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, five and ten
years (up to the life of the Fund), calculated pursuant to the following
formula: P (1 + T)/n/ = ERV (where P = a hypothetical initial payment of
$1,000, T = the average
<PAGE>
annual total return, n = the number of years, and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the period).
Except as noted below all total return figures reflect the deduction of a
proportional share of Fund or class expenses on an annual basis, and assume that
(i) the maximum sales load (or other charges deducted from payments) is deducted
from the initial $1,000 payment and that the maximum contingent deferred sales
charge, if any, is deducted at the times, in the amounts, and under the terms
disclosed in the Prospectuses and (ii) all dividends and distributions are
reinvested when paid. The Funds also may, with respect to certain periods of
less than one year, provide total return information for that period that is
unannualized. Quotations of total return may also be shown for other periods.
Any such information would be accompanied by standardized total return
information.
The table below sets forth the average annual total return of each class of
shares of the following Funds for the periods ended September 30, 1996. As
noted below, total return presentations for periods prior to the inception date
of a particular class are based on the historical performance of Institutional
Class shares restated to reflect the current sales charges (if any) of the newer
class, but not reflecting any higher operating expenses such as 12b-1
distribution and servicing fees, which are paid by all classes except the
Institutional Class (at a maximum rate of 1.00% per annum), and the higher
administration fee charges associated with Class A, Class B, and Class C shares.
All other things being equal, such higher expenses would have adversely affected
(i.e., reduced) total return for the newer classes by the amount of the higher
expenses, compounded over the relevant period.
Total Return for Periods Ended September 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Since Inception Inception Inception
of Fund Date of Date of
Fund Class 1 Year 5 Years (Annualized) Fund Class
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Institutional 5.76% 4.30% 4.46% 01/25/95 01/25/95
Market Administrative 5.50% 4.22% 4.38% 03/01/96
Class A 5.76% 4.30% 4.46% 01/17/97
Class B 0.76% 3.97% 4.46% 01/17/97
Class C 5.76% 4.30% 4.46% 01/17/97
- --------------------------------------------------------------------------------------------------------
Short Term Institutional 7.44% 5.26% 6.54% 10/07/87 10/07/87
Administrative 7.16% 5.20% 6.51% 02/01/96
Class A 5.29% 4.84% 6.31% 01/17/97
Class B 2.44% 4.94% 6.54% 01/17/97
Class C 6.44% 5.26% 6.54% 01/17/97
- --------------------------------------------------------------------------------------------------------
Low Duration Institutional 6.76% 7.00% 8.28% 05/11/87 05/11/87
Administrative 6.50% 6.91% 8.23% 01/03/95
Class A 3.56% 6.35% 7.94% 01/17/97
Class B 1.77% 6.70% 8.28% 01/17/97
Class C 5.76% 7.00% 8.28% 01/17/97
- --------------------------------------------------------------------------------------------------------
Low Institutional 5.88% N/A 6.19% 11/01/91 11/01/91
Duration II Administrative 5.88% 6.19%
Class A 2.70% 5.54% 01/17/97
Class B 0.92% 5.88% 01/17/97
Class C 4.89% 6.19% 01/17/97
- --------------------------------------------------------------------------------------------------------
High Yield Institutional 11.91% N/A 12.74% 12/15/92 12/15/92
Administrative 11.63% 12.65% 01/16/95
Class A 6.87% 11.39% 01/17/97
Class B 6.91% 12.18% 01/17/97
Class C 10.91% 12.74% 01/17/97
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Since Inception Inception Inception
of Fund Date of Date of
Fund Class 1 Year 5 Years (Annualized) Fund Class
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Institutional 6.48% 8.69% 9.72% 05/11/87 05/11/87
Return Administrative 6.32% 8.60% 9.67% 09/08/94
Class A 1.69% 7.69% 9.20% 01/17/97
Class B 1.51% 8.40% 9.72% 01/17/97
Class C 5.49% 8.69% 9.72% 01/17/97
- --------------------------------------------------------------------------------------------------------
Total Institutional 5.40% N/A 7.62% 12/30/91 12/30/91
Return II Administrative 5.03% 7.51% 11/30/94
Class A 0.65% 6.58% 01/17/97
Class B 0.46% 7.30% 01/17/97
Class C 4.41% 7.62% 01/17/97
- --------------------------------------------------------------------------------------------------------
Total Institutional 6.17% 8.69% 9.39% 07/01/91 07/01/91
Return III Administrative 6.17% 8.69% 9.39%
Class A 1.39% 7.71% 8.49% 01/17/97
Class B 1.19% 8.42% 9.29% 01/17/97
Class C 5.17% 8.69% 9.39% 01/17/97
- --------------------------------------------------------------------------------------------------------
Long Term Institutional 2.61% 10.83% 12.08% 07/01/91 07/01/91
U.S. Administrative 2.61% 10.83% 12.08%
Government Class A -1.99% 9.83% 11.13% 01/17/97
Class B 2.15% 10.58% 11.99% 01/17/97
Class C 1.67% 10.83% 12.08% 01/17/97
- --------------------------------------------------------------------------------------------------------
Foreign Institutional 20.84% N/A 11.10% 12/02/92 12/02/92
Bond Administrative 20.84% 11.10%
Class A 15.41% 9.79% 01/17/97
Class B 15.85% 10.53% 01/17/97
Class C 19.85% 11.10% 01/17/97
- --------------------------------------------------------------------------------------------------------
Global Bond Institutional 12.76% N/A 10.30% 11/23/93 11/23/93
Administrative 12.76% 10.30%
Class A 7.69% 8.54% 01/17/97
Class B 7.77% 9.43% 01/17/97
Class C 11.77% 10.30% 01/17/97
- --------------------------------------------------------------------------------------------------------
International Institutional 17.94% 8.78% 8.95% 12/13/89 12/13/89
Bond
- --------------------------------------------------------------------------------------------------------
StocksPLUS Institutional 21.00% N/A 18.68% 05/13/93 05/13/93
Administrative 21.00% 18.68%
Class A 17.37% 17.65% 01/17/97
Class B 16.00% 18.12% 01/17/97
Class C 20.00% 18.68% 01/17/97
- --------------------------------------------------------------------------------------------------------
Strategic Institutional NA N/A 3.50%* 06/28/96 06/28/96
Balanced Administrative 3.50%*
Class A -1.16%* 01/17/97
Class B -1.50%* 01/17/97
Class C 2.50%* 01/17/97
- --------------------------------------------------------------------------------------------------------
</TABLE>
* unannualized
57
<PAGE>
The table below sets forth the average annual total return of each class of
shares of the Global Bond Fund II (which was a series of PAF for the periods
listed prior to its reorganization as a Fund of the Trust on January 17, 1997)
for the periods ended September 30, 1996. Note that total return presentations
for periods prior to the inception date of a particular class are based on the
historical performance of Class A shares restated to reflect the current sales
charges (if any) of the newer class, but not reflecting different operating
expenses such as 12b-1 distribution and servicing fees or administration fee
charges associated with the newer class.
Total Returns for Periods Ended September 30, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
of Fund Date of Date of
Fund Class 1 Year 5 Years 10 Years (Annualized) Fund Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Bond Class A N/A N/A N/A 9.78%* 10/01/95 10/01/95
II Class B 9.49%* 10/01/95
Class C 13.49%* 10/01/95
Institutional 14.95%* 01/17/97
Administrative 14.95%* 01/17/97
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* unannualized
Current distribution information for a Fund will be based on distributions
for a specified period (i.e., total dividends from net investment income),
divided by Fund net asset value per share on the last day of the period and
annualized according to the following formula:
DIVIDEND YIELD = (((a/b)*365)/c)
where a = actual dividends distributed for the calendar month in
question,
b = number of days of dividend declaration in the month in
question, and
c = net asset value (NAV) calculated on the last business day
of the month in question.
The rate of current distributions does not reflect deductions for
unrealized losses from transactions in derivative instruments such as options
and futures, which may reduce total return. Current distribution rates differ
from standardized yield rates in that they represent what a Fund has declared
and paid to shareholders as of the end of a specified period rather than the
Fund's actual net investment income for that same period. Distribution rates
will exclude net realized short-term capital gains. The rate of current
distributions for a Fund should be evaluated in light of these differences and
in light of the Fund's total return figures, which will always accompany any
calculation of the rate of current distributions.
For the month ended September 30, 1996, the current distribution rates
(annualized) for the Funds were as follows:
58
<PAGE>
<TABLE>
<CAPTION>
Distribution Rate
-----------------
Fund Institutional Class Administrative Class
---- ------------------- --------------------
<S> <C> <C>
Money Market Fund 5.17% 4.93%
Short-Term Fund 6.27% 6.01%
Low Duration Fund 6.51% 6.26%
Low Duration Fund II 6.65% N/A
High Yield Fund 8.71% 8.42%
Total Return Fund 6.60% 6.35%
Total Return Fund II 6.45% 6.20%
Total Return Fund III 6.15% N/A
Long-Term U.S. Government Fund 7.43% N/A
Foreign Bond Fund 3.60% N/A
Global Bond Fund 4.76% 4.75%
International Bond Fund N/A N/A
StocksPLUS Fund N/A N/A
</TABLE>
Class A, B and C shares of the Funds have not previously been offered. For the
one month period ended September 30, 1996, the distribution rate of the Global
Bond Fund II which was a series of PAF for such period and reorganized as a Fund
of the Trust on January 17, 1997) was 4.91%, 4.19%, and 4.19%, for Class A,
Class B and Class C, respectively.
Performance information for a Fund may also be compared to various
unmanaged indexes, such as the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Lehman Brothers Aggregate Bond
Index, the Merrill Lynch 1 to 3 Year Treasury Index, the Lehman Intermediate and
20+ Year Treasury Blend Index, the Lehman BB Intermediate Corporate Index,
indexes prepared by Lipper Analytical Services, the J.P. Morgan Global Index,
the Salomon Brothers World Government Bond Index-10 Non U.S.-Dollar Hedged and
the J.P. Morgan Government Bond Index Non U.S.-Dollar Hedged. Unmanaged indexes
(i.e., other than Lipper) generally do not reflect deductions for administrative
and management costs and expenses. PIMCO may report to shareholders or to the
public in advertisements concerning the performance of PIMCO as adviser to
clients other than the Trust, or on the comparative performance or standing of
PIMCO in relation to other money managers. PIMCO also may provide current or
prospective private account clients, in connection with standardized performance
information for the Funds, performance information for the Funds gross of fees
and expenses for the purpose of assisting such clients in evaluating similar
performance information provided by other investment managers or institutions.
Comparative information may be compiled or provided by independent ratings
services or by news organizations. Any performance information, whether related
to the Funds or to the Adviser, should be considered in light of the Funds'
investment objectives and policies, characteristics and quality of the Funds,
and the market conditions during the time period indicated, and should not be
considered to be representative of what may be achieved in the future.
Advertisements and information relating to the PIMCO Global Bond Fund II
may use data comparing the total returns of the top foreign bond market as
compared to the total return of the U.S. bond market for a particular year. For
instance, the following table sets forth the total return of the top foreign
bond market compared to the total return for the U.S. bond market for the years
1986 through 1995. Performance is shown in U.S. dollar terms, hedged for
currency rate changes and is no way indicative of the performance of the PIMCO
Global Bond Fund II.
59
<PAGE>
<TABLE>
<CAPTION>
Top Foreign
Year Performer U.S.
---- ----------- ----
<S> <C> <C>
1986 +13.1% Japan +15.7%
1987 +12.8 UK +1.9
1988 +15.0 France +7.0
1989 +10.0 Canada +14.4
1990 +11.0 Australia +8.6
1991 +20.0 Australia +15.3
1992 +10.5 UK +7.2
1993 +20.0 Italy +11.0
1994 -0.9 Japan -3.4
1995 +21.0 Netherlands +18.3
</TABLE>
Source: Salomon Brothers World Government Bond Index 1985-1995.
The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
1993/1994 costs of college and an assumed rate of increase for such costs. For
example, the table below sets forth the projected cost of four years of college
at a public college and a private college assuming a steady increase in both
cases of 7% per year. In presenting this information, the Trust is making no
prediction regarding what will be the actual growth rate in the cost of a
college education, which may be greater or less than 7% per year and may vary
significantly from year to year. The Trust makes no representation that an
investment in any of the Funds will grow at or above the rate of growth of the
cost of a college education. (Information based on 1994/1995 costs was not
available on the date of this Statement of Additional Information.)
<TABLE>
<CAPTION>
Potential College Cost Table
Start Public Private Start Public Private
Year College College Year College College
- ----- ------- ------- ----- ------- --------
<S> <C> <C> <C> <C> <C>
1996 $33,761 $ 86,035 2004 $58,007 $147,817
1997 $36,124 $ 92,057 2005 $62,067 $158,165
1998 $38,653 $ 98,501 2006 $66,412 $169,237
1999 $41,358 $105,396 2007 $71,061 $181,084
2000 $44,253 $112,774 2008 $76,035 $193,761
2001 $47,351 $120,668 2009 $81,357 $207,325
2002 $50,665 $129,115 2010 $87,051 $221,838
2003 $54,212 $138,146 2011 $93,143 $237,367
</TABLE>
Costs assume a steady increase in the annual cost of college of 7% per year from
a 1993-94 base year amount. Actual rates of increase may be more or less than 7%
and may vary.
In its advertisements and other materials, the Trust may compare the
returns over periods of time of investments in stocks, bonds and treasury bills
to each other and to the general rate of inflation. For example, the average
annual return of each during the 25 years from 1971 to 1995 was:
60
<PAGE>
<TABLE>
<S> <C>
*Stocks: 12.2%
Bonds: 9.6%
T-Bills: 7.2%
Inflation: 5.6%
</TABLE>
*Returns of unmanaged indices do not reflect past or future performance of
any of the Funds of PIMCO Funds: Pacific Investment Management Series. Stocks
are represented by Ibbotson's Common Stock Total Return Index. Bonds are
represented by Ibbotson's Long-term Corporate Bond Index. T-bills are
represented by Ibbotson's Treasury Bill Index and Inflation is represented by
the Cost of Living Index. These are all unmanaged indices, which can not be
invested in directly. While Treasury bills are insured and offer a fixed rate of
return, both the principal and yield of investment securities will fluctuate
with changes in market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989, updated in Stocks,
Bonds, Bills and Inflation 1996 Yearbook, Ibbotson Associates, Chicago. All
rights reserved.
The Trust may also compare the relative historic returns and range of
returns for an investment in each of common stocks, bonds and treasury bills to
a portfolio that blends all three investments. For example, over the 25 years
from 1971-1995, the average annual return of stocks comprising the Ibbotson's
Common Stock Total Return Index ranged from -26.5% to 37.4% while the annual
return of a hypothetical portfolio comprised 40% of such common stocks, 40% of
bonds comprising the Ibbotson's Long-term Corporate bond Index and 20% of
Treasury bills comprising the Ibbottson's Treasury Bill Index (a "mixed
portfolio") would have ranged from -10.2% to 28.2% over the same period. The
average annual returns of each investment for each of the years from 1971
through 1995 is set forth in the following table.
<TABLE>
<CAPTION>
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- ------ ------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1971 14.31% 11.01% 4.39% 3.36% 11.01%
1972 18.98% 7.26% 3.84% 3.41% 11.26%
1973 -14.66% 1.14% 6.93% 8.80% -4.02%
1974 -26.47% -3.06% 8.00% 12.26% -10.21%
1975 37.20% 14.64% 5.80% 7.01% 21.90%
1976 23.84% 18.65% 5.08% 4.81% 18.01%
1977 -7.18% 1.71% 5.12% 6.77% -1.17%
1978 6.56% -0.07% 7.18% 9.03% 4.03%
1979 18.44% -4.18% 10.38% 13.31% 7.78%
1980 32.42% 2.61% 11.24% 12.40% 14.17%
1981 -4.91% -0.96% 14.71% 8.94% 0.59%
1982 21.41% 43.79% 10.54% .387% 28.19%
1983 22.51% 4.70% 8.80% 3.80% 12.64%
1984 6.27% 16.39% 9.85% 3.95% 11.03%
1985 32.16% 30.90% 7.72% 3.77% 26.77%
1986 18.47% 19.85% 6.16% 1.13% 16.56%
1987 5.23% -0.27% 5.46% 4.41% 3.08%
1988 16.81% 10.70% 6.35% 4.42% 12.28%
1989 31.49% 16.23% 8.37% 4.65% 20.76%
1990 -3.17% 6.87% 7.52% 6.11% 2.98%
1991 30.55% 19.79% 5.88% 3.06% 21.31%
1992 7.67% 9.39% 3.51% 2.90% 7.53%
1993 10.06% 13.17% 2.89% 2.75% 9.84%
1994 1.31% -5.76% 3.90% 2.67% -1.00%
1995 37.40% 27.20% 5.60% 2.70% 26.90%
</TABLE>
61
<PAGE>
*Returns of unmanaged indices do not reflect past or future performance of
any of the Funds of PIMCO Funds: Pacific Investment Management Series.
Stocks are represented by Ibbotson's Common Stock Total Return Index. Bonds
are represented by Ibbotson's Long-term Corporate Bond Index. T'bills are
represented by Ibbotson's Treasury Bill Index and Inflation is represented
by the Cost of Living Index. These are all unmanaged indices, which can not
be invested in directly. While Treasury bills are insured and offer a fixed
rate of return, both the principal and yield of investment securities will
fluctuate with changes in market conditions. Source: Ibbotson, Roger G.,
and Rex A. Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989,
updated in Stocks, Bonds, Bills and Inflation 1996 Yearbook, Ibbotson
Associates, Chicago. All rights reserved.
The Trust may use in its advertisement and other materials examples
designed to demonstrate the effect of compounding when an investment is
maintained over several or many years. For example, the following table shows
the annual and total contributions necessary to accumulate $200,000 of savings
(assuming a fixed rate of return) over various periods of time:
<TABLE>
<CAPTION>
Investment Annual Total Total
Period Contribution Contribution Saved
----------- ------------ ------------ --------
<S> <C> <C> <C>
30 Years $ 1,979 $ 59,370 $200,000
25 Years $ 2,955 $ 73,875 $200,000
20 Years $ 4,559 $ 91,180 $200,000
15 Years $ 7,438 $111,570 $200,000
10 Years $13,529 $135,290 $200,000
</TABLE>
This hypothetical example assumes a fixed 7% return compounded annually and
a guaranteed return of principal. The example is intended to show the
benefits of a long-term, regular investment program, and is in no way
representative of any past or future performance of a PIMCO Fund. There can
be no guarantee that you will be able to find an investment that would
provide such a return at the times you invest and an investor in any of the
PIMCO Funds should be aware that certain of the PIMCO Funds have
experienced periods of negative growth in the past and may again in the
future.
The Trust may set forth in its advertisements and other materials
information regarding the relative reliance in recent years on personal savings
for retirement income versus reliance on Social Security benefits and company
sponsored retirement plans. For example, the following table offers such
information for 1990:
% of Income for Individuals
Aged 65 Years and Older in 1990*
--------------------------------
Social Security
Year and Pension Plans Other
- ---- ------------------ -----
1990 38% 62%
* For individuals with an annual income of at least $51,000. Other includes
personal savings, earnings and other undisclosed sources of income. Source:
Social Security Administration.
62
<PAGE>
Articles or reports which include information relating to performance,
rankings and other characteristics of the Funds may appear in various national
publications and services including, but not limited to: The Wall Street
Journal, Barron's, Pensions and Investments, Forbes, Smart Money, Mutual Fund
Magazine, The New York Times, Kiplinger's Personal Finance, Fortune, Money
Magazine, Morningstar's Mutual Fund Values, CDA Investment Technologies and The
Donoghue Organization. Some or all of these publications or reports may publish
their own rankings or performance reviews of mutual funds, including the Funds,
and may provide information relating to the Adviser, including descriptions of
assets under management and client base, and opinions of the author(s) regarding
the skills of personnel and employees of the Adviser who have portfolio
management responsibility. From time to time, the Trust may include references
to or reprints of such publications or reports in its advertisements and other
information relating to the Funds.
From time to time, the Trust may set forth in its advertisements and other
materials information about the growth of a certain dollar-amount invested in
one or more of the Funds over a specified period of time and may use charts and
graphs to display that growth.
Ibbotson Associates ("Ibbotson") has analyzed the risk and returns of the
Funds and relevant benchmark market indexes in a variety of market conditions.
Based on its independent research and analysis, Ibbotson has developed model
portfolios of the Fund and series of PIMCO Funds: Multi-Manager Series ("MMS")
which indicate how, in Ibbotson's opinion, a hypothetical investor with a 5+
year investment horizon might allocate his or her assets among the Funds and
series of MMS. Ibbotson bases its model portfolios on five levels of investor
risk tolerance which it developed and defines as ranging from "Very
Conservative" (low volatility; emphasis on capital preservation, with some
growth potential) to "Very Aggressive" (high volatility; emphasis on long-term
growth potential). However, neither Ibbbotson nor the Trust offers Ibbotson's
model portfolios as investments. Moreover, neither the Trust, the Adviser nor
Ibbotson represent or guarantee that investors who allocate their assets
according to Ibbotson's models will achieve their desired investment results.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold annual
meetings of Trust shareholders to elect Trustees or for other purposes. It is
not anticipated that the Trust will hold shareholders' meetings unless required
by law or the Declaration of Trust. In this regard, the Trust will be required
to hold a meeting to elect Trustees to fill any existing vacancies on the Board
if, at any time, fewer than a majority of the Trustees have been elected by the
shareholders of the Trust. In addition, the Declaration of Trust provides that
the holders of not less than two-thirds of the outstanding shares of the Trust
may remove a person serving as Trustee either by declaration in writing or at a
meeting called for such purpose. The Trustees are required to call a meeting
for the purpose of considering the removal of a person serving as Trustee if
requested in writing to do so by the holders of not less than ten percent of the
outstanding shares of the Trust. In the event that such a request was made, the
Trust has represented that it would assist with any necessary shareholder
communications. Shareholders of a class of shares have different voting rights
with respect to matters that affect only that class.
The Trust's shares do not have cumulative voting rights, so that the holder
of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Certain Ownership of Trust Shares
As of December 17, 1996, the following persons owned of record or
beneficially 5% or more of the shares of the following Funds:
63
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- -------------
<S> <C> <C>
Money Market Fund
Institutional Class
- -------------------
California Community Foundation 9,920,332.810 41.67%*
606 South Olive Street, Suite 2400
Los Angeles, California 90014
Marin Community Foundation 7,910,697.260 33.23%*
17 East Sir Frances Drake Blvd., Suite 200
Los Angeles, California 94939
PIMCO Advisors L.P. 2,087,181.380 8.77%
800 Newport Center Drive
Newport Beach, CA 92660
Administrative Class
- --------------------
IFTC as Trustee for 9,747.830 100.00%*
Godwins 401(k)
127 West 10th Street, 11th Floor
Kansas City, Missouri 64105-1716
Short-Term Fund
Institutional Class
- -------------------
Hawaii Carpenters Health & Welfare 1,275,791.492 10.79%
615 Pilkoi Street
Honolulu, Hawaii 96814
Charles Schwab & Co., Inc.** 1,010,238.637 8.54%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Denison University 999,755.327 8.45%
P.O. Box F
Granville, Ohio 43023
NBD, FBO 849,292.740 7.18%
Indianapolis Symphony Orchestra
Post Office Box 771072
Detroit, Michigan 48277-1072
Sandra Smith Dompier 680,416.738 5.75%
1900 West Loop South, Suite 1050
Houston, Texas 77027
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- -------------
<S> <C> <C>
TelePad Corporation 662,090.151 5.60%
380 Herndon Parkway, Suite 1900
Herndon, Virginia 22070
Donaldson Lufkin Jenrette 638,840.299 5.40%
1 Pershing Plaza, 5th Floor
P.O. Box 2052
Jersey City, New Jersey 07303
Los Angeles Orthopedic Foundation 622,029.903 5.26%
2400 South Flower Street
Los Angeles, California 90007
Administrative Class
- --------------------
Northwestern Trust 508,507.868 93.65%*
1202 Third Avenue
Seattle, Washington 98101
Frost National Bank as Trustee for 34,479.482 6.35%
Lau & Co.
100 West Houston
San Antonio, Texas 78296
Low Duration Fund
Institutional Class
- -------------------
Charles Schwab & Co., Inc.** 25,839,970.228 9.17%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Administrative Class
- --------------------
Frost National Bank as Trustee for 243,707.018 47.53%*
Lau & Co.
100 West Houston
San Antonio, Texas 78296
First Interstate bank as Trustee for 166,931.663 32.56%*
Choicemaster
P.O. Box 9800
Calabasas, California 91302
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- -------------
<S> <C> <C>
FIIOC as Agent for 42,988.166 8.38%
Certain Employee Benefits Plan
100 Magetian KW1C
Covington, Kentucky 41015
Melrose-Wakefield Hospital 30,656.741 5.98%
585 Lebannon Street
Melrose, Massachusetts 02176
Low Duration Fund II
Institutional Class
- -------------------
Sprint Corporation 8,741,025.208 30.14%*
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
Health Cleveland 2,494,105.104 8.60%
18101 Lorain Avenue
Cleveland, Ohio 44111
Salt River Project 2,112,458.810 7.28%
P.O. Box 52025
Phoenix, Arizona 85072
University of Illinois Foundation 1,813,334.114 6.25%
1305 West Green Street
Urbana, Illinois 61801
Northwest Administrators Inc. 1,580,911.543 5.45%
Washington Teamsters Welfare Trust
2323 Eastlake Avenue, E
Seattle, Washington 98102
Houston Carpenters 1,558,732.442 5.37%
4600 Gulf Freeway
Houston, Texas 77023
High Yield Fund
Institutional Class
- -------------------
Charles Schwab & Co., Inc. ** 10,399,595.090 14.67%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- -------------
<S> <C> <C>
Administrative Class
- --------------------
FIIOC as Agent for 369,919.265 57.22%*
Certain Employee Benefits Plan
100 Magetian KW1C
Covington, Kentucky 41015
Northwestern Trust and Investors Advisory Co. 160,151.949 24.77%
1201 Third Avenue, Suite 2010
Seattle, Washington 98101
Siefker Charitable Remainder Unitrust 93,704.453 14.49%
1106 Richman Knoll
Fullerton, California 92635
Total Return Fund
Institutional Class
- -------------------
Charles Schwab & Co., Inc.** 63,417,956.724 5.47%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Administrative Class
- --------------------
American Express Institutional Services 2,369,002.101 16.44%
P.O. Box 489
Minneapolis, Minnesota 55440-0489
FIIOC as Agent for 2,338,551.809 16.23%
Certain Employee Benefits Plan
100 Magetian KW1C
Covington, Kentucky 41015
Stockton Nominee Partnership 1,347,545.467 9.35%
c/o Stockton Trust, Inc.
3001 East Camelback Road, Suite 100
Phoenix, Arizona 85016
University of South Dakota Foundation 1,306,773.919 9.07%
414 East Clark
Alumni Foundation Center
Vermillion, South Dakota 57069
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- -------------
<S> <C> <C>
Total Return Fund II
Institutional Class
- -------------------
Pacific Mutual as Trustee for 11,323,943.642 24.53%
City of Fort Worth
700 Newport Center Drive
Newport Beach, California 92660
Pacific Mutual as Trustee for 7,584,103.581 16.43%
Carpenters Trust of Western Washington
700 Newport Center Drive
Newport Beach, California 92660
Arco 3,700,143.557 8.02%
c/o State Street Bank
One Enterprise Drive
North Quincy, MA 02171
Pacific Mutual as Trustee for 2,848,027.844 6.16%
CMTA-GMPP & Allied Workers Pension
700 Newport Center Drive
Newport Beach, California 92660
GMP & Employers 2,636,707.033 5.71%
c/o Smith Barney
312 Walnut Street, Suite 1700
Cincinnati, Ohio 45202
Pacific Mutual as Trustee for 2,529,339.549 5.48%
Carpenters District Council of Houston
700 Newport Center Drive
Newport Beach, California 92660
Administrative Class
- --------------------
Eastern Illinois University Foundation 406,642.323 88.62%*
600 Lincoln Avenue
Charleston, Illinois 61920
Godwins 401(k) 40,672.416 8.86%
c/o IFTC
127 West 10th Street
Kansas City, Missouri 64105-1708
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- -------------
<S> <C> <C>
Total Return Fund III
Institutional Class
- -------------------
The Roman Catholic Archdiocese 7,702,672.010 36.84%*
of Los Angeles
3424 Wilshire Boulevard
Los Angeles, California 90010-2241
Holy Cross 3,194,681.141 15.28%
St. Mary's Lourdes Hall
Notre Dame, Indiana 46556
Diocese of Orange 2,691,280.735 12.87%
2811 East Villa Road
Orange, California 92667
Catholic Diocese of Wilmington 1,854,415.630 8.87%
P.O. Box 2030
Wilmington, Delaware 19899
Society of Mount Carmel 1,345,714.075 6.43%
1317 Frontage Road
Darien, Illinois 60561
Sisters of St. Joseph 1,064,554.477 5.09%
3427 Gull Road
Nazareth, Michigan 49074
Long-Term U.S. Government Fund
Institutional Class
- -------------------
Wendel & Co. 883,539.111 41.50%*
P.O. Box 1066
New York, New York 10268
Charles Schwab & Co. Inc. ** 372,307.244 17.49%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
The J. Paul Getty Trust 271,176.111 12.74%
401 Wilshire Blvd., Suite 900
Santa Monica, CA 90401
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- -------------
<S> <C> <C>
Donaldson Lufkin Jenrette 126,143.139 5.92%
1 Pershing Plaza, 5th Floor
P.O. Box 2052
Jersey City, New Jersey 07303
Stussy, Inc. 118,340.701 5.56%
1852 Langley Avenue
Irvine, California 92714
FTC & Co. 117,052.878 5.50%
Attn: Datalynx
P.O. Box 173736
Denver, Colorado 80217
Foreign Bond Fund
Institutional Class
- -------------------
Charles Schwab & Co., Inc.** 8,102,865.914 44.57%*
The Schwab Building
101 Montgomery Street
San Francisco, CA 94104
Donaldson, Lufkin & Jenrette** 4,875,402.044 26.82%*
1 Pershing Plaza
Post Office Box 2052
Jersey City, New Jersey 07399
Wachovia Bank & Trust Co., FBO 1,212,759.138 6.67%
Mead Corporation
Post Office Box 3075
Winston-Salem, North Carolina 27150
Global Bond Fund
Institutional Class
- -------------------
Walker Art Center 2,732,107.200 15.57%
Vineland Place
Minneapolis, Minnesota 55403
Georgetown University 2,631,718.193 15.00%
3600 M Street, N.W.
Washington, DC 20007
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- -------------
<S> <C> <C>
Charles Schwab & Co., Inc. ** 1,488,000.066 8.48%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Brockton Hospital 1,018,506.673 5.80%
680 Centre Street
Brockton, Massachusetts 02402-3395
Pittsburgh Theological Seminary 977,247.206 5.57%
616 North Highland Avenue
Pittsburgh, Pennsylvania 15206-2596
Hudson-Webber Foundation 924,042.424 5.27%
333 West Fort Street, Suite 1210
Detroit, Michigan 48226
Administrative Class
- --------------------
Stocktontrust Nominee Partnership 22,529.977 74.39%*
c/o Stockton Trust, Inc.
3001 East Camelback Road, Suite 100
Phoenix, Arizona 85016
FIIOC as Agent for 7,754.464 25.61%*
Certain Employee Benefits Plan
100 Magetian KW1C
Covington, Kentucky 41015
Global Bond Fund II***
Class A
- -------
Pacific Financial Asset 406,542.056 56.42%*
Management Corporation
700 Newport Beach Drive
Newport Beach, California 92660
Class B
- -------
Merrill Lynch Pierce Fenner 144,026.000 48.57%*
& Smith Inc.**
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Owned Shares Owned
----- -------------
<S> <C> <C>
Class C
- -------
Merrill Lynch Pierce Fenner 16,623.755 20.87%
& Smith Inc.**
Attn: Book Entry Department
4800 Deer Lake Drive E., Fl. 3
Jacksonville, Florida 32246-6484
StocksPLUS Fund
Institutional Class
- -------------------
Sisters of St. Benedict 2,083,703.903 11.99%
c/o Norwest Bank
Sixth & Marquette Avenue
Minneapolis, Minnesota 55479
Iowa Methodist 1,708,223.541 10.24%
1200 Pleasant Street
Des Moines, Iowa 50309
Ziff Communications 986,779.741 5.68%
c/o Bank of New York
One Wall Street, 7th Floor
New York, New York 10286
Charles Schwab & Co., Inc. ** 931,337.289 5.36%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Strategic Balanced Fund
Institutional Class
- -------------------
Pacific Financial Asset 1,000,000.000 99.69%*
Management Corporation
700 Newport Center Drive
Newport Beach, California 92660
</TABLE>
- --------------------
*Entity owned 25% or more of the outstanding shares of beneficial interest
of the Fund, and therefore may be presumed to "control" the Fund, as that term
is defined in the 1940 Act.
**Shares are held only as nominee.
***The Fund was a series of PAF as of December 31, 1996 and reorganized as
a Fund of the Trust on January 17, 1997.
72
<PAGE>
As of December 17, 1996, the Trustees and Officers of the Trust, as a
group, owned less than 1% of the outstanding shares of the Funds.
The Reorganization of the PIMCO Money Market and Total Return II Funds
On November 1, 1995, the Money Market Fund and the PIMCO Managed Bond and
Income Fund, two former series of PIMCO Funds: Equity Advisors Series, were
reorganized as series of the Trust, and were renamed PIMCO Money Market Fund and
PIMCO Total Return Fund II, respectively. All information presented for these
Funds prior to this date represents their operational history as series of PIMCO
Funds: Equity Advisors Series. In connection with the Reorganization, the
Funds changed their fiscal year end from October 31 to March 31.
The Reorganization of the PIMCO Global Bond Fund II
On January 17, 1997, the Global Income Fund, a former series of PIMCO
Advisors Funds, was reorganized as a series of the Trust, and was renamed the
PIMCO Global Bond Fund II. All information presented for this Fund prior to
this date represents its operational history as a series of PIMCO Advisors
Funds. In connection with the Reorganization, the Fund changed its fiscal year
end from September 30 to March 31.
Code of Ethics
The Trust and PIMCO have each adopted a Code of Ethics governing personal
trading activities of all Trustees and officers of the Trust, and Directors,
officers and employees of PIMCO who, in connection with their regular functions,
play a role in the recommendation of any purchase or sale of a security by the
Trust or obtain information pertaining to such purchase or sale or who have the
power to influence the management or policies of the Trust or PIMCO. Such
persons are prohibited from effecting certain transactions, allowed to effect
certain exempt transactions, required to preclear certain security transactions
with PIMCO's Compliance Officer or his designee and to report certain
transactions on a regular basis. PIMCO has developed procedures for
administration of the Codes.
Custodian, Transfer Agent and Dividend Disbursing Agent
Investors Fiduciary Trust Company ("IFTC") 127 West 10th Street, Kansas
City, Missouri 64105 serves as custodian for assets of all Funds, and also
serves as transfer agent and dividend disbursing agent for the Institutional
Class and Administrative Class shares of the Funds. Shareholder Services, Inc.,
P.O. Box 5866, Denver, Colorado 80217 serves as transfer agent and dividend
disbursing agent for the Class A, Class B and Class C shares of the Funds.
Pursuant to a sub-custody agreement between IFTC and The Chase Manhattan Bank,
N.A. ("Chase"), Chase serves as subcustodian of the Trust for the custody of the
foreign securities acquired by those Funds that invest in foreign securities.
Under the agreement, Chase may hold the foreign securities at its principal
office at One Chase Manhattan Plaza, New York, New York 10081, and at Chase's
branches, and subject to approval by the Board of Trustees, at a foreign branch
of a qualified U.S. bank, with an eligible foreign subcustodian, or with an
eligible foreign securities depository.
Pursuant to rules adopted under the 1940 Act, the Trust may maintain
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board of Trustees following a consideration of a number of factors,
including (but not limited to) the reliability and financial stability of the
institution; the ability of the institution to perform capably custodial
services for the Trust; the reputation of the
73
<PAGE>
institution in its national market; the political and economic stability of the
country in which the institution is located; and further risks of potential
nationali zation or expropriation of Trust assets. The Board of Trustees reviews
annually the continuance of foreign custodial arrangements for the Trust. No
assurance can be given that the Trustees' appraisal of the risks in connection
with foreign custodial arrangements will always be correct or that
expropriation, nationalization, freezes, or confiscation of assets that would
impact assets of the Funds will not occur, and shareholders bear the risk of
losses arising from these or other events.
Independent Accountants
Price Waterhouse LLP, 1055 Broadway, Kansas City, MO 64105, serves as
independent public accountants for all Funds. Price Waterhouse LLP provides
audit services, tax return preparation and assistance and consultation in
connection with review of SEC filings. Prior to November 1, 1995, Deloitte &
Touche LLP served as independent accountants for the PIMCO Money Market and
Total Return II Funds. See "The Reorganization of the PIMCO Money Market and
Total Return II Funds" for additional information. Prior to October 1, 1996,
Coopers & Lybrand LLP served as independent accountants for the PIMCO Global
Bond Fund II. See "The Reorganization of the PIMCO Global Bond Fund II" for
additional information.
Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, passes
upon certain legal matters in connection with the shares offered by the Trust,
and also act as counsel to the Trust.
Registration Statement
This Statement of Additional Information and the Prospectuses do not
contain all of the information included in the Trust's registration statement
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statement, including the exhibits
filed therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectuses as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
Financial Statements
Financial statements for the Trust, for all series except the PIMCO Global
Bond Fund II, as of March 31, 1996 for its fiscal year then ended, including
notes thereto, and the reports of Price Waterhouse LLP thereon dated May 10,
1996, are incorporated by reference from the Trust's 1996 Annual Report.
Financial statements for the Trust as of September 30, 1996, including notes
thereto, are incorporated by reference from the Trust's 1996 Semi-Annual Report,
which is unaudited. Financial Statements for the PIMCO Global Bond Fund II
(prior to January 17, 1997, the Global Income Fund) as of September 30, 1996,
for its fiscal year then ended, including the related notes thereto, and the
report of Coopers & Lybrand LLP on the financial statements of PIMCO Advisors
Funds, as of and for its fiscal year then ended, dated November 22, 1996, is
incorporated by reference from the 1996 Annual Report of PIMCO Advisors Funds.
A copy of the Annual Reports and Semi-Annual Report delivered with this
Statement of Additional Information should be retained for future reference.
74
<PAGE>
PART C. OTHER INFORMATION
--------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial statements for the Trust as of March 31, 1996, and for its
fiscal year then ended, including notes thereto, and the reports of
Price Waterhouse LLP thereon, dated May 10, 1996 are incorporated by
reference from the Annual Report. Financial Statements for the Trust
as of September 30, 1996, including the notes thereto, are
incorporated by reference from the Semi-Annual Report. Financial
statements for the Global Bond Fund II (prior to January 17, 1997, the
Global Income Fund) as of September 30, 1996, for its fiscal year then
ended, including notes thereto and a related report of Coopers &
Lybrand L.L.P. thereon, dated November 22, 1996 are incorporated by
reference in the Statement of Additional Information from the Annual
Report of PIMCO Advisors Funds dated as of September 30, 1996.
(b) Exhibits
(1) (i) Declaration of Trust of Registrant/1/
(ii) Establishment and Designation of Global, Foreign, Low Duration
South Africa Free and Total Return South Africa Free Portfolios
as Series of Registrant/5/
(iii) Establishment and Designation of High Yield, Low Duration II
and Total Return II Portfolios as Series of Registrant/6/
(iv) Establishment and Designation of Income and Capital Preservation
Portfolio I and Income and Capital Preservation Portfolio II as
Series of Registrant/7/
(v) Amended and Restated Establishment and Designation of Series of
Shares of Registrant/8/
(vi) Amended Designation of Two Series of Registrant/8/
(vii) Second Amended and Restated Establishment and Designation of
Series of Shares of Registrant/9/
(viii) Establishment and Designation of Moderate Duration and
VersaSTYLE Equity Funds as Series of Registrant/10/
(ix) Amended Designation of Two Series of Registrant/14/
(x) Establishment and Designation of StocksPLUS Short Strategy
Fund as Series of Registrant/15/
(xi) Redesignation of One Existing Series and Establishment and
Designation of Two New Series of Registrant/16/
(xii) Form of Redesignation of One Series of Registrant/17/
<PAGE>
(xiii) Establishment and Designation of One Additional Series of
Shares and Amended and Restated Establishment and Designation of
Series of Shares of Registrant
(xiv) Amended Designation of Five Existing Series of Registrant
(xv) Establishment and Designation of One Additional Series of Shares
of Registrant
(2) By-laws of Registrant/1/
(3) Not applicable
(4) Not applicable
(5) (i) Investment Advisory Contract/2/
(ii) Supplements to Investment Advisory Contract Relating to Global,
Foreign, Low Duration South Africa Free and Total Return South
Africa Free Portfolios/5/
(iii) Supplements to Investment Advisory Contract Relating to
High Yield, Low Duration II and Total Return II Portfolios/6/
(iv) Supplements to Investment Advisory Contract Relating to Income
and Capital Preservation Portfolio I and Income and Capital
Preservation Portfolio II/7/
(v) Form of Supplements to Investment Advisory Contract Relating
to Moderate Duration Fund and VersaSTYLE Equity Fund/10/
(vi) Form of Amended Investment Advisory Contract/11/
(vii) Form of Supplement to Investment Advisory Contract/12/
(viii) Form of Supplement to Investment Advisory Contract Relating to
StocksPLUS Short Strategy Fund/15/
(ix) Supplements to Investment Advisory Contract/16/
(x) Form of Supplement to Investment Advisory Contract Relating to
Global Bond Fund II
(xi) Form of Supplement to Investment Advisory Contract Relating to
Real Return Bond Fund
(6) (i) Distribution Contract/2/
(ii) Supplement to Distribution Contract Relating to Global, Foreign,
Low Duration South Africa Free and Total Return South Africa
Free Portfolios/5/
- 2 -
<PAGE>
(iii) Supplement to Distribution Contract Relating to High Yield, Low
Duration II and Total Return II Portfolios/6/
(iv) Supplements to Distribution Contract Relating to Income and
Capital Preservation Portfolio I and Income and Capital
Preservation Portfolio II/7/
(v) Form of Distribution Contract as Amended May 31, 1994/9/
(vi) Form of Supplements to Distribution Contract Relating to
Moderate Duration Fund and VersaSTYLE Equity Fund/10/
(vii) Form of Amended Distribution Contract/11/
(viii) Form of Supplement to Distribution Contract Relating to
StocksPLUS Short Strategy Fund/15/
(ix) Supplements to Distribution Contract/16/
(x) Form of Distribution Contract/18/
(xi) Form of Supplement to Distribution Contract Relating to Real
Return Bond Fund
(7) Not applicable
(8) Custodian Agreement/4/
(9) (i) Transfer Agency Agreement/4/
(ii) Form of Transfer Agency Agreement with Shareholder Services,
Inc./19/
(10) (i) Opinion of Counsel/13/
(ii) Consent of Counsel/3/
(11) (i) Consent of Price Waterhouse LLP
(ii) Consent of Coopers & Lybrand L.L.P.
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) (i) Form of Distribution Plan for Administrative Class Shares/9/
(ii) Administrative Services Contract/2/
(iii) Supplements to Administrative Services Contract relating to
Global, Foreign, Low Duration South Africa Free and Total Return
South Africa Free Portfolios/5/
- 3 -
<PAGE>
(iv) Supplement to Administrative Services Contract Relating to High
Yield, Low Duration II and Total Return II Portfolios/6/
(v) Supplements to Administrative Services Contract Relating to
Income and Capital Preservation Portfolio I and Income and
Capital Preservation Portfolio II/7/
(vi) Form of Administrative Services Plan for Administrative Class
Shares/9/
(vii) Form of Supplements to Administrative Services Contract Relating
to Moderate Duration Fund and VersaSTYLE Equity Fund/10/
(viii) Form of Amended Administrative Services Contract/11/
(ix) Form of Amended Administrative Services Contract/12/
(x) Form of Supplement to Administration Agreement Relating to
StocksPLUS Short Strategy Fund/16/
(xi) Supplements to Administration Agreement/16/
(xii) Form of Amendment to Administration Agreement/18/
(xiii) Form of Amendment to Administration Agreement
(xiv) Form of Administration Agreement between PIMCO Advisors L.P. and
Pacific Investment Management Company /20/
(xv) Form of Distribution and Servicing Plan for Class A
shares/18/
(xvi) Form of Distribution and Servicing Plan for Class B
shares/18/
(xvii) Form of Distribution and Servicing Plan for Class C
shares/18/
(16) Calculation of Performance/12/
(17) Financial Data Schedule
(18) (i) Dual-Class Plan/12/
(ii) Amended Dual-Class Plan/16/
(iii) Amended and Restated Multi-Class Plan adopted pursuant to
Rule 18f-3/18/
- 4 -
<PAGE>
/1/ Filed with initial Registration Statement on February 19, 1987
(File No. 33-12113).
/2/ Filed with Pre-Effective Amendment No. 2 on April 21, 1987.
/3/ Filed with Pre-Effective Amendment No. 4 on May 5, 1987.
/4/ Filed with Post-Effective Amendment No. 3 on August 1, 1988.
/5/ Filed with Post-Effective Amendment No. 8 on August 3, 1990.
/6/ Filed with Post-Effective Amendment No. 10 on May 31, 1991.
/7/ Filed with Post-Effective Amendment No. 12 on August 29, 1991.
/8/ Filed with Post-Effective Amendment No. 15 on June 1, 1992.
/9/ Filed with Post-Effective Amendment No. 20 on June 1, 1994.
/10/ Filed with Post-Effective Amendment No. 21 on August 1, 1994.
/11/ Filed with Post-Effective Amendment No. 22 on November 30, 1994.
/12/ Filed with Post-Effective Amendment No. 23 on June 1, 1995.
/13/ Filed with Registrant's Rule 24f-2 Notice.
/14/ Filed with Post-Effective Amendment No. 24 on July 31, 1995.
/15/ Filed with Post-Effective Amendment No. 27 on January 16, 1996.
/16/ Filed with Post-Effective Amendment No. 28 on April 1, 1996.
/17/ Filed with Post-Effective Amendment No. 29 on June 14, 1996.
/18/ Filed with Registration Statement on Form N-14 (File No. 333-12871) on
September 27, 1996.
/19/ Filed with Post Effective Amendment No. 33 to the Registration Statement
of PIMCO Advisors Funds (File No. 2-87203) on November 30, 1995.
/20/ Filed with Post Effective Amendment No. 25 to the Registration Statement
of PIMCO Funds: Equity Advisors Series (File No. 33-36528) on January 13,
1997.
- 5 -
<PAGE>
Item 25. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
No person is controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
-------------------------------
As of December 17, 1996, the number of record holders of each Fund and
Class thereof of the Registrant were as follows:
<TABLE>
<CAPTION>
Class
-----
Institutional Administrative A B C
------------- -------------- - - -
Fund
----
<S> <C> <C> <C><C><C>
Money Market 185 1 0 0 0
Short-Term 109 2 0 0 0
Low Duration 546 7 0 0 0
Low Duration II 49 0 0 0 0
Low Duration III 0 0 0 0 0
Moderate Duration 0 0 0 0 0
High Yield 127 5 0 0 0
Total Return 1234 43 0 0 0
Total Return II 178 7 0 0 0
Total Return III 22 0 0 0 0
Commercial Mortgage
Securities 0 0 0 0 0
Long-Term U.S. Government 20 0 0 0 0
Foreign Bond 51 0 0 0 0
Global Bond 43 2 0 0 0
Global Bond II 0 0 0 0 0
International Bond 111 0 0 0 0
StocksPLUS 53 0 0 0 0
StocksPLUS Short Strategy 0 0 0 0 0
Strategic Balanced 4 0 0 0 0
</TABLE>
Item 27. Indemnification
---------------
Reference is made to Article IV of the Registrant's Declaration of
Trust, which was filed with the Registrant's initial Registration
Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant by the Registrant pursuant to
the Declaration of Trust or otherwise, the Registrant is aware that in
the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and,
- 6 -
<PAGE>
public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by trustees, officers or controlling persons of the
Registrant in connection with the successful defense of any act, suit
or proceeding) is asserted by such trustees, officers or controlling
persons in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
PIMCO, the investment adviser to the Trust, is a subsidiary
partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). The general
partner of PIMCO Advisors is PIMCO Partners, G.P., a general
partnership between Pacific Investment Management Company, an indirect
wholly-owned subsidiary of Pacific Mutual Life Insurance Company
("Pacific Mutual"), and PIMCO Partners LLC, a limited liability
company controlled by the PIMCO Managing Directors.
The directors and officers of PIMCO and their business and other
connections are as follow:
Name Business and Other Connections
- ---- ------------------------------
Allan, George C. Vice President, PIMCO and PIMCO Management, Inc.
Arnold, Tamara J. Vice President, PIMCO and PIMCO Management, Inc.
Barbi, Leslie A. Vice President, PIMCO and PIMCO Management, Inc.
Benz, William R. II Executive Vice President, PIMCO and PIMCO
Management, Inc.
Brynjolfsson, John B. Vice President, PIMCO and PIMCO Management, Inc.
- 7 -
<PAGE>
Name Business and Other Connections
- ---- ------------------------------
Burns, R. Wesley Executive Vice President, PIMCO and PIMCO
Management, Inc.; President of the Trust and PIMCO
Commercial Mortgage Securities Trust, Inc.; Executive
Vice President, PIMCO Funds: Multi-Manager Series;
Vice President Cash Accumulation Trust.
Cupps, Wendy W. Vice President, PIMCO and PIMCO Management, Inc.
Daniels, Charles M. III Executive Vice President, PIMCO and PIMCO
Management, Inc.
Dunn, Anita Vice President, PIMCO and PIMCO Management, Inc.
Edington, David H. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Director: Stocks
Plus Management, Inc.; Member of PIMCO Partners
LLC.
Ehlert, A. Benjamin Executive Vice President, PIMCO and PIMCO
Management, Inc.
Ettl, Robert A. Vice President, PIMCO and PIMCO Management, Inc.
Fitzgerald, Robert M. Treasurer, PIMCO, PIMCO Management, Inc., Cadence
Capital Management, Inc., NFJ Management, Inc.,
Parametric Management Inc., and StocksPLUS Management
Inc.; Assistant Treasurer Cadence Capital Management;
Senior Vice President, Finance and Controller,
Columbus Circle Investors and Columbus Circle
Investors Management Inc.; Chief Financial Officer,
Senior Vice President-Finance and Controller, PIMCO
Advisors and PIMCO Funds Distribution Company.
Gross, William H. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Senior Vice
President of the Trust; Member of Equity and
Operating Boards, PIMCO Advisors; Member of PIMCO
Partners LLC.
Hague, John L. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Hally, Gordon C. Executive Vice President, PIMCO and PIMCO
Management, Inc.
Hamalainen, Pasi M. Vice President, PIMCO and PIMCO Management, Inc.
- 8 -
<PAGE>
Name Business and Other Connections
- ---- ------------------------------
Hardaway, John P. Vice President, PIMCO and PIMCO Management, Inc.;
Treasurer of the Trust, PIMCO Funds: Multi-Manager
Series; PIMCO Commercial Mortgage Securities Trust,
Inc., and Cash Accumulation Trust.
Harris, Brent R. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Trustee and
Chairman of the Trust and PIMCO Commercial Mortgage
Securities Trust, Inc.; Member of Operating Board,
PIMCO Advisors; Member of PIMCO Partners LLC.
Hodge, Douglas M. Senior Vice President, PIMCO and PIMCO
Management, Inc.
Holden, Brent L. Executive Vice President, PIMCO and PIMCO
Management, Inc.
Holloway, Dwight F., Jr. Vice President, PIMCO and PIMCO Management, Inc.
Howe, Jane T. Vice President, PIMCO and PIMCO Management, Inc.
Isberg, Margaret E. Executive Vice President, PIMCO and PIMCO
Management, Inc.; Senior Vice President of the Trust.
Loftus, John S. Executive Vice President, PIMCO and PIMCO
Management, Inc.; Vice President and Assistant
Secretary, StocksPLUS Management, Inc.
Meiling, Dean S. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Vice President of
the Trust and PIMCO Commercial Mortgage Securities
Trust, Inc.; Member of Operating Board, PIMCO
Advisors; Member of PIMCO Partners, LLC.
Muzzy, James F. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Vice
President of the Trust; Member of Operating Board,
PIMCO Advisors; Member of PIMCO Partners LLC.
Otterbein, Thomas J. Vice President, PIMCO and PIMCO Management, Inc.
- 9 -
<PAGE>
Name Business and Other Connections
- ---- ------------------------------
Podlich, William F. III Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Vice President,
PIMCO Commercial Mortgage Securities Trust, Inc.,
Member of Equity and Operating Boards, PIMCO
Advisors; Member of PIMCO Partners LLC.
Powers, William C. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Senior Vice
President, PIMCO Commercial Mortgage Securities
Trust, Inc., Member of Operating Boards, PIMCO
Advisors; Member of PIMCO Partners LLC.
Rabinovitch, Frank B. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Rennie, Edward P. Senior Vice President, PIMCO and PIMCO Management,
Inc.
Roney, Scott L. Vice President, PIMCO and PIMCO Management, Inc.
Rosborough, Michael J. Vice President, PIMCO and PIMCO Management, Inc.
Sargent, Jeffrey M. Vice President, PIMCO, PIMCO Management, Inc., the
Trust, PIMCO Commercial Mortgage Securities Trust,
Inc. and PIMCO Funds: Multi-Manager Series.
Schmider, Ernest L. Senior Vice President, Secretary, Chief
Administrative and Legal Officer, PIMCO and PIMCO
Management, Inc.; Vice President-Legal and Assistant
Secretary, PIMCO Advisors; Director and Assistant
Secretary, Assistant Treasurer, StocksPLUS
Management, Inc.
Scholey, Leland T. Senior Vice President, PIMCO, PIMCO Management, Inc.
and the Trust.
Seliga, Denise C. Vice President, PIMCO and PIMCO Management, Inc.
Seymour, Rita J. Vice President, PIMCO and PIMCO Management, Inc.
Thomas, Lee R. Executive Vice President, PIMCO and PIMCO Management,
Inc.
- 10 -
<PAGE>
Name Business and Other Connections
- ---- ------------------------------
Thompson, William S. Chief Executive Officer and Managing Director, PIMCO;
Jr. Director, Managing Director and Chief Executive
Officer, PIMCO Management, Inc.; Director and
President, StocksPLUS Management, Inc.; Vice
President of the Trust and PIMCO Commercial Mortgage
Securities Trust, Inc.; Member of Equity Board and
Operating Committee, and Chairman and Member of
Operating Board, PIMCO Advisors; Member of PIMCO
Partners LLC.
Trosky, Benjamin L. Managing Director, PIMCO and PIMCO Management, Inc.;
Senior Vice President, PIMCO Commercial Mortgage
Securities Trust, Inc.; Member of PIMCO Partners
LLC.
Wagner, Teresa A. Vice President, PIMCO, PIMCO Management, Inc., the
Trust, PIMCO Commercial Mortgage Securities Trust,
Inc. and PIMCO Funds: Multi-Manager Series; Vice
President and Assistant Clerk, Cash Accumulation
Trust.
Ward, Andrew C. Vice President, PIMCO and PIMCO Management, Inc.;
Senior Vice President of the Trust.
Weil, Richard M. Assistant Secretary, PIMCO, PIMCO Management, Inc.,
Columbus Circle Investors, Columbus Circle Investors
Management, Inc., Cadence Capital Management, Cadence
Capital Management, Inc., NFJ Management, Inc.,
Parametric Management, Inc. and PIMCO Funds
Distribution Company; Secretary, NFJ Investment
Group, Parametric Portfolio Associates, and
StocksPLUS Management, Inc.; Senior Vice President,
Legal Counsel, PIMCO, Vice President, PIMCO Funds:
Multi-Manager Series.
Willner, Ram Vice President, PIMCO and PIMCO Management, Inc.
Wilsey, Kristen M. Vice President of the Trust, PIMCO and PIMCO
Management, Inc.
Wood, George H. Vice President, PIMCO and PIMCO Management, Inc.
Yetter, Michael A. Vice President, PIMCO and PIMCO Management, Inc.
The address of PIMCO is 840 Newport Center Drive, Newport Beach, CA 92260.
The address of PIMCO Advisors, L.P. is 800 Newport Center Drive, Newport Beach,
CA 92660.
The address of PIMCO Funds Distribution Company is 2187 Atlantic Street,
Stamford, CT 06902.
- 11 -
<PAGE>
Item 29. Principal Underwriters
----------------------
(a) PIMCO Funds Distribution Company (the "Distributor") serves as
Distributor of Shares of the Trust. The Distributor also acts as
the principal underwriter for PIMCO Funds: Multi-Manager
Series. The Distributor is a wholly-owned subsidiary of PIMCO
Advisors.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
Booth, Jeffrey L. Vice President None
Bosch, James D. Vice President None
Cvengros, William D. Director None
Fitzgerald, Robert M. Chief Financial Officer, None
Treasurer
Gallagher, Michael J. Vice President None
Gray, Ronald H. Vice President None
Janeczek, Edward W. Senior Vice President None
Kemraj, Jaishree B. Asst. Vice President/
Asst. Controller None
Lynch, William E. Regional Vice President None
McCarthy, Jacqueline A. Vice President None
McLaughlin, Richard J. Vice President None
Meyers, Andrew J. Executive Vice President None
Moyer, Fiora Vice President None
Neugebauer, Phil J. Vice President None
Pearlman, Joffrey H. Vice President None
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Pisapia, Glynne Vice President None
Russell, Matthew M. Vice President None
Schott, Newton B., Jr. Executive Vice President/ None
Secretary, Director
Stone, David P. Vice President None
Thomas, William H., Jr. Regional Vice President None
Treadway, Stephen J. Chairman and Director None
Troyer, Paul H. Regional Vice President None
Trumbore, Brian F. Executive Vice President None
Weil, Richard M. Assistant Secretary None
- -------------
</TABLE>
* The business address of all directors and officers of the Distributor is
either 2187 Atlantic Street, Stamford, CT 06902 or 800 Newport Center Drive,
Newport Beach, CA 92660.
Item 30. Location of Accounts and Records
--------------------------------
The account books and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment Company
Act of 1940 and the Rules thereunder will be maintained at the
offices of Pacific Investment Management Company, 840 Newport
Center Drive, Newport Beach, California 92660, Investors
Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, and Shareholder Services, Inc., P.O. Box 5866
Denver, Colorado 80217.
Item 31. Management Services
-------------------
Not applicable
Item 32. Undertakings
------------
(a) Not applicable.
- 13 -
<PAGE>
(b) Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified,
within four to six months from the effective date of
Registrant's 1933 Act registration statement, or post-
effective amendment thereto which provides for the addition
of a new series of Registrant.
(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered with a copy of Registrant's latest
annual report to shareholders upon request and without
charge.
(d) Registrant undertakes to call a meeting of shareholders for
the purpose of considering the removal of a person serving
as Trustee if requested in writing to do so by the holders
of not less than 10% of the outstanding shares of
Registrant.
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 33 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington
in the District of Columbia on the 13th day of January, 1997.
PIMCO FUNDS
(Registrant)
By:
-------------------------------------
R. Wesley Burns*++++
President
*By: /s/ Robert W. Helm
-----------------------------------
Robert W. Helm, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
- -------------------------- Trustee January 13, 1997
Guilford C. Babcock*+
- -------------------------- Trustee January 13, 1997
Thomas P. Kemp*+
- -------------------------- Trustee January 13, 1997
Brent R. Harris*+++
- -------------------------- Trustee January 13, 1997
William J. Popejoy* +++++
- -------------------------- Trustee January 13, 1997
Vern O. Curtis*++++++
- -------------------------- President January 13, 1997
R. Wesley Burns*++++ (Principal
Executive
Officer)
- -------------------------- Treasurer January 13, 1997
John P. Hardaway++* (Principal
Financial
and Accounting
Officer)
</TABLE>
*By: /s/ Robert W. Helm
-------------------
Robert W. Helm,
as attorney-in-fact
<PAGE>
-------------------
+ Pursuant to power of attorney filed with Post-Effective Amendment
No. 1 to Registration Statement No. 33-12113 on November 6, 1987.
++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 10 to Registration Statement No. 33-12113 on May 31, 1991.
+++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 14 to Registration Statement No. 33-12113 on April 28, 1992.
++++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 20 to Registration Statement No. 33-12113 on June 1, 1995.
+++++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 22 to Registration Statement No. 33-12113 on November 30, 1994.
++++++ Pursuant to power of attorney filed with Post-Effective Amendment
No. 23 to Registration Statement No. 33-12113 on June 1, 1995.
<PAGE>
PIMCO Funds
INDEX TO EXHIBITS
FILED WITH
POST-EFFECTIVE AMENDMENT NO. 33
EXHIBIT 1(xiii) Establishment and Designation of One Additional Series of
Shares and Amended and Restated Establishment and
Designation of Shares of Registrant (EDGAR EXHIBIT
99.B1(xiii))
EXHIBIT 1(xiv) Amended Designation of Five Existing Series of Registrant
(EDGAR EXHIBIT 99.B1(xiv))
EXHIBIT 1(xv) Establishment and Designation of One Additional Series of
Shares of Registrant (EDGAR EXHIBIT 99.B1(xv))
EXHIBIT 5(x) Form of Supplement to Investment Advisory Contract
Relating to Global Bond Fund (EDGAR EXHIBIT 99.B5(x))
EXHIBIT 5(xi) Form of Supplement to Investment Advisory Contract
Relating to Real Return Bond Fund (EDGAR EXHIBIT
99.B5(xi))
EXHIBIT 6(xi) Form of Supplement to Distribution Contract Relating to
Real Return Bond Fund (EDGAR EXHIBIT 99.6(xi))
EXHIBIT 11(i) Consent of Price Waterhouse LLP. (EDGAR EXHIBIT
99.B11(i)).
EXHIBIT 11(ii) Consent of Coopers & Lybrand L.L.P. (EDGAR EXHIBIT
99.B11(ii)).
EXHIBIT 15(xiii) Form of Amendment to Administration Agreement (EDGAR
EXHIBIT 99.B15(xiii))
EXHIBIT 17 Financial Data Schedule (EDGAR EXHIBIT 99.B27).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 12,591,994
<INVESTMENTS-AT-VALUE> 12,659,993
<RECEIVABLES> 188,072
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 367
<TOTAL-ASSETS> 12,848,432
<PAYABLE-FOR-SECURITIES> 1,293,534
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,959
<TOTAL-LIABILITIES> 1,339,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,589,573
<SHARES-COMMON-STOCK> 1,104,903
<SHARES-COMMON-PRIOR> 996,162
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 18,844
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 219,051
<ACCUM-APPREC-OR-DEPREC> 157,261
<NET-ASSETS> 11,508,939
<DIVIDEND-INCOME> 898
<INTEREST-INCOME> 386,345
<OTHER-INCOME> 0
<EXPENSES-NET> 23,527
<NET-INVESTMENT-INCOME> 363,716
<REALIZED-GAINS-CURRENT> (234,072)
<APPREC-INCREASE-CURRENT> 248,965
<NET-CHANGE-FROM-OPS> 378,609
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 359,779
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 173,911
<NUMBER-OF-SHARES-REDEEMED> 93,436
<SHARES-REINVESTED> 28,266
<NET-CHANGE-IN-ASSETS> 1,156,716
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15,021
<OVERDISTRIB-NII-PRIOR> 18,792
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,527
<AVERAGE-NET-ASSETS> 10,684,363
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 0.0
<PER-SHARE-DIVIDEND> 0.34
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 10.29
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> TOTAL RETURN FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 12,591,994
<INVESTMENTS-AT-VALUE> 12,659,993
<RECEIVABLES> 188,072
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 367
<TOTAL-ASSETS> 12,848,432
<PAYABLE-FOR-SECURITIES> 1,293,534
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,959
<TOTAL-LIABILITIES> 1,339,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,589,573
<SHARES-COMMON-STOCK> 13,167
<SHARES-COMMON-PRIOR> 10,170
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 18,844
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 219,051
<ACCUM-APPREC-OR-DEPREC> 157,261
<NET-ASSETS> 11,508,939
<DIVIDEND-INCOME> 898
<INTEREST-INCOME> 386,345
<OTHER-INCOME> 0
<EXPENSES-NET> 23,527
<NET-INVESTMENT-INCOME> 363,716
<REALIZED-GAINS-CURRENT> (234,072)
<APPREC-INCREASE-CURRENT> 248,965
<NET-CHANGE-FROM-OPS> 378,609
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,989
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,148
<NUMBER-OF-SHARES-REDEEMED> 4,532
<SHARES-REINVESTED> 381
<NET-CHANGE-IN-ASSETS> 1,156,716
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15,021
<OVERDISTRIB-NII-PRIOR> 18,792
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,527
<AVERAGE-NET-ASSETS> 119,787
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.29
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> LONG-TERM U.S. GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 34,764
<INVESTMENTS-AT-VALUE> 34,883
<RECEIVABLES> 559
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 35,443
<PAYABLE-FOR-SECURITIES> 13,537
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 13,583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,065
<SHARES-COMMON-STOCK> 2,241
<SHARES-COMMON-PRIOR> 3,264
<ACCUMULATED-NII-CURRENT> 236
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,624
<ACCUM-APPREC-OR-DEPREC> 183
<NET-ASSETS> 21,860
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,153
<OTHER-INCOME> 0
<EXPENSES-NET> 76
<NET-INVESTMENT-INCOME> 1,077
<REALIZED-GAINS-CURRENT> (748)
<APPREC-INCREASE-CURRENT> (11)
<NET-CHANGE-FROM-OPS> 318
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,077
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 353
<NUMBER-OF-SHARES-REDEEMED> 1,460
<SHARES-REINVESTED> 84
<NET-CHANGE-IN-ASSETS> (10,651)
<ACCUMULATED-NII-PRIOR> 236
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 876
<GROSS-ADVISORY-FEES> 38
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 76
<AVERAGE-NET-ASSETS> 28,919
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> (0.23)
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.76
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> LOW DURATION FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 3,250,948
<INVESTMENTS-AT-VALUE> 3,254,779
<RECEIVABLES> 76,920
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 3,331,708
<PAYABLE-FOR-SECURITIES> 633,617
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,474
<TOTAL-LIABILITIES> 642,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,718,100
<SHARES-COMMON-STOCK> 269,729
<SHARES-COMMON-PRIOR> 269,130
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 5,121
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 31,972
<ACCUM-APPREC-OR-DEPREC> 8,610
<NET-ASSETS> 2,689,617
<DIVIDEND-INCOME> 931
<INTEREST-INCOME> 92,495
<OTHER-INCOME> 0
<EXPENSES-NET> 5,727
<NET-INVESTMENT-INCOME> 87,699
<REALIZED-GAINS-CURRENT> (24,476)
<APPREC-INCREASE-CURRENT> 27,294
<NET-CHANGE-FROM-OPS> 90,517
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 87,596
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49,744
<NUMBER-OF-SHARES-REDEEMED> 56,732
<SHARES-REINVESTED> 7,587
<NET-CHANGE-IN-ASSETS> 9,507
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 5,120
<OVERDIST-NET-GAINS-PRIOR> 7,496
<GROSS-ADVISORY-FEES> 3,325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,727
<AVERAGE-NET-ASSETS> 2,648,559
<PER-SHARE-NAV-BEGIN> 9.95
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 0.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 032
<NAME> LOW DURATION FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 3,250,948
<INVESTMENTS-AT-VALUE> 3,254,779
<RECEIVABLES> 76,920
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 3,331,708
<PAYABLE-FOR-SECURITIES> 633,617
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,474
<TOTAL-LIABILITIES> 642,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,718,100
<SHARES-COMMON-STOCK> 395
<SHARES-COMMON-PRIOR> 255
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 5,121
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 31,972
<ACCUM-APPREC-OR-DEPREC> 8,610
<NET-ASSETS> 2,689,617
<DIVIDEND-INCOME> 931
<INTEREST-INCOME> 92,495
<OTHER-INCOME> 0
<EXPENSES-NET> 5,727
<NET-INVESTMENT-INCOME> 87,699
<REALIZED-GAINS-CURRENT> (24,476)
<APPREC-INCREASE-CURRENT> 27,294
<NET-CHANGE-FROM-OPS> 90,517
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 104
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 185
<NUMBER-OF-SHARES-REDEEMED> 55
<SHARES-REINVESTED> 10
<NET-CHANGE-IN-ASSETS> 9,507
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 5,120
<OVERDIST-NET-GAINS-PRIOR> 7,496
<GROSS-ADVISORY-FEES> 3,325
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,727
<AVERAGE-NET-ASSETS> 3,237
<PER-SHARE-NAV-BEGIN> 9.95
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 051
<NAME> SHORT-TERM FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 134,627
<INVESTMENTS-AT-VALUE> 134,434
<RECEIVABLES> 1,602
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 136,036
<PAYABLE-FOR-SECURITIES> 5,064
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 413
<TOTAL-LIABILITIES> 5,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130,772
<SHARES-COMMON-STOCK> 12,860
<SHARES-COMMON-PRIOR> 10,257
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 161
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 116
<ACCUM-APPREC-OR-DEPREC> 64
<NET-ASSETS> 130,559
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,799
<OTHER-INCOME> 0
<EXPENSES-NET> 263
<NET-INVESTMENT-INCOME> 3,536
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> 577
<NET-CHANGE-FROM-OPS> 4,120
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,434
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,839
<NUMBER-OF-SHARES-REDEEMED> 5,543
<SHARES-REINVESTED> 307
<NET-CHANGE-IN-ASSETS> 24,763
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 161
<OVERDIST-NET-GAINS-PRIOR> 123
<GROSS-ADVISORY-FEES> 144
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 263
<AVERAGE-NET-ASSETS> 109,088
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 052
<NAME> SHORT-TERM FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 134,627
<INVESTMENTS-AT-VALUE> 134,434
<RECEIVABLES> 1,602
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 136,036
<PAYABLE-FOR-SECURITIES> 5,064
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 413
<TOTAL-LIABILITIES> 5,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130,772
<SHARES-COMMON-STOCK> 237
<SHARES-COMMON-PRIOR> 403
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 161
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 116
<ACCUM-APPREC-OR-DEPREC> 64
<NET-ASSETS> 130,559
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,799
<OTHER-INCOME> 0
<EXPENSES-NET> 263
<NET-INVESTMENT-INCOME> 3,536
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> 577
<NET-CHANGE-FROM-OPS> 4,120
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 102
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 474
<NUMBER-OF-SHARES-REDEEMED> 641
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 24,763
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 161
<OVERDIST-NET-GAINS-PRIOR> 123
<GROSS-ADVISORY-FEES> 144
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 263
<AVERAGE-NET-ASSETS> 3,314
<PER-SHARE-NAV-BEGIN> 9.92
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 061
<NAME> STOCKSPLUS FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 178,943
<INVESTMENTS-AT-VALUE> 179,477
<RECEIVABLES> 6,011
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 185,493
<PAYABLE-FOR-SECURITIES> 3,808
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 385
<TOTAL-LIABILITIES> 4,193
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,569
<SHARES-COMMON-STOCK> 15,625
<SHARES-COMMON-PRIOR> 13,607
<ACCUMULATED-NII-CURRENT> 3,709
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,821
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,201
<NET-ASSETS> 181,300
<DIVIDEND-INCOME> 13
<INTEREST-INCOME> 8,732
<OTHER-INCOME> 0
<EXPENSES-NET> 545
<NET-INVESTMENT-INCOME> 8,200
<REALIZED-GAINS-CURRENT> 707
<APPREC-INCREASE-CURRENT> 3,999
<NET-CHANGE-FROM-OPS> 12,906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,253
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,818
<NUMBER-OF-SHARES-REDEEMED> 1,286
<SHARES-REINVESTED> 486
<NET-CHANGE-IN-ASSETS> 29,431
<ACCUMULATED-NII-PRIOR> 1,762
<ACCUMULATED-GAINS-PRIOR> 2,114
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 335
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 545
<AVERAGE-NET-ASSETS> 165,389
<PER-SHARE-NAV-BEGIN> 11.16
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.60
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 081
<NAME> INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 2,373,086
<INVESTMENTS-AT-VALUE> 2,380,267
<RECEIVABLES> 283,374
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,799
<TOTAL-ASSETS> 2,669,440
<PAYABLE-FOR-SECURITIES> 1,719,938
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 669
<TOTAL-LIABILITIES> 1,720,607
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 836,786
<SHARES-COMMON-STOCK> 109,033
<SHARES-COMMON-PRIOR> 282,404
<ACCUMULATED-NII-CURRENT> 42,949
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 32,493
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,605
<NET-ASSETS> 948,833
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 31,556
<OTHER-INCOME> 0
<EXPENSES-NET> 3,220
<NET-INVESTMENT-INCOME> 28,336
<REALIZED-GAINS-CURRENT> 67,834
<APPREC-INCREASE-CURRENT> 11,797
<NET-CHANGE-FROM-OPS> 107,967
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,336
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,080
<NUMBER-OF-SHARES-REDEEMED> 179,008
<SHARES-REINVESTED> 1,557
<NET-CHANGE-IN-ASSETS> (1,323,107)
<ACCUMULATED-NII-PRIOR> 27,949
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 35,341
<GROSS-ADVISORY-FEES> 1,609
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,220
<AVERAGE-NET-ASSETS> 1,345,454
<PER-SHARE-NAV-BEGIN> 8.04
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.70
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 091
<NAME> TOTAL RETURN FUND III
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 169,598
<INVESTMENTS-AT-VALUE> 169,903
<RECEIVABLES> 2,746
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 172,649
<PAYABLE-FOR-SECURITIES> 13,596
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 548
<TOTAL-LIABILITIES> 14,144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 160,834
<SHARES-COMMON-STOCK> 17,286
<SHARES-COMMON-PRIOR> 15,583
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 380
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3,785
<ACCUM-APPREC-OR-DEPREC> 1,836
<NET-ASSETS> 158,505
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,114
<OTHER-INCOME> 0
<EXPENSES-NET> 380
<NET-INVESTMENT-INCOME> 4,734
<REALIZED-GAINS-CURRENT> (3,568)
<APPREC-INCREASE-CURRENT> 4,469
<NET-CHANGE-FROM-OPS> 5,635
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,734
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,535
<NUMBER-OF-SHARES-REDEEMED> 335
<SHARES-REINVESTED> 503
<NET-CHANGE-IN-ASSETS> 16,282
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 380
<OVERDIST-NET-GAINS-PRIOR> 217
<GROSS-ADVISORY-FEES> 190
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 380
<AVERAGE-NET-ASSETS> 150,306
<PER-SHARE-NAV-BEGIN> 9.13
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> 0.28
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.17
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> STRATEGIC BALANCED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 10,543
<INVESTMENTS-AT-VALUE> 10,607
<RECEIVABLES> 383
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 10,991
<PAYABLE-FOR-SECURITIES> 603
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10
<TOTAL-LIABILITIES> 613
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,029
<SHARES-COMMON-STOCK> 1,003
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 199
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 101
<ACCUM-APPREC-OR-DEPREC> 251
<NET-ASSETS> 10,378
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 215
<OTHER-INCOME> 0
<EXPENSES-NET> 16
<NET-INVESTMENT-INCOME> 199
<REALIZED-GAINS-CURRENT> (101)
<APPREC-INCREASE-CURRENT> 251
<NET-CHANGE-FROM-OPS> 349
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,003
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,378
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16
<AVERAGE-NET-ASSETS> 9,997
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 111
<NAME> FOREIGN FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 617,898
<INVESTMENTS-AT-VALUE> 622,154
<RECEIVABLES> 45,591
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 725
<TOTAL-ASSETS> 668,470
<PAYABLE-FOR-SECURITIES> 452,989
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 570
<TOTAL-LIABILITIES> 453,559
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 189,839
<SHARES-COMMON-STOCK> 18,879
<SHARES-COMMON-PRIOR> 24,612
<ACCUMULATED-NII-CURRENT> 3,281
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,348
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,443
<NET-ASSETS> 214,911
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,133
<OTHER-INCOME> 0
<EXPENSES-NET> 551
<NET-INVESTMENT-INCOME> 4,582
<REALIZED-GAINS-CURRENT> 13,158
<APPREC-INCREASE-CURRENT> 4,928
<NET-CHANGE-FROM-OPS> 22,668
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,582
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,372
<NUMBER-OF-SHARES-REDEEMED> 11,440
<SHARES-REINVESTED> 335
<NET-CHANGE-IN-ASSETS> (45,582)
<ACCUMULATED-NII-PRIOR> 3,281
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,810
<GROSS-ADVISORY-FEES> 276
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 551
<AVERAGE-NET-ASSETS> 228,228
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.84
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.38
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 121
<NAME> GLOBAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 377,119
<INVESTMENTS-AT-VALUE> 378,630
<RECEIVABLES> 31,367
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 404
<TOTAL-ASSETS> 410,401
<PAYABLE-FOR-SECURITIES> 249,209
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 346
<TOTAL-LIABILITIES> 249,555
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153,500
<SHARES-COMMON-STOCK> 15,343
<SHARES-COMMON-PRIOR> 13,313
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16
<ACCUMULATED-NET-GAINS> 3,362
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,000
<NET-ASSETS> 160,846
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,112
<OTHER-INCOME> 0
<EXPENSES-NET> 409
<NET-INVESTMENT-INCOME> 3,703
<REALIZED-GAINS-CURRENT> 3,807
<APPREC-INCREASE-CURRENT> 2,728
<NET-CHANGE-FROM-OPS> 10,238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,703
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,295
<NUMBER-OF-SHARES-REDEEMED> 552
<SHARES-REINVESTED> 287
<NET-CHANGE-IN-ASSETS> 27,013
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 16
<OVERDIST-NET-GAINS-PRIOR> 445
<GROSS-ADVISORY-FEES> 186
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 409
<AVERAGE-NET-ASSETS> 148,112
<PER-SHARE-NAV-BEGIN> 10.05
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.43
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 122
<NAME> GLOBAL FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 377,119
<INVESTMENTS-AT-VALUE> 378,630
<RECEIVABLES> 31,367
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 404
<TOTAL-ASSETS> 410,401
<PAYABLE-FOR-SECURITIES> 249,209
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 346
<TOTAL-LIABILITIES> 249,555
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153,500
<SHARES-COMMON-STOCK> 2
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16
<ACCUMULATED-NET-GAINS> 3,362
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,000
<NET-ASSETS> 160,846
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,112
<OTHER-INCOME> 0
<EXPENSES-NET> 409
<NET-INVESTMENT-INCOME> 3,703
<REALIZED-GAINS-CURRENT> 3,807
<APPREC-INCREASE-CURRENT> 2,728
<NET-CHANGE-FROM-OPS> 10,238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 27,013
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 16
<OVERDIST-NET-GAINS-PRIOR> 445
<GROSS-ADVISORY-FEES> 186
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 409
<AVERAGE-NET-ASSETS> 8
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.20
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 141
<NAME> LOW DURATION FUND II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 297,893
<INVESTMENTS-AT-VALUE> 297,713
<RECEIVABLES> 11,850
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 309,564
<PAYABLE-FOR-SECURITIES> 52,416
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 428
<TOTAL-LIABILITIES> 52,844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 261,571
<SHARES-COMMON-STOCK> 26,207
<SHARES-COMMON-PRIOR> 25,805
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,363
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3,572
<ACCUM-APPREC-OR-DEPREC> 84
<NET-ASSETS> 256,720
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,763
<OTHER-INCOME> 0
<EXPENSES-NET> 634
<NET-INVESTMENT-INCOME> 8,129
<REALIZED-GAINS-CURRENT> (2,673)
<APPREC-INCREASE-CURRENT> 2,058
<NET-CHANGE-FROM-OPS> 7,514
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,130
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,199
<NUMBER-OF-SHARES-REDEEMED> 3,586
<SHARES-REINVESTED> 789
<NET-CHANGE-IN-ASSETS> 3,421
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 1,362
<OVERDIST-NET-GAINS-PRIOR> 899
<GROSS-ADVISORY-FEES> 317
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 634
<AVERAGE-NET-ASSETS> 252,354
<PER-SHARE-NAV-BEGIN> 9.82
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.80
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 151
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 28,883
<INVESTMENTS-AT-VALUE> 28,883
<RECEIVABLES> 54
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 28,938
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 626
<TOTAL-LIABILITIES> 626
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,312
<SHARES-COMMON-STOCK> 28,300
<SHARES-COMMON-PRIOR> 25,935
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 28,312
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 827
<OTHER-INCOME> 0
<EXPENSES-NET> 53
<NET-INVESTMENT-INCOME> 774
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 774
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 774
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,010
<NUMBER-OF-SHARES-REDEEMED> 24,370
<SHARES-REINVESTED> 725
<NET-CHANGE-IN-ASSETS> 2,367
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 53
<AVERAGE-NET-ASSETS> 29,958
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 152
<NAME> MONEY MARKET FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 28,883
<INVESTMENTS-AT-VALUE> 28,883
<RECEIVABLES> 54
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 28,938
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 626
<TOTAL-LIABILITIES> 626
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,312
<SHARES-COMMON-STOCK> 12
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 28,312
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 827
<OTHER-INCOME> 0
<EXPENSES-NET> 53
<NET-INVESTMENT-INCOME> 774
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 774
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4
<NUMBER-OF-SHARES-REDEEMED> 2
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,367
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 53
<AVERAGE-NET-ASSETS> 11
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 161
<NAME> TOTAL RETURN FUND II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 550,483
<INVESTMENTS-AT-VALUE> 552,429
<RECEIVABLES> 13,305
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 546
<TOTAL-ASSETS> 566,280
<PAYABLE-FOR-SECURITIES> 117,401
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,580
<TOTAL-LIABILITIES> 118,981
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 453,942
<SHARES-COMMON-STOCK> 44,943
<SHARES-COMMON-PRIOR> 46,054
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 329
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 10,518
<ACCUM-APPREC-OR-DEPREC> 4,204
<NET-ASSETS> 447,299
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,146
<OTHER-INCOME> 0
<EXPENSES-NET> 1,167
<NET-INVESTMENT-INCOME> 14,979
<REALIZED-GAINS-CURRENT> (8,538)
<APPREC-INCREASE-CURRENT> 5,929
<NET-CHANGE-FROM-OPS> 12,370
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,854
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,340
<NUMBER-OF-SHARES-REDEEMED> 6,917
<SHARES-REINVESTED> 1,466
<NET-CHANGE-IN-ASSETS> (11,604)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 329
<OVERDIST-NET-GAINS-PRIOR> 1,980
<GROSS-ADVISORY-FEES> 581
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,167
<AVERAGE-NET-ASSETS> 460,457
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> 0.31
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 162
<NAME> TOTAL RETURN FUND II-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 550,483
<INVESTMENTS-AT-VALUE> 552,429
<RECEIVABLES> 13,305
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 546
<TOTAL-ASSETS> 566,280
<PAYABLE-FOR-SECURITIES> 117,401
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,580
<TOTAL-LIABILITIES> 118,981
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 453,942
<SHARES-COMMON-STOCK> 453
<SHARES-COMMON-PRIOR> 336
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 329
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 10,518
<ACCUM-APPREC-OR-DEPREC> 4,204
<NET-ASSETS> 447,299
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,146
<OTHER-INCOME> 0
<EXPENSES-NET> 1,167
<NET-INVESTMENT-INCOME> 14,979
<REALIZED-GAINS-CURRENT> (8,538)
<APPREC-INCREASE-CURRENT> 5,929
<NET-CHANGE-FROM-OPS> 12,370
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 125
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 108
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> (11,604)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 329
<OVERDIST-NET-GAINS-PRIOR> 1,980
<GROSS-ADVISORY-FEES> 581
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,167
<AVERAGE-NET-ASSETS> 4,037
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 171
<NAME> HIGH YIELD FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 714,540
<INVESTMENTS-AT-VALUE> 730,590
<RECEIVABLES> 33,661
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 764,254
<PAYABLE-FOR-SECURITIES> 6,325
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 708
<TOTAL-LIABILITIES> 7,033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 732,838
<SHARES-COMMON-STOCK> 67,899
<SHARES-COMMON-PRIOR> 49,062
<ACCUMULATED-NII-CURRENT> 3,597
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,661
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,125
<NET-ASSETS> 757,221
<DIVIDEND-INCOME> 27
<INTEREST-INCOME> 31,499
<OTHER-INCOME> 0
<EXPENSES-NET> 1,677
<NET-INVESTMENT-INCOME> 29,849
<REALIZED-GAINS-CURRENT> 3,979
<APPREC-INCREASE-CURRENT> 7,810
<NET-CHANGE-FROM-OPS> 41,638
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29,747
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,333
<NUMBER-OF-SHARES-REDEEMED> 6,130
<SHARES-REINVESTED> 2,634
<NET-CHANGE-IN-ASSETS> 219,231
<ACCUMULATED-NII-PRIOR> 3,604
<ACCUMULATED-GAINS-PRIOR> 682
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 836
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,677
<AVERAGE-NET-ASSETS> 659,412
<PER-SHARE-NAV-BEGIN> 10.94
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.11
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the PIMCO
Funds semi-annual report dated September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 172
<NAME> HIGH YIELD FUND-ADMINISTRATIVE CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 714,540
<INVESTMENTS-AT-VALUE> 730,590
<RECEIVABLES> 33,661
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 764,254
<PAYABLE-FOR-SECURITIES> 6,325
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 708
<TOTAL-LIABILITIES> 7,033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 732,838
<SHARES-COMMON-STOCK> 273
<SHARES-COMMON-PRIOR> 92
<ACCUMULATED-NII-CURRENT> 3,597
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,661
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,125
<NET-ASSETS> 757,221
<DIVIDEND-INCOME> 27
<INTEREST-INCOME> 31,499
<OTHER-INCOME> 0
<EXPENSES-NET> 1,677
<NET-INVESTMENT-INCOME> 29,849
<REALIZED-GAINS-CURRENT> 3,979
<APPREC-INCREASE-CURRENT> 7,810
<NET-CHANGE-FROM-OPS> 41,638
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 109
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 630
<NUMBER-OF-SHARES-REDEEMED> 456
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 219,231
<ACCUMULATED-NII-PRIOR> 3,604
<ACCUMULATED-GAINS-PRIOR> 682
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 836
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,677
<AVERAGE-NET-ASSETS> 2,209
<PER-SHARE-NAV-BEGIN> 10.94
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> 0.47
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.11
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PIMCO
ADVISORS FUNDS ANNUAL REPORT DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 181
<NAME> GLOBAL INCOME FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 31,965
<INVESTMENTS-AT-VALUE> 31,998
<RECEIVABLES> 23,346
<ASSETS-OTHER> 44
<OTHER-ITEMS-ASSETS> 5,846
<TOTAL-ASSETS> 61,234
<PAYABLE-FOR-SECURITIES> 27,240
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,935
<TOTAL-LIABILITIES> 47,175
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,181
<SHARES-COMMON-STOCK> 672
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 589
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 47
<ACCUM-APPREC-OR-DEPREC> 336
<NET-ASSETS> 14,059
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 596
<OTHER-INCOME> 0
<EXPENSES-NET> 157
<NET-INVESTMENT-INCOME> 439
<REALIZED-GAINS-CURRENT> 511
<APPREC-INCREASE-CURRENT> 336
<NET-CHANGE-FROM-OPS> 1,286
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 303
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 803
<NUMBER-OF-SHARES-REDEEMED> 135
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 14,059
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 177
<AVERAGE-NET-ASSETS> 6,433
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.95
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.96
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PIMCO
ADVISORS FUNDS ANNUAL REPORT DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 182
<NAME> GLOBAL INCOME FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 31,965
<INVESTMENTS-AT-VALUE> 31,998
<RECEIVABLES> 23,346
<ASSETS-OTHER> 44
<OTHER-ITEMS-ASSETS> 5,846
<TOTAL-ASSETS> 61,234
<PAYABLE-FOR-SECURITIES> 27,240
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,935
<TOTAL-LIABILITIES> 47,175
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,181
<SHARES-COMMON-STOCK> 295
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 589
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 47
<ACCUM-APPREC-OR-DEPREC> 366
<NET-ASSETS> 14,059
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 596
<OTHER-INCOME> 0
<EXPENSES-NET> 157
<NET-INVESTMENT-INCOME> 439
<REALIZED-GAINS-CURRENT> 511
<APPREC-INCREASE-CURRENT> 336
<NET-CHANGE-FROM-OPS> 1,286
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 51
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 301
<NUMBER-OF-SHARES-REDEEMED> 9
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 14,059
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 177
<AVERAGE-NET-ASSETS> 1,473
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.92
<PER-SHARE-DIVIDEND> 0.26
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.96
<EXPENSE-RATIO> 2.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PIMCO
ADVISORS FUNDS ANNUAL REPORT DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 183
<NAME> GLOBAL INCOME FUND - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 31,965
<INVESTMENTS-AT-VALUE> 31,998
<RECEIVABLES> 23,346
<ASSETS-OTHER> 44
<OTHER-ITEMS-ASSETS> 5,846
<TOTAL-ASSETS> 61,234
<PAYABLE-FOR-SECURITIES> 27,240
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,935
<TOTAL-LIABILITIES> 47,175
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,181
<SHARES-COMMON-STOCK> 316
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 589
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 47
<ACCUM-APPREC-OR-DEPREC> 336
<NET-ASSETS> 14,059
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 596
<OTHER-INCOME> 0
<EXPENSES-NET> 157
<NET-INVESTMENT-INCOME> 439
<REALIZED-GAINS-CURRENT> 511
<APPREC-INCREASE-CURRENT> 336
<NET-CHANGE-FROM-OPS> 1,286
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 54
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 352
<NUMBER-OF-SHARES-REDEEMED> 41
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 14,059
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 177
<AVERAGE-NET-ASSETS> 1,578
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> (0.21)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.62
<EXPENSE-RATIO> 2.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<PAGE>
EDGAR
EXHIBIT NO. EXHIBIT NAME EXHIBIT NO.
- ----------- ------------ -----------
1(xiii) Establishment and Designation of One Additional 99.B1(xiii)
Series of Shares and Amended and Restated
Establishment and Designation of Shares of
Registrant
<PAGE>
Establishment and Designation of One Additional Series of Shares
and
Amended and Restated Establishment and
Designation of Series of Shares of Beneficial
Interest, Par Value $0.0001 Per Share, of
PIMCO Funds
(formerly Pacific Investment Management Institutional Trust)
August 27, 1996
RESOLVED, that the undersigned, being at least a majority of the
Trustees of PIMCO Funds (the "Trust") (formerly Pacific Investment Management
Institutional Trust), a Massachusetts business trust established by a
Declaration of Trust dated February 19, 1987, as amended from time to time (the
"Declaration"), acting pursuant to Sections 5.11 and 5.12 of the Declaration,
hereby divide the shares of beneficial interest of the Trust into one additional
separate series, designated the "Global Income Fund" (the "Fund"); and
FURTHER RESOLVED, that the Fund and the series of Shares of the Trust
hitherto established and designated as follows:
Money Market Fund
Short-Term Fund
Low Duration Fund
Low Duration Fund II
Low Duration Fund III
Moderate Duration Fund
High Yield Fund
Total Return Fund
Total Return Fund II
Total Return Fund III
Commercial Mortgage Securities Fund
Long-Term U.S. Government Fund
Foreign Fund
Global Fund
International Fund
StocksPLUS Fund
StocksPLUS Short Strategy Fund
Strategic Balanced Fund
(collectively the "Funds") shall each issue its shares of beneficial interest
with respect to five separate classes: Class A, Class B, Class C, Institutional
Class and Administrative Class; and
FURTHER RESOLVED, the Funds and their Classes shall have the following
special and relative rights:
<PAGE>
(1) The Funds shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective prospectuses and registration statement under the
Securities Act of 1933. Each share of beneficial interest of a Fund ("Share")
shall be redeemable, shall be entitled to one vote (or fraction thereof in
respect of a fractional Share) on matters on which Shares of the Fund shall be
entitled to vote, shall represent a pro rata beneficial interest in the assets
allocated to the Fund and shall be entitled to receive its pro rata share of net
assets of the Fund upon liquidation of the Fund, all as provided in the
Declaration.
(2) Each Share of a Fund shall be entitled to one vote (or fraction
thereof in respect of a fractional Share) on matters on which such Shares of the
Fund shall be entitled to vote. Shareholders of each Fund shall vote separately
as a Fund on any matter, except, consistent with the Investment Company Act of
1940, as amended ("the Act"), and the rules and the Trust's registration
statement thereunder, with respect to (i) the election of Trustees, (ii) any
amendment of the Declaration of Trust, unless the amendment affects fewer than
all Funds or Classes of Shares, in which case only shareholders of the affected
Funds or Classes shall vote, and (iii) ratification of the selection of
auditors, and except when the Trustees have determined that the matter affects
only the interests of shareholders of a particular Fund or Class of Shares, in
which case only the shareholders of such Fund or Class shall be entitled to vote
thereon. In each case of separate voting, the Trustees shall determine whether,
for the matter to be effectively acted upon within the meaning of Rule 18f-2
under the Act (or any successor rule) as to a Fund or Class, the applicable
percentage (as specified in the Declaration, or the Act and the rules
thereunder) of the shares of that Fund or Class alone must be voted in favor of
the matter, or whether the favorable vote of such applicable percentage of the
shares of each Fund or Class entitled to vote on the matter is required.
(3)(a) The assets and liabilities of the Trust shall be allocated
among the Funds as set forth in Section 5.11 of the Declaration, except that
only preexisting Funds shall bear their allocable portion of the remaining
unamortized costs incurred and payable in connection with their organization and
registration; costs of establishing subsequent Series and of the registration
and public offering of their Shares shall be amortized for such Series over the
period beginning on the date such costs become payable and ending sixty months
thereafter.
(b) Liabilities, expenses, costs, charges or reserves relating to
the distribution of, and other identified expenses that should properly be
allocated to, the Shares of a particular Class may be charged to and borne
solely by such Class and the bearing of expenses solely by a Class of Shares may
be appropriately reflected and cause differences in the net asset value
attributable to and the dividend, redemption and liquidation rights of, the
Shares of different Classes.
(c) Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon the Shareholders
of all Classes for all purposes.
(4) Shares of each Class of each Fund may vary between themselves as
to rights of redemption and conversion rights, as may be approved by the
Trustees and set out in each Fund's then-current prospectus.
(5) The Trustees shall have the right at any time and from time to
time to reallocate assets and expenses or to change the designation of any Fund
or Class thereof hitherto or hereafter created, or to otherwise change the
special and relative rights of such Fund or Class, provided that such change
shall not adversely affect the rights of the Shareholders of such Fund
-2-
<PAGE>
or Class.
IN WITNESS WHEREOF, the undersigned have executed this instrument the
27th day of August, 1996.
---------------------------------------
Brent R. Harris
---------------------------------------
Guilford C. Babcock
---------------------------------------
Vern O. Curtis
---------------------------------------
Thomas P. Kemp
---------------------------------------
William J. Popejoy
-3-
<PAGE>
EDGAR
EXHIBIT NO. EXHIBIT NAME EXHIBIT NO.
- ----------- ------------ -----------
1(xiv) Amended Designation of Five Existing Series of 99B1(xiv)
Registrant
<PAGE>
Amended Designation of Five Existing Series
of Shares of Beneficial Interest,
Par Value $0.0001 Per Share, of
PIMCO Funds
(formerly Pacific Investment Management Institutional Trust)
RESOLVED, that pursuant to Section 5.12(e) of the Declaration of Trust of
PIMCO Funds (formerly the Pacific Investment Management Institutional Trust)
(the "Trust") dated February 19, 1987, as amended ("Declaration"), the Series of
Shares of the Trust designated as the "Foreign Fund," by instrument dated
February 25, 1992, is hereby redesignated the "Foreign Bond Fund," without in
any way changing the rights or privileges of the Fund or its Shareholders.
FURTHER RESOLVED, that pursuant to Section 5.12(e) of the Declaration, the
Series of Shares of the Trust designated as the "International Fund," by
instrument dated February 25, 1992, is hereby redesignated the "International
Bond Fund," without in any way changing the rights or privileges of the Fund or
its Shareholders.
FURTHER RESOLVED, that pursuant to Section 5.12(e) of the Declaration, the
Series of Shares of the Trust designated as the "Global Fund," by instrument
dated February 25, 1992, is hereby redesignated the "Global Bond Fund," without
in any way changing the rights or privileges of the Fund or its Shareholders.
FURTHER RESOLVED, that pursuant to Section 5.12(e) of the Declaration, the
Series of Shares of the Trust designated as the "Global Income Fund," by
instrument dated August 27, 1996, is hereby redesignated the "Global Bond Fund
II," without in any way changing the rights or privileges of the Fund or its
Shareholders.
FURTHER RESOLVED, that pursuant to Section 5.12(e) of the Declaration, the
Series of Shares of the Trust designated as the "Balanced Fund," by instrument
dated February 27, 1996, is hereby redesignated the "Strategic Balanced Fund,"
without in any way changing the rights or privileges of the Fund or its
Shareholders.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being at least a majority of the
Trustees of the Trust, have executed this instrument the 19/th/ day of November,
1996.
-----------------------------
Brent R. Harris
-----------------------------
Guilford C. Babcock
-----------------------------
Vern O. Curtis
-----------------------------
Thomas P. Kemp
-----------------------------
William J. Popejoy
<PAGE>
<TABLE>
<CAPTION>
EDGAR
EXHIBIT NO. EXHIBIT NAME EXHIBIT NO.
- ----------- ------------ -----------
<S> <C> <C>
1(xv) Establishment and Designation of One Additional 99.b1(xv)
Series of Shares of Registrant
</TABLE>
<PAGE>
Establishment and Designation of One
Additional Series of Shares of Beneficial Interest,
Par Value $0.0001 Per Share, of
PIMCO Funds
(formerly Pacific Investment Management Institutional Trust)
RESOLVED, that pursuant to Section 5.12(a) of the Declaration of Trust
of PIMCO Funds (formerly the Pacific Investment Management Institutional Trust)
(the "Trust") dated February 19, 1987, as amended ("Declaration"), the shares of
beneficial interest of the Trust shall be divided into one additional separate
Series, designated the "Real Return Bond Fund" (the "Fund"); and
FURTHER RESOLVED, that the Fund shall have the
following special and relative rights:
1. The Fund shall issue its shares of beneficial interest with
respect to five separate classes: Class A, Class B, Class C, Institutional Class
and Administrative Class.
2. The Fund shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective prospectuses and registration statement under the
Securities Act of 1933. Each share of beneficial interest of the Fund ("Share")
shall be redeemable, shall be entitled to one vote (or fraction thereof in
respect of a fractional Share) on matters on which Shares of the Fund shall be
entitled to vote, shall represent a pro rata beneficial interest in the assets
allocated to the Fund, and shall be entitled to receive its pro rata share of
net assets of the Fund upon liquidation of the Fund, all as provided in the
Declaration.
3. Shareholders of the Fund shall vote separately as a class on any
matter, except, consistent with the Investment Company Act of 1940, as amended
("the Act"), and the rules and the Trust's registration statement thereunder,
with respect to (i) the election of Trustees, (ii) any amendment of the
Declaration, unless the amendment affects fewer than all classes of Shares, in
which case only shareholders of the affected classes shall vote, and (iii)
ratification of the selection of auditors, and except when the Trustees have
determined that the matter affects only the interests of shareholders of a
particular class of Shares, in which case only the shareholders of such class
shall be entitled to vote thereon. In each case of separate voting, the Trustees
shall determine whether, for the matter to be effectively acted upon within the
meaning of Rule 18f-2 under the Act (or any successor rule) as to the Fund or
class, the applicable percentage (as specified in the Declaration, or the Act
and the rules thereunder) of the shares of the Fund or class alone must be voted
in favor of the matter, or whether the favorable vote of such applicable
percentage of the shares of the Fund or class entitled to vote on the matter is
required.
<PAGE>
4. (a) The assets and liabilities of the Trust shall be allocated
among the Funds as set forth in Section 5.11 of the Declaration, except that
only the preexisting Funds shall bear their allocable portion of the remaining
unamortized costs incurred and payable in connection with their organization and
registration; costs of establishing the Fund and of the registration and public
offering of its Shares shall be amortized for the Fund over the period beginning
on the date such costs become payable and ending sixty months thereafter.
(b) Liabilities, expenses, costs, charges or reserves relating
to the distribution of, and other identified expenses that should properly be
allocated to, the Shares of a particular class may be charged to and borne
solely by such class and the bearing of expenses solely by a class of Shares may
be appropriately reflected and cause differences in the net asset value
attributable to and the dividend, redemption and liquidation rights of, the
Shares of different classes.
(c) Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon the Shareholders
of all classes for all purposes.
5. Shares of each class of the Fund may vary between themselves as
to rights of redemption and conversion rights, as may be approved by the
Trustees and set out in the Fund's then-current prospectuses.
6. The Trustees shall have the right at any time and from time to
time to reallocate assets and expenses or to change the designation of the Fund
or classes hereby created, or to otherwise change the special and relative
rights of the Fund or classes, provided that such change shall not adversely
affect the rights of the Shareholders of the Fund or classes.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument the
19th day of November, 1996.
______________________________
Brent R. Harris
______________________________
Guilford C. Babcock
______________________________
Vern O. Curtis
______________________________
Thomas P. Kemp
______________________________
William J. Popejoy
<PAGE>
<TABLE>
<CAPTION>
EDGAR
EXHIBIT NO. EXHIBIT NAME EXHIBIT NO.
- ----------- ------------ -----------
<S> <C> <C>
5(x) Form of Supplement to Investment Advisory Contract 99.B5(x)
Relating to Global Bond Fund II
</TABLE>
<PAGE>
SUPPLEMENT TO
INVESTMENT ADVISORY CONTRACT
PIMCO Funds
840 Newport Center Drive
Newport Beach, California 92660
____________________, 1996
Pacific Investment
Management Company
840 Newport Center Drive
Newport Beach, California 92660
RE: Global Bond Fund II
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and Pacific Investment Management Company (the "Adviser") as follows:
1. The Trust is an open-end management investment company organized as
a Massachusetts business trust and consisting of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. Five separate classes of shares of beneficial interest in the
Trust is offered to investors with respect to each investment portfolio. The
Global Bond Fund II (the "Fund") is a separate investment portfolio of the
Trust.
2. The Trust and the Adviser have entered into an Investment
Advisory Contract dated November 15, 1994, as amended (the "Contract"), pursuant
to which the Trust has employed the Adviser to provide investment advisory and
other services specified in the Contract, and the Adviser has accepted such
employment.
3. As provided in paragraph 1 of the Contract, the Trust hereby
appoints the Adviser to serve as Investment Adviser with respect to the Fund,
and the Adviser accepts such appointment, the terms and conditions of such
employment to be governed by the Contract, which is hereby incorporated herein
by reference.
<PAGE>
4. As provided in paragraph 6 of the Contract and subject to further
conditions as set forth therein, the Trust shall with respect to the Fund pay
the Adviser a monthly fee on the first business day of each month, based upon
the average daily value (as determined on each business day at the time set
forth in the Prospectus for determining net asset value per share) of the net
assets of the Fund during the preceding month at the annual rate of 0.25%.
5. This Supplement and the Contract shall become effective with
respect to the Fund on ________________, 199__, and shall thereafter continue in
effect with respect to the Fund for a period of more than two years from such
date only so long as the continuance is specifically approved at least annually
(a) by the vote of a majority of the outstanding voting securities of the Fund
(as defined in the 1940 Act) or by the Trust's Board of Trustees and (b) by the
vote, cast in person at a meeting called for that purpose, of a majority of the
Trust's Trustees who are not parties to this Contract or "interested persons"
(as defined in the Investment Company Act of 1940 ("1940 Act")) of any such
party. This Contract may be terminated with respect to the Trust at any time,
without the payment of any penalty, by vote of a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act) or by a vote of a
majority of the Trust's entire Board of Trustees on 60 days' written notice to
the Adviser. This Contract shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).
- 2 -
<PAGE>
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO Funds
BY: ______________________________
TITLE:
ACCEPTED:
Pacific Investment
Management Company
BY: ________________________
TITLE:
- 3 -
<PAGE>
<TABLE>
<CAPTION>
EDGAR
EXHIBIT NO. EXHIBIT NAME EXHIBIT NO.
- ----------- ------------ -----------
<S> <C> <C>
5(xi) Form of Supplement to Investment Advisory Contract 99.B5(xi)
Relating to Real Return Bond Fund
</TABLE>
<PAGE>
SUPPLEMENT TO
INVESTMENT ADVISORY CONTRACT
PIMCO Funds
840 Newport Center Drive
Newport Beach, California 92660
November 19, 1996
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, California 92660
RE: PIMCO Real Return Bond Fund
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and Pacific Investment Management Company (the "Adviser") as follows:
1. The Trust is an open-end management investment company organized
as a Massachusetts business trust and consisting of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. Five separate classes of shares of beneficial interest in the
Trust are offered to investors with respect to each investment portfolio. The
PIMCO Real Return Bond Fund (the "Fund") is a separate investment portfolio of
the Trust.
2. The Trust and the Adviser have entered into an Investment Advisory
Contract dated November 15, 1994, as amended, ("Contract") pursuant to which the
Trust has employed the Adviser to provide investment advisory and other services
specified in the Contract, and the Adviser has accepted such employment.
3. As provided in paragraph 1 of the Contract, the Trust hereby
appoints the Adviser to serve as Investment Adviser with respect to the Fund,
and the Adviser accepts such appointment, the terms and conditions of such
employment to be governed by the Contract, which is hereby incorporated herein
by reference.
4. As provided in paragraph 6 of the Contract and subject to further
conditions as set forth therein, the Trust shall with respect to the Fund pay
the Adviser a monthly fee on the first business day of each month, based upon
the average daily value (as determined on each business day at the time set
forth in the Prospectus for determining net asset value per share) of the net
assets of the Fund during the preceding month at the annual rate of .25%.
<PAGE>
5. This Supplement and the Contract shall become effective with
respect to the Fund on ____________________, 199__, and shall thereafter
continue in effect with respect to the Fund for a period of more than two years
from such date only so long as the continuance is specifically approved at least
annually (a) by the vote of a majority of the outstanding voting securities of
the Fund (as defined in the 1940 Act) or by the Trust's Board of Trustees and
(b) by the vote, cast in person at a meeting called for that purpose, of a
majority of the Trust's Trustees who are not parties to this Contract or
"interested persons" (as defined in the Investment Company Act of 1940 ("1940
Act") of any such party. This Contract may be terminated with respect to the
Trust at any time, without the payment of any penalty, by vote of a majority of
the outstanding voting securities of the Fund (as defined in the 1940 Act) or by
a vote of a majority of the Trust's entire Board of Trustees on 60 days' written
notice to the Adviser. This Contract shall terminate automatically in the event
of its assignment (as defined in the 1940 Act).
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO Funds
BY: ___________________________________
TITLE:
ACCEPTED:
Pacific Investment Management Company
BY: ___________________________________
TITLE:
<PAGE>
EDGAR
EXHIBIT NO. EXHIBIT NAME EXHIBIT NO.
- ----------- ------------ -----------
6(xi) Supplement to Distribution Contract 99.B6(xi)
<PAGE>
SUPPLEMENT TO
DISTRIBUTION CONTRACT
PIMCO Funds
840 Newport Center Drive
Newport Beach, California 92660
November 19, 1996
PIMCO Funds Distribution Company
One Station Place
Stamford, CT 06902
RE: PIMCO Real Return Bond Fund
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
PIMCO Funds Distribution Company (the "Distributor") as follows:
1. The Trust is an open-end management investment company organized as a
Massachusetts business trust and consisting of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. Five separate classes of shares of beneficial interest in the
Trust are offered to investors with respect to each investment portfolio. The
PIMCO Real Return Bond Fund (the "Fund") is a separate investment portfolio of
the Trust.
2. The Trust and the Distributor have entered into a Distribution Contract
(the "Contract") dated _______________, 199__, as amended, pursuant to which the
Distributor has agreed to be the distributor of shares of the Trust.
3. As provided in paragraph 1 of the Contract, the Distributor hereby
adopts the Contract with respect to the Fund and the Distributor hereby
acknowledges that the Contract shall pertain to the Fund, the terms and
conditions of such Contract being hereby incorporated herein by reference.
4. This Supplement and the Contract shall become effective with respect
to the Fund on _______________, 199__ and shall continue in effect until such
time as there shall remain no unsold balance of shares registered under the 1933
Act, provided that this Contract shall continue in effect for a period of more
--------
than two years from the effective date of this Supplement only so long as such
continuance is specifically approved at least annually by (a) the Trust's Board
of Trustees or by the vote of a majority of the Trust's
<PAGE>
outstanding voting securities (as defined in the 1940 Act) and (b) by the vote,
cast in person at a meeting called for the purpose, of a majority of the Trust's
Trustees who are not parties to this Contract or "interested persons" (as
defined in the 1940 Act) of any such party. This Contract shall terminate
automatically in the event of its assignment (as defined in the 1940 Act). This
Contract may, in any event, be terminated at any time without the payment of any
penalty, by the Trust upon 60 days' written notice to the Distributor and by the
Distributor upon 60 days' written notice to the Trust.
If the foregoing correctly sets forth the agreement between the Trust and
the Distributor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO FUNDS
BY:
--------------------------------------
TITLE:
ACCEPTED:
PIMCO FUNDS DISTRIBUTION COMPANY
BY:
-------------------------------------
TITLE:
<PAGE>
<TABLE>
<CAPTION>
EDGAR
EXHIBIT NO. EXHIBIT NAME EXHIBIT NO.
- ----------- ------------ -----------
<S> <C> <C>
11(i) Consent of Price Waterhouse LLP 99.B11(i)
</TABLE>
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 33 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 10, 1996, relating to the financial
statements and financial highlights appearing in the March 31, 1996 Annual
Report to Shareholders of the PIMCO Funds: Pacific Investment Management
Series, which is also incorporated by reference into the Registration Statement.
We also consent to the references to us under the heading "Financial Highlights"
in the Prospectus and under the headings "Independent Accountants" and
"Financial Statements" in the Statement of Additional Information.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Kansas City, Missouri
January 13, 1997
<PAGE>
<TABLE>
<CAPTION>
EDGAR
EXHIBIT NO. EXHIBIT NAME EXHIBIT NO.
- ----------- ------------ -----------
<S> <C> <C>
11(ii) Consent of Coopers & Lybrand L.L.P 99.B11(ii)
</TABLE>
<PAGE>
We consent to the incorporation by reference in this Post-Effective Amendment
No. 33 to the Registration Statement of PIMCO Funds on Form N-1A (File No.
33-12113) of our report dated November 22, 1996 on our audit of the financial
statements and financial highlights of PIMCO Advisors Funds which is included in
the Annual Report of PIMCO Advisors Funds for the year ended September 30, 1996.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
January 10, 1997
<PAGE>
<TABLE>
<CAPTION>
EDGAR
EXHIBIT NO. EXHIBIT NAME EXHIBIT NO.
- ----------- ------------ -----------
<S> <C> <C>
15(xiii) Form of Amendment to Administration Agreement 99.B15(xiii)
</TABLE>
<PAGE>
[Form of]
AMENDMENT DATED [___________,] 199_
TO
ADMINISTRATION AGREEMENT
DATED NOVEMBER 1, 1995
The Administration Agreement, dated as of November 1, 1995 (the
"Agreement") between PIMCO Funds (the "Trust"), a Massachusetts business trust,
and Pacific Investment Management Company (the "Administrator" or "PIMCO"), a
general partnership organized under the laws of California, is hereby amended as
follows:
(1) The second and third introductory paragraphs of the Agreement are
hereby amended so that said paragraphs read in their entirety as follows:
WHEREAS, the Trust is authorized to issue shares of beneficial
interest ("Shares") in separate series with each such series representing
interests in a separate portfolio of securities and other assets; and each
series of the Trust issues its Shares in five classes: Class A, Class B, Class
C, the Institutional Class and the Administrative Class, with each such class
representing interests in the same portfolio of securities and other assets; and
WHEREAS, the Trust has established twenty series, which are
designated as the Money Market Fund; the Short-Term Fund; the Low Duration Fund;
the Low Duration Fund II; the Low Duration
<PAGE>
Fund III; the Moderate Duration Fund; the High Yield Fund; the Total Return
Fund; the Total Return Fund II; the Total Return Fund III; the Commercial
Mortgage Securities Fund; the Long-Term U.S. Government Fund; the Real Return
Bond Fund; the Foreign Bond Fund; the Global Bond Fund; the Global Bond Fund II;
the International Bond Fund; the StocksPLUS Fund; the StocksPLUS Short Strategy
Fund; and the Strategic Balanced Fund; such series, together with any other
series subsequently established by the Trust, with respect to which the Trust
desires to retain the Administrator to render administrative services hereunder,
and with respect to which the Administrator is willing to do so, being herein
collectively referred to also as the "Funds"; and
(2) Section 5 is hereby amended so that reads in its entirety as follows:
5. Compensation. As compensation for the services rendered under
------------
this Agreement, the Trust shall pay to the Administrator a monthly fee,
calculated as a percentage (on an annual basis) of the average daily value of
the net assets of each of the Funds during the preceding month. The fee rates
applicable to each Class of a Fund shall be set forth in a schedule to this
Agreement. The fees payable to the Administrator for all of the Funds shall be
computed and accrued daily and paid monthly. If the Administrator shall serve
for less than any whole month, the foregoing compensation shall be prorated.
- 2 -
<PAGE>
(3) In Section 7, Paragraph (h) of the expenses of the Trust is hereby
amended so that it reads as follows:
[The Trust shall bear the following expenses:]
(h) Any expenses allocated or allocable to a specific class
of shares, including fees paid pursuant to an administrative
services or distribution plan.
(4) Section 8 is hereby amended so that it reads in its entirety as
follows:
8. Liability. The Administrator shall give the Trust the benefit
---------
of the Administrator's best efforts in rendering services under this Agreement.
The Administrator may rely on information reasonably believed by it to be
accurate and reliable. As an inducement for the Administrator's undertaking to
render services under this Agreement, the Trust agrees that neither the
Administrator nor its stockholders, officers, directors, or employees shall be
subject to any liability for, or any damages, expenses or losses incurred in
connection with, any act or omission or mistake in judgment connected with or
arising out of any services rendered under this Agreement, except by reason of
willful misfeasance, bad faith, or gross negligence in performance of the
Administrator's duties, or by reason of reckless disregard of the
Administrator's obligations and duties
- 3 -
<PAGE>
under this Agreement. This provision shall govern only the liability to the
Trust of the Administrator and that of its stockholders, officers, directors,
and employees, and shall in no way govern the liability to the Trust or the
Administrator or provide a defense for any other person including persons that
provide services for the Funds as described in Section 2(b) of this Agreement.
(5) Term and Continuation. This Amendment to the Agreement shall take
---------------------
effect as of the date indicated above, and shall remain in effect, unless sooner
terminated as provided herein, for one year from such date, and shall continue
thereafter on an annual basis with respect to each Fund or class thereof
provided that such continuance is specifically approved at least annually (a) by
the vote of a majority of the Board of Trustees of the Trust, or (b) by vote of
a majority of the outstanding voting shares of the Fund or class, and provided
continuance is also approved by the vote of a majority of the Board of Trustees
of the Trust who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of the Trust, or PIMCO, cast in person at a meeting
called for the purpose of voting on such approval.
(a) This Agreement may be terminated with respect to the Institutional
Class and Administrative Class shares of the Funds (except for the Global
Bond Fund II):
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<PAGE>
(i) by the Trust at any time with respect to the services
provided by the Administrator, by vote of a majority of the entire
Board of Trustees of the Trust or by a vote of a majority of the
outstanding voting shares of the Trust or, with respect to a
particular Fund, by vote of a majority of the outstanding voting
shares of the Administrative and Institutional Class shareholders of
such Fund, on 60 days' written notice to the Administrator;
(ii) at the expiration of the two-year period commencing the date
of its effectiveness (November 1, 1995), by the Administrator at any
time, without the payment of any penalty, upon 60 days' written notice
to the Trust.
(b) This Agreement may be terminated with respect to the Class A,
Class B or Class C Shares of the High Yield, Total Return, Low Duration,
and Money Market Funds, or with respect to any class of shares of the
Global Bond Fund II:
(i) by the Trust at any time with respect to the services
provided by the Administrator, without the payment of any penalty, by
vote of a majority of the entire Board of Trustees of the Trust or by
a vote of a majority of the outstanding voting shares of the Trust or,
with respect to a particular Fund or class, by vote
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<PAGE>
of a majority of the outstanding voting shares of such Fund or class,
on 60 days' written notice to the Administrator;
(ii) at the expiration of the one-year period commencing on the
date of effectiveness of this Amendment, by the Administrator at any
time, without the payment of any penalty, upon 60 days' written notice
to the Trust.
(c) This agreement may be terminated with respect to the Class A,
Class B or Class C Shares of each Fund other than those Funds in Section
5(b) above:
(i) by the Trust at any time with respect to the services
provided by the Administrator, without the payment of any penalty, by
vote of a majority of the entire Board of Trustees of the Trust or by
a vote of a majority of the outstanding voting shares of the Trust or,
with respect to a particular Fund or class, by vote of a majority of
the outstanding voting shares of such Fund or class, on 60 days'
written notice to the Administrator;
(ii) by the Administrator at any time, without payment of any
penalty, upon 60 days' written notice to the Trust.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed
by their officers designated below on the day and year first above written.
PIMCO FUNDS
__________________________ By: __________________________________
Attest Title:
Title:
PACIFIC INVESTMENT MANAGEMENT COMPANY
__________________________ By: __________________________________
Attest Title:
Title:
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<PAGE>
Schedule to
Administration Agreement
<TABLE>
<CAPTION>
Fee Rate
--------
Institutional
and
Administrative
Fund Classes (%) Class A, B and C (%)
---- ------------------------------------------- ----------------------------------------------
Custody and Other Custody and Other
Portfolio Accounting Expenses Total Portfolio Accounting Expenses Total
-------------------- -------- ----- -------------------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Money Market 0.10 0.10 0.20 0.10 0.25 0.35
Short-Term 0.10 0.10 0.20 0.10 0.25 0.35
Low Duration 0.10 0.08 0.18 0.10 0.30 0.40
Low Duration II 0.10 0.15 0.25 0.10 0.30 0.40
Low Duration III 0.10 0.15 0.25 0.10 0.30 0.40
Moderate Duration 0.10 0.10 0.20 0.10 0.30 0.40
High Yield 0.10 0.15 0.25 0.10 0.30 0.40
Total Return 0.10 0.08 0.18 0.10 0.30 0.40
Total Return II 0.10 0.15 0.25 0.10 0.30 0.40
Total Return III 0.10 0.15 0.25 0.10 0.30 0.40
Commercial Mortgage Securities 0.10 0.15 0.25 0.10 0.30 0.40
Long-Term U.S. Government 0.10 0.15 0.25 0.10 0.30 0.40
Real Return Bond 0.10 0.15 0.25 0.10 0.30 0.40
Foreign Bond 0.10 0.15 0.25 0.10 0.35 0.45
Global Bond 0.10 0.20 0.30 0.10 0.35 0.45
Global Bond II 0.10 0.20 0.30 0.10 0.35 0.45
International Bond 0.10 0.15 0.25 0.10 0.35 0.45
StocksPLUS 0.10 0.15 0.25 0.10 0.30 0.40
StocksPLUS Short Strategy 0.10 0.15 0.25 0.10 0.30 0.40
Strategic Balanced 0.10 0.15 0.25 0.10 0.30 0.40
</TABLE>
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