<PAGE>
PIMCO Funds Prospectus
Pacific SHORTER-TERM BOND FUNDS
Investment Money Market Fund
Management Short-Term Fund
Series Class Low Duration Fund
A, B, C Shares
INTERMEDIATE-TERM BOND FUNDS
April 1, 1998 Real Return Bond Fund
Total Return Fund
High Yield Fund
LONG-TERM BOND FUND
Municipal Bond Fund
Long-Term U.S. Government Fund
INTERNATIONAL BOND FUNDS
Global Bond Fund II
Foreign Bond Fund
Emerging Markets Bond Fund
STOCK FUNDS
StocksPLUS Fund
[LOGO OF PIMCO FUNDS APPEARS HERE]
<PAGE>
PIMCO Funds: Pacific Investment Management Series
Prospectus
April 1, 1998
PIMCO Funds (the "Trust") is an open-end series management invest-
ment company offering twelve separate investment portfolios (each
a "Fund") in this Prospectus, each with different investment ob-
jectives and strategies. The Trust is designed to provide access
to the professional investment management services offered by Pa-
cific Investment Management Company ("Pacific Investment Manage-
ment"), which serves as investment adviser (the "Advisor") to the
Funds. The address of PIMCO Funds is 840 Newport Center Drive,
Suite 360, Newport Beach, CA 92660.
Each Fund offers three classes of shares in this Prospectus: Class
A shares (generally sold subject to an initial sales charge),
Class B shares (sold subject to a contingent deferred sales
charge) and Class C shares (sold subject to an asset based sales
charge). Through separate prospectuses, certain Funds and other
series of the Trust may offer up to three additional classes of
shares, Class D, Institutional Class and Administrative Class
shares. See "Alternative Purchase Arrangements."
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 poli-
cies and restrictions applicable to each Fund, are set forth in
this Prospectus. There can be no assurance that the investment ob-
jective 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 April 1, 1998, as
amended or supplemented from time to time, is available free of
charge by writing to PIMCO Funds Distributors LLC (the "Distribu-
tor"), 2187 Atlantic Street, Stamford, Connecticut 06902, or by
telephoning 800-426-0107. The Statement of Additional Information,
which contains more detailed information about the Trust, has been
filed with the Securities and Exchange Commission and is incorpo-
rated by reference in this Prospectus. The Securities and Exchange
Commission maintains an Internet World Wide Web site (at
http://www.sec.gov) which contains the Statement of Additional In-
formation, materials that are incorporated by reference into this
Prospectus and the Statement of Additional Information, and other
information about the Funds.
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, AND ENTAIL
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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.
EACH OF THE FUNDS, EXCEPT THE MONEY MARKET FUND AND THE MUNICIPAL
BOND FUND, MAY INVEST ALL OF ITS ASSETS IN DERIVATIVE INSTRUMENTS,
SOME OF WHICH MAY BE PARTICULARLY SENSITIVE TO CHANGES IN PREVAIL-
ING INTEREST RATES. UNEXPECTED CHANGES IN INTEREST RATES MAY AD-
VERSELY AFFECT THE VALUE OF A FUND'S INVESTMENTS IN PARTICULAR DE-
RIVATIVE INSTRUMENTS.
THE HIGH YIELD AND EMERGING MARKETS BOND FUNDS MAY INVEST ALL OF
THEIR ASSETS IN JUNK BONDS, WHICH ARE SUBJECT TO HIGH RISK, AND
SPECULATIVE WITH REGARD TO PAYMENT OF INTEREST AND RETURN OF PRIN-
CIPAL. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE IN-
VESTING IN THE HIGH YIELD FUND. SEE "CHARACTERISTICS AND RISKS OF
SECURITIES AND INVESTMENT TECHNIQUES--HIGH YIELD SECURITIES ("JUNK
BONDS")."
TABLE OF CONTENTS
<TABLE>
<S> <C>
PIMCO Funds Overview.............. 3
Schedule of Fees.................. 4
Financial Highlights.............. 8
Investment Objectives and
Policies.......................... 12
Investment Risks and
Considerations.................... 19
Characteristics and Risks of
Securities and Investment
Techniques....................... 20
Performance Information........... 35
How to Buy Shares................. 36
Alternative Purchase Arrangements. 40
Exchange Privilege................ 48
How to Redeem..................... 49
Distributor and Distribution and
Servicing Plans................... 53
How Net Asset Value Is Determined. 56
Distributions..................... 57
Taxes............................. 57
Management of the Trust........... 59
Description of the Trust.......... 62
Mailings to Shareholders.......... 63
Appendix A--Description of
Duration......................... 64
Appendix B--Description of
Securities Ratings............... 65
</TABLE>
2 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Funds Overview
Pacific Investment Management, a subsidiary partnership of PIMCO
Advisors L.P., is the investment adviser of all the Funds. Pacific
Investment Management is one of the premier fixed income invest-
ment management firms in the U.S. As of December 31, 1997, Pacific
Investment Management had approximately $118 billion in assets un-
der management. Pacific Investment Management invests in all sec-
tors of the fixed income market, using its total return philoso-
phy--seeking capital appreciation as well as yield.
<TABLE>
<CAPTION>
PIMCO PRIMARY
FUND NAME OBJECTIVE DURATION CREDIT QUALITY(/1/)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FUND SHORT-TERM BOND Money Market Maximum current income, consistent less than or Min 95% Aaa or
PROFILES FUNDS with preservation of capital and equal to 90 days Prime 1; less
daily liquidity dollar-weighted than or equal to
average maturity 5% Aa or Prime 2
-----------------------------------------------------------------------------------------------------
Short-Term Maximum current income, consistent 0-1 year B to Aaa;max-
with preservation of capital and 10% below Baa
daily liquidity
-----------------------------------------------------------------------------------------------------
Low Duration Maximum total return consistent 1-3 years B to Aaa;max
with preservation of real capital 10% below Baa
and prudent investment management
-----------------------------------------------------------------------------------------------------------------------
INTERMEDIATE- Real Return Bond Maximum real return, consistent Not applicable, A to Aaa
TERM with preservation of real capital but see Fund
BOND FUNDS and prudent investment management description
----------------------------------------------------------------------------------------------------
Total Return Maximum total return, consistent 3-6 years B to Aaa; max
with preservation of capital 10% below Baa
and prudent investment management
----------------------------------------------------------------------------------------------------
High Yield Maximum total return, consistent 2-6 years B to Aaa; min
with preservation of capital 65% below Baa
and prudent investment management
---------------------------------------------------------------------------------------------------------------------
LONG-TERM BOND Municipal Bond High current income exempt from 3-10 years Ba to Aaa; max
FUNDS federal income tax, consistent with 10% below Baa
preservation of capital
----------------------------------------------------------------------------------------------------
Long-Term U.S. Government Maximum total return, consistent greater than or A to Aaa
with preservation of capital equal to 8 years
and prudent investment management
---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL Global Bond II Maximum total return, consistent 3-6 years B to Aaa; max
BOND FUNDS with preservation of capital 10% below Baa
(U.S. and non-U.S.)
---------------------------------------------------------------------------------------------------
Foreign Bond Maximum total return, consistent 3-6 years B to Aaa; max
with preservation of capital 10% below Baa
and prudent investment management
(non-U.S.)
---------------------------------------------------------------------------------------------------
Emerging Markets Bond Maximum total return, consistent 0-8 years B to Aaa
with preservation of capital
and prudent investment management
(non-U.S.)
--------------------------------------------------------------------------------------------------------------------
STOCK FUND StocksPLUS(/2/) Total return which exceeds that of the 0-1 year B to Aaa; max
S&P 500 10% below Baa
</TABLE>
1. As rated by Moody's Investors Service, Inc., or if unrated, de-
termined to be of comparable quality. For specific information
concerning the credit quality of the securities in each Fund's
portfolio, see "Investment Objectives and Policies."
2. The StocksPLUS Fund may invest all of its assets in stock index
futures backed by short-term bonds.
April 1, 1998 Prospectus 3
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER MAXIMUM INITIAL SALES
TRANSACTION CHARGE IMPOSED ON
EXPENSES PURCHASES
(as a percentage of
offering price at time
of purchase)
TOTAL RETURN, HIGH
YIELD, LONG-TERM U.S.
GOVERNMENT, GLOBAL
BOND II, FOREIGN BOND
AND EMERGING MARKETS
BOND FUNDS 4.50% None None
LOW DURATION, REAL
RETURN BOND, MUNICIPAL
BOND AND STOCKSPLUS
FUNDS 3.00% None None
SHORT-TERM FUND 2.00% None None
MONEY MARKET FUND None(/1/) None None
---------------------------------------------------------
MAXIMUM SALES CHARGE
IMPOSED ON REINVESTED
DIVIDENDS
(as a percentage of net
asset value at time of
purchase) None None None
---------------------------------------------------------
MAXIMUM CONTINGENT
DEFERRED SALES CHARGE
("CDSC")
(as a percentage of
original purchase price) 1%(/2/) 5%(/3/) 1%(/4/)
---------------------------------------------------------
EXCHANGE FEE None(/1/) None None
</TABLE>
1. Regular sales charges apply when Class A shares of the Money
Market Fund (on which no sales charge was paid at time of pur-
chase) are exchanged for shares of any other Fund.
2. Imposed only in certain circumstances where Class A shares are
purchased without a front-end sales charge at the time of pur-
chase. See "Alternative Purchase Arrangements" in this Prospectus.
3. The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines ac-
cording to the schedule set forth under "Alternative Purchase Ar-
rangements--Deferred Sales Charge Alternative--Class B Shares" in
this Prospectus.
4. The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
<TABLE>
<CAPTION>
EXAMPLE: You would EXAMPLE: You would
pay the pay the
following expenses
on a $1,000 following expenses
investment on a $1,000
assuming (1) 5% investment
annual return and assuming (1) 5%
(2) redemption at annual return and
ANNUAL FUND OPERATING EXPENSES the end of each (2) no redemption:
(As a percentage of average net assets): time period:
TOTAL
ADMINI- FUND
ADVISORY STRATIVE 12B-1 OPERATING YEAR YEAR
FUND FEE FEE FEES(/1/) EXPENSES 1 3 5 10 1 3 5 10
------------------------------------------------------------------------------------------------------
CLASS A <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHARES MONEY MARKET .15% .35% .10%(/2/) .60%(/3/) $ 6 $19 $ 33 $ 75 $ 6 $19 $ 33 $ 75
------------------------------------------------------------------------------------------------------
SHORT-TERM .25 .35 .25 .85 29 47 66 123 29 47 66 123
------------------------------------------------------------------------------------------------------
LOW DURATION .25 .40 .25 .90 39 58 78 137 39 58 78 137
------------------------------------------------------------------------------------------------------
REAL RETURN BOND .25 ,40 .25 .90 39 58 78 137 39 58 78 137
------------------------------------------------------------------------------------------------------
TOTAL RETURN .25 .40 .25 .90 54 72 93 151 54 72 93 151
------------------------------------------------------------------------------------------------------
HIGH YIELD .25 .40 .25 .90 54 72 93 151 54 72 93 151
------------------------------------------------------------------------------------------------------
MUNICIPAL BOND .25 .35 .25 .85 38 56 N/A N/A 38 56 N/A N/A
------------------------------------------------------------------------------------------------------
LONG-TERM U.S.
GOVERNMENT .25 .40 .25 .90 54 72 93 151 54 72 93 151
------------------------------------------------------------------------------------------------------
GLOBAL BOND II .25 .45 .25 .95 54 74 95 156 54 74 95 156
------------------------------------------------------------------------------------------------------
FOREIGN BOND .25 .45 .25 .95 54 74 95 156 54 74 95 156
------------------------------------------------------------------------------------------------------
EMERGING MARKETS BOND .45 .55 .25 1.25 57 83 111 189 57 83 111 189
------------------------------------------------------------------------------------------------------
STOCKSPLUS .40 .40 .25 1.05 40 62 86 154 40 62 86 154
------------------------------------------------------------------------------------------------------
</TABLE>
1. 12b-1 fees represent servicing fees which are paid to the Dis-
tributor and repaid to participating brokers, certain banks and
other financial intermediaries. See "Distributor and Distribution
and Servicing Plans."
2. The Distributor has voluntarily undertaken to reduce the 12b-1
fee it receives with respect to the Money Market Fund to .10% of
the Fund's average daily net assets until further notice. Absent
such undertaking, the 12b-1 fee would be .20% of the Fund's 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.
4 PIMCO Funds: Pacific Investment Management Series
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: You would EXAMPLE: You would
pay the following pay the 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 redemption:
ANNUAL FUND OPERATING EXPENSES the end of each
(As a percentage of average net assets): time period:
TOTAL
ADMINI- FUND
ADVISORY STRATIVE 12B-1 OPERATING YEAR YEAR
FUND FEE FEE FEES(/1/) EXPENSES 1 3 5 10 1 3 5 10
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET .15% .35% 1.00% 1.50% $65 $77 $102 $143 $15 $47 $ 82 $143
-------------------------------------------------------------------------------------------------------
SHORT-TERM .25 .35 1.00 1.60 66 80 107 160 16 50 87 160
-------------------------------------------------------------------------------------------------------
LOW DURATION .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
CLASS B -------------------------------------------------------------------------------------------------------
SHARES REAL RETURN BOND .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
-------------------------------------------------------------------------------------------------------
HIGH YIELD .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
-------------------------------------------------------------------------------------------------------
MUNICIPAL BOND .25 .35 1.00 1.60 66 80 N/A N/A 16 50 N/A N/A
-------------------------------------------------------------------------------------------------------
LONG-TERM U.S.
GOVERNMENT .25 .40 1.00 1.65 67 82 110 166 17 52 90 166
-------------------------------------------------------------------------------------------------------
GLOBAL BOND II .25 .45 1.00 1.70 67 84 112 171 17 54 92 171
-------------------------------------------------------------------------------------------------------
FOREIGN BOND .25 .45 1.00 1.70 67 84 112 171 17 54 92 171
-------------------------------------------------------------------------------------------------------
EMERGING MARKETS BOND .45 .55 1.00 2.00 70 93 128 204 20 63 108 204
-------------------------------------------------------------------------------------------------------
STOCKSPLUS .40 .40 1.00 1.80 68 87 117 182 18 57 97 182
-------------------------------------------------------------------------------------------------------
</TABLE>
1. 12b-1 fees which equal or are less than .25% represent servic-
ing fees which are paid to the Distributor and repaid to partici-
pating brokers, certain banks and other financial intermediaries.
12b-1 fees which exceed .25% represent aggregate distribution and
servicing fees. See "Distributor and Distribution and Servicing
Plans."
April 1, 1998 Prospectus
5
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: You would EXAMPLE: You would
pay the following pay the following
expenses on a expenses on a
$1,000 investment $1,000 investment
assuming (1) 5% assuming (1) 5%
annual return and annual return and
(2) redemption at (2) no
ANNUAL FUND OPERATING EXPENSES the end of each redemption:
(As a percentage of average net assets): time period:
TOTAL
ADMINI- FUND
ADVISORY STRATIVE 12B-1 OPERATING YEAR YEAR
FUND FEE FEE FEES(/1/) EXPENSES 1 3 5 10 1 3 5 10
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET .15% .35% .10(/2/)% .60(/3/)% $16 $19 $ 33 $ 75 $ 6 $19 $33 $ 75
---------------------------------------------------------------------------------------------------------
SHORT-TERM .25 .35 .55(/2/) 1.15(/3/) 22 37 63 140 12 37 63 140
---------------------------------------------------------------------------------------------------------
LOW DURATION .25 .40 .75 1.40 24 44 77 168 14 44 77 168
---------------------------------------------------------------------------------------------------------
REAL RETURN BOND .25 .40 .75(/2/) 1.40(/3/) 24 44 77 168 14 44 77 168
---------------------------------------------------------------------------------------------------------
TOTAL RETURN .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
---------------------------------------------------------------------------------------------------------
HIGH YIELD .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
---------------------------------------------------------------------------------------------------------
MUNICIPAL BOND .25 .35 .75(/2/) 1.35(/3/) 24 43 N/A N/A 14 43 N/A N/A
---------------------------------------------------------------------------------------------------------
LONG-TERM U.S.
GOVERNMENT .25 .40 1.00 1.65 27 52 90 195 17 52 90 195
---------------------------------------------------------------------------------------------------------
GLOBAL BOND II .25 .45 1.00 1.70 27 54 92 201 17 54 92 201
---------------------------------------------------------------------------------------------------------
FOREIGN BOND .25 .45 1.00 1.70 27 54 92 201 17 54 92 201
---------------------------------------------------------------------------------------------------------
EMERGING MARKETS BOND .45 .55 1.00 2.00 30 63 108 233 20 63 108 233
---------------------------------------------------------------------------------------------------------
STOCKSPLUS .40 .40 .75(/2/) 1.55(/3/) 26 49 84 185 16 49 84 185
---------------------------------------------------------------------------------------------------------
</TABLE>
CLASS C
SHARES
1. 12b-1 fees which equal or are less than .25% represent servic-
ing fees which are paid to the Distributor and repaid to partici-
pating brokers, certain banks and other financial intermediaries.
12b-1 fees which exceed .25% represent aggregate distribution and
servicing fees. See "Distributor and Distribution and Servicing
Plans."
2. The Distributor has voluntarily undertaken to reduce the 12b-1
fee it may receive with respect to each of the Money Market,
Short-Term, Real Return Bond, Municipal Bond and StocksPLUS Funds
to the following annual rates based on the Fund's average daily
net assets until further notice: Money Market--.10%; Short-Term--
.55%; Real Return Bond--.75%; Municipal Bond--.75%; and
StocksPLUS--.75%. Absent such undertakings, the 12b-1 fee for each
such Fund would be as follows: Money Market--.20%; Short-Term--
1.00%; Real Return Bond--1.00%; Municipal Bond--1.00%; and
StocksPLUS--1.00%.
3. Absent the undertakings noted, the "Total Fund Operating Ex-
penses" for the Money Market, Short-Term, Real Return Bond, Munic-
ipal Bond and StocksPLUS Funds would be as follows (based on aver-
age daily net assets): Money Market--.70%; Short-Term--1.60%; Real
Return Bond--1.65%; Municipal Bond--1.60%; and StocksPLUS--1.80%.
The purpose of the foregoing tables is to assist investors in un-
derstanding the various costs and expenses of the Trust that are
borne directly or indirectly by Class A, Class B and Class C
shareholders of the Funds. The information is based upon each
Funds' current fees and expenses. 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, depend-
ing on the length of time the shares are held, pay more than the
economic equivalent of the maximum front-end sales charges permit-
ted by relevant rules of the National Association of Securities
Dealers, Inc.
NOTE: THE FIGURES SHOWN IN THE EXAMPLES ARE ENTIRELY HYPOTHETICAL.
THEY ARE NOT REPRESENTATIONS OF PAST OR FUTURE PERFORMANCE OR EX-
PENSES; ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS
THAN SHOWN.
PIMCO Funds: Pacific Investment Management Series
6
<PAGE>
(This page left blank intentionally)
April 1, 1998 Prospectus
7
<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 audited financial state-
ments, which are included in the Trust's Annual Report dated March 31, 1997,
and the Trust's unaudited financial statements, which are included in the
Trust's Semiannual Report dated September 30, 1997, both of which are incorpo-
rated by reference in the Statement of Additional Information. The Trust's au-
dited financial statements and selected per share data and ratios appearing be-
low 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. The Trust's Semiannual Report also may be obtained without
charge. Information is presented for each Fund described herein which had in-
vestment operations during the reporting periods. Information regarding the
Global Bond Fund II reflects the operational history of the Global Income Fund,
a former series of PIMCO Advisors Funds that was reorganized as a series of the
Trust on January 17, 1997. Information for the Global Bond Fund II for the pe-
riod ended September 30, 1996, has been audited by that Fund's former indepen-
dent 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
Class A
09/30/97(*) $ 1.00 $0.03(+)(b) $ 0.00 (+) $0.03 $(0.03) $ 0.00 $0.00 $0.00
03/31/97(a) 1.00 0.01 0.00 0.01 (0.01) 0.00 0.00 0.00
Class B
09/30/97(*) 1.00 0.02(+) 0.00 (+) 0.02 (0.02) 0.00 0.00 0.00
03/31/97(a) 1.00 0.01 0.00 0.01 (0.01) 0.00 0.00 0.00
Class C
09/30/97(*) 1.00 0.03(+)(c) 0.00 (+) 0.03 (0.03) 0.00 0.00 0.00
03/31/96(a) 1.00 0.01 0.00 0.01 (0.01) 0.00 0.00 0.00
SHORT-TERM FUND
Class A
09/30/97(*) $10.00 $0.29(+) $ 0.08 (+) $0.37 $(0.29) $ 0.00 $0.00 $0.00
03/31/97(d) 10.04 0.10 (0.03) 0.07 (0.10) (0.01) 0.00 0.00
Class B
09/30/97(*) 10.00 0.26(+) 0.08 (+) 0.34 (0.26) 0.00 0.00 0.00
03/31/97(d) 10.04 0.09 (0.03) 0.06 (0.10) 0.00 0.00 0.00
Class C
09/30/97(*) 10.00 0.27(+)(e) 0.08 (+) 0.35 (0.27) 0.00 0.00 0.00
03/31/97(d) 10.04 0.09 (0.03) 0.06 (0.10) 0.00 0.00 0.00
LOW DURATION FUND
Class A
09/30/97(*) $ 9.98 $0.29(+) $ 0.22 (+) $0.51 $(0.29) $ 0.00 $0.00 $0.00
03/31/97(a) 10.02 0.12 (0.03) 0.09 (0.12) (0.01) 0.00 0.00
Class B
09/30/97(*) 9.98 0.25(+) 0.22 (+) 0.47 (0.25) 0.00 0.00 0.00
03/31/97(a) 10.02 0.10 (0.03) 0.07 (0.11) 0.00 0.00 0.00
Class C
09/30/97(*) 9.98 0.27(+) 0.21 (+) 0.48 (0.26) 0.00 0.00 0.00
03/31/97(a) 10.02 0.11 (0.03) 0.08 (0.11) (0.01) 0.00 0.00
HIGH YIELD FUND
Class A
9/30/97(*) $11.10 $0.48(+) $ 0.52 (+) $1.00 $(0.48) $ 0.00 $0.00 $0.00
3/31/97(a) 11.18 0.17 (0.05) 0.12 (0.20) 0.00 0.00 0.00
Class B
9/30/97(*) 11.10 0.44(+) 0.52 (+) 0.96 (0.44) 0.00 0.00 0.00
3/31/97(a) 11.18 0.15 (0.05) 0.10 (0.18) 0.00 0.00 0.00
Class C
9/30/97(*) 11.10 0.44(+) 0.52 (+) 0.96 (0.44) 0.00 0.00 0.00
3/31/97(a) 11.18 0.15 (0.05) 0.10 (0.18) 0.00 0.00 0.00
</TABLE>
- -------
(+)Per share amounts based on average number of shares outstanding during the
period.
(*)Unaudited.
(a)From commencement of operations, January 13, 1997.
(b)Reflects voluntary waiver of distribution fee of $14,946 (.00 per share) by
the Distributor.
(c)Reflects voluntary waiver of distribution fee of $30,556 (.00 per share) by
the Distributor.
(d)From commencement of operations, January 20, 1997.
(e)Reflects voluntary waiver of distribution fee of $5,771 (.02 per share) by
the Distributor.
PIMCO Funds: Pacific Investment Management Series
8
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<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 2.52% $ 44,690 0.60%+(f) 5.05%+(g) N/A
0.00 (0.01) 1.00 1.01 43,589 0.57+ 4.44+ N/A
0.00 (0.02) 1.00 2.09 2,584 1.50+ 4.12+ N/A
0.00 (0.01) 1.00 0.83 3,143 1.41+ 3.62+ N/A
0.00 (0.03) 1.00 2.52 59,700 0.60+(f) 5.04+(h) N/A
0.00 (0.01) 1.00 1.02 85,398 0.58+ 4.47+ N/A
$0.00 $(0.29) $10.08 3.71% $ 7,554 0.85%+ 5.57%+ 24%
0.00 (0.11) 10.00 0.66 2,533 0.86+ 5.07+ 77
0.00 (0.26) 10.08 3.44 609 1.60+ 4.95+ 24
0.00 (0.10) 10.00 0.58 114 1.62+ 4.83+ 77
0.00 (0.27) 10.08 3.56 3,721 1.15+(i) 5.31+(j) 24
0.00 (0.10) 10.00 0.63 1,359 1.14+ 4.78+ 77
$0.00 $(0.29) $10.20 5.17% $ 72,176 0.90%+ 5.66%+ 132%
0.00 (0.13) 9.98 0.85 59,348 0.91+ 5.84+ 240
0.00 (0.25) 10.20 4.77 8,487 1.65+ 4.95+ 132
0.00 (0.11) 9.98 0.68 6,296 1.67+ 5.03+ 240
0.00 (0.26) 10.20 4.91 59,625 1.40+ 5.32+ 132
0.00 (0.12) 9.98 0.75 63,606 1.42+ 5.36+ 240
$0.00 $(0.48) $11.62 9.18% $ 49,258 0.90%+ 8.43%+ 17%
0.00 (0.20) 11.10 1.06 28,873 0.92+ 8.28+ 67
0.00 (0.44) 11.62 8.77 100,636 1.65+ 7.68+ 17
0.00 (0.18) 11.10 0.86 60,269 1.67+ 7.52+ 67
0.00 (0.44) 11.62 8.78 242,856 1.65+ 7.71+ 17
0.00 (0.18) 11.10 0.88 205,297 1.68+ 7.56+ 67
</TABLE>
- -------
+Annualized.
(f)The Ratio of Expenses to Average Net assets without the waiver would have
been 0.70%.
(g)The Ratio of Net Investment Income to Average Net assets without the waiver
would have been 4.95%.
(h)The Ratio of Net Investment Income to Average Net assets without the waiver
would have been 4.94%.
(i)The Ratio of Expenses to Average Net assets without the waiver would have
been 1.60%.
(j)The Ratio of Net Investment Income to Average Net assets without the waiver
would have been 4.86%.
April 1, 1998 Prospectus 9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<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>
TOTAL RETURN FUND
Class A
09/30/97(*) $10.27 $ 0.30 (+) $ 0.46 (+) $ 0.76 $(0.30) $0.00 $ 0.00 $0.00
03/31/97(a) 10.40 0.12 (0.12) 0.00 (0.13) 0.00 0.00 0.00
Class B
09/30/97(*) 10.27 0.26 (+) 0.46 (+) 0.72 (0.26) 0.00 0.00 0.00
03/31/97(a) 10.40 0.11 (0.12) (0.01) (0.12) 0.00 0.00 0.00
Class C
09/30/97(*) 10.27 0.26 (+) 0.46 (+) 0.72 (0.26) 0.00 0.00 0.00
03/31/97(a) 10.40 0.11 (0.12) (0.01) (0.12) 0.00 0.00 0.00
REAL RETURN BOND FUND
Class A
09/30/97(*) $ 9.93 $ 0.21 (+) $ 0.02 (+) $ 0.23 $(0.21) $0.00 $ 0.00 $0.00
03/31/97(k) 10.00 0.11 (+) (0.10)(+) 0.01 (0.08) 0.00 0.00 0.00
Class B
09/30/97(*) 9.93 0.18 (+) 0.02 (+) 0.20 (0.18) 0.00 0.00 0.00
03/31/97(k) 10.00 0.09 (0.10) (0.01) (0.06) 0.00 0.00 0.00
Class C
09/30/97(*) 9.93 0.19 (+)(l) 0.02 (+) 0.21 (0.19) 0.00 0.00 0.00
03/31/97(k) 10.00 0.09 (0.10) (0.01) (0.06) 0.00 0.00 0.00
LONG-TERM U.S. GOVERNMENT FUND
Class A
9/30/97(*) $ 9.39 $ 0.29 (+) $ 0.75 (+) $ 1.04 $(0.29) $0.00 $ 0.00 $0.00
3/31/97(d) 9.67 0.32 (0.47) (0.15) (0.13) 0.00 0.00 0.00
Class B
9/30/97(*) 9.39 0.25 (+) 0.75 (+) 1.00 (0.25) 0.00 0.00 0.00
3/31/97(d) 9.67 0.29 (0.47) (0.18) (0.10) 0.00 0.00 0.00
Class C
9/30/97(*) 9.39 0.25 (+) 0.75 (+) 1.00 (0.25) 0.00 0.00 0.00
3/31/97(d) 9.67 0.29 (0.47) (0.18) (0.10) 0.00 0.00 0.00
FOREIGN BOND FUND
Class A
9/30/97(*) $10.41 $ 0.22 (+) $ 0.47 (+) $ 0.69 $(0.21) $0.00 $ 0.00 $0.00
3/31/97(d) 10.59 0.59 (0.72) (0.13) (0.05) 0.00 0.00 0.00
Class B
9/30/97(*) 10.41 0.18 (+) 0.47 (+) 0.65 (0.17) 0.00 0.00 0.00
3/31/97(d) 10.59 0.58 (0.72) (0.14) (0.04) 0.00 0.00 0.00
Class C
9/30/97(*) 10.41 0.18 (+) 0.46 (+) 0.64 (0.16) 0.00 0.00 0.00
3/31/97(d) 10.59 0.58 (0.72) (0.14) (0.14) 0.00 0.00 0.00
GLOBAL BOND FUND II
Class A
09/30/97(*) $10.84 $ 0.26 (+) $ 0.54 (+) $ 0.80 $(0.25) $0.00 $ 0.00 $0.00
10/01/96--03/31/97 10.96 0.66 (0.16) 0.50 (0.22) 0.00 (0.40) 0.00
09/30/96(m) 10.00 0.32 (n) 0.95 1.27 (0.31) 0.00 0.00 0.00
Class B
09/30/97(*) 10.84 0.21 (+) 0.55 (+) 0.76 (0.21) 0.00 0.00 0.00
10/01/96--03/31/97 10.96 0.62 (0.16) 0.46 (0.18) 0.00 (0.40) 0.00
09/30/96(m) 10.00 0.30 (n) 0.92 1.22 (0.26) 0.00 0.00 0.00
Class C
09/30/97(*) 10.84 0.20 (+) 0.56 (+) 0.76 (0.21) 0.00 0.00 0.00
10/01/96--03/31/97 10.96 0.62 (0.16) 0.46 (0.18) 0.00 (0.40) 0.00
09/30/96(m) 10.00 0.30 (n) 0.92 1.22 (0.26) 0.00 0.00 0.00
EMERGING MARKETS BOND FUND
Class A
9/30/97(*)(o) $10.00 $ 0.11 (+) $ 0.04 (+) $ 0.15 $(0.11) $0.00 $ 0.00 $0.00
Class B
9/30/97(*)(o) 10.00 0.09 (+) 0.04 (+) 0.13 (0.09) 0.00 0.00 0.00
Class C
9/30/97(*)(o) 10.00 0.09 (+) 0.04 (+) 0.13 (0.09) 0.00 0.00 0.00
STOCKSPLUS FUND
Class A
09/30/97(*) $11.46 $ 1.12 (+) $ 1.89 (+) $ 3.01 $(0.30) $0.00 $ 0.00 $0.00
03/31/97(d) 11.91 (0.10) (0.20) (0.30) (0.15) 0.00 0.00 0.00
Class B
09/30/97(*) 11.44 1.08 (+) 1.89 (+) 2.97 (0.27) 0.00 0.00 0.00
03/31/97(d) 11.91 (0.13) (0.20) (0.33) (0.14) 0.00 0.00 0.00
Class C
09/30/97(*) 11.45 1.09 (+)(p) 1.89 (+) 2.98 (0.28) 0.00 0.00 0.00
03/31/97(d) 11.91 (0.12) (0.20) (0.32) (0.14) 0.00 0.00 0.00
</TABLE>
- -------
(k)From commencement of operations, January 29, 1997.
(l)Reflects voluntary waiver of distribution fee of $586 (.01 per share) by the
Distributor.
(m)From commencement of operations, October 2, 1995.
(n)Reflects voluntary waiver of investment advisory fee of $12,041 (.01 per
share) by the Advisor.
(o)From commencement of operations, July 31, 1997.
(p)Reflects voluntary waiver of distribution fee of $40,185 (.02 per share) by
the Distributor.
10 PIMCO Funds: Pacific Investment Management Series
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<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 $(0.30) $10.73 7.52% $241,075 0.90%+ 5.68%+ 85%
0.00 (0.13) 10.27 0.02 115,742 0.91+ 6.08+ 173
0.00 (0.26) 10.73 7.11 107,136 1.65+ 4.95+ 85
0.00 (0.12) 10.27 (0.10) 74,130 1.67+ 5.28+ 173
0.00 (0.26) 10.73 7.12 342,949 1.65+ 5.00+ 85
0.00 (0.12) 10.27 (0.11) 329,104 1.67+ 5.32+ 173
$0.00 $(0.21) $ 9.95 2.33% $ 652 0.91%+ 4.20%+ 341%
0.00 (0.08) 9.93 0.15 1 0.90+ 6.14+ 160
0.00 (0.18) 9.95 2.07 926 1.66+ 3.59+ 341
0.00 (0.06) 9.93 (0.08) 509 1.59+ 3.43+ 160
0.00 (0.19) 9.95 2.17 508 1.41+(q) 3.85+(r) 341
0.00 (0.06) 9.93 (0.07) 148 1.62+ 5.13+ 160
$0.00 $(0.29) $10.14 11.19% $ 2,720 0.90%+ 5.78%+ 150%
0.00 (0.13) 9.39 (1.72) 1,204 1.12+ 6.91+ 402
0.00 (0.25) 10.14 10.76 1,994 1.65+ 4.93+ 150
0.00 (0.10) 9.39 (1.92) 454 1.87+ 4.95+ 402
0.00 (0.25) 10.14 10.77 1,499 1.65+ 4.93+ 150
0.00 (0.10) 9.39 (1.83) 275 1.88+ 5.52+ 402
$0.00 $(0.21) $10.89 6.65% $ 3,309 0.95%+ 4.12%+ 64%
0.00 (0.05) 10.41 (1.21) 704 0.97+ 4.95+ 984
0.00 (0.17) 10.89 6.23 6,205 1.70+ 3.39+ 64
0.00 (0.04) 10.41 (1.34) 1,221 1.75+ 3.73+ 984
0.00 (0.16) 10.89 6.23 9,572 1.70+ 3.33+ 64
0.00 (0.04) 10.41 (1.32) 1,788 1.76+ 4.09+ 984
$0.00 $(0.25) $11.39 7.44% $ 8,761 0.95%+ 4.51%+ 133%
0.00 (0.62) 10.84 4.55 7,652 2.05+ 5.60+ 307
0.00 (0.31) 10.96 15.01 7,360 1.27(s) 4.88(t) 1,246
0.00 (0.21) 11.39 7.04 4,474 1.70+ 3.70+ 133
0.00 (0.58) 10.84 4.17 3,925 2.57+ 4.22+ 307
0.00 (0.26) 10.96 14.54 3,240 2.49(s) 4.09(t) 1,246
0.00 (0.21) 11.39 7.05 5,550 1.70+ 3.67+ 133
0.00 (0.58) 10.84 4.17 5,323 2.43+ 4.14+ 307
0.00 (0.26) 10.96 14.54 3,459 2.49(s) 4.09(t) 1,246
$0.00 $(0.11) $10.04 1.50% $ 144 1.25%+ 5.81%+ 312%
0.00 (0.09) 10.04 1.34 58 2.00+ 4.70+ 312
0.00 (0.09) 10.04 1.35 80 2.00+ 4.11+ 312
$0.00 $(0.30) $14.17 26.38% $ 34,474 1.05%+ 5.21%+ 14%
0.00 (0.15) 11.46 (2.59) 5,790 1.10+ (10.69)+ 47
0.00 (0.27) 14.14 26.01 44,617 1.80+ 13.95 + 14
0.00 (0.14) 11.44 (2.81) 8,281 1.88+ (15.13)+ 47
0.00 (0.28) 14.15 26.08 51,686 1.55+(u) 14.27+(v) 14
0.00 (0.14) 11.45 (2.71) 11,254 1.65+ (12.79)+ 47
</TABLE>
- -------
+Annualized.
(q)The Ratio of Expenses to Average Net assets without the waiver would have
been 1.66%.
(r)The Ratio of Net Investment Income to Average Net Assets without the waiver
would have been 3.60%.
(s)The Ratio of Expenses to Average Net Assets without the waiver would have
been 1.57%.
(t)The Ratio of Net Investment Income to Average Net Assets without the waiver
would have been 4.58%.
(u)The Ratio of Expenses to Average Net assets without the waiver would have
been 1.80%.
(v)The Ratio of Net Investment Income to Average Net assets without the waiver
would have been 14.02%.
April 1, 1998 Prospectus
11
<PAGE>
Investment Objectives and Policies
The investment objective and general investment policies of each
Fund are described below. There can be no assurance that the in-
vestment objective of any Fund will be achieved. For temporary,
defensive or emergency purposes, a Fund may invest without limit
in U.S. debt securities, including short-term money market securi-
ties, when in the opinion of the Advisor it is appropriate to do
so. It is impossible to predict for how long such alternative
strategies will be utilized. The value of all securities and other
instruments held by the Funds will vary from time to time in re-
sponse to a wide variety of market factors. Consequently, the net
asset value per share of each Fund will vary, except that the
Money Market Fund will attempt to maintain a net asset value of
$1.00 per share, although there can be no assurance that the Fund
will be successful in doing so.
The investment objective of the Global Bond Fund II described
in this Prospectus may be changed by the Board of Trustees without
shareholder approval. The investment objective of each other Fund
is fundamental and may not be changed without shareholder approval
by vote of a majority of the outstanding shares of that Fund. If
there is a change in a Fund's investment objective, including a
change approved by a shareholder vote, shareholders should con-
sider whether the Fund remains an appropriate investment in light
of their then current financial position and needs.
Specific portfolio securities eligible for purchase by the
Funds, investment techniques that may be used by the Funds, and
the risks associated with these securities and techniques are de-
scribed more fully under "Characteristics and Risks of Securities
and Investment Techniques" in this Prospectus and "Investment Ob-
jectives and Policies" in the Statement of Additional Information.
FIXED With the exception of the StocksPLUS Fund, each remaining Fund
INCOME FUND (together, the "Fixed Income Funds") differs from the others pri-
DES- marily in the length of the Fund's duration or the proportion of
CRIPTIONS its investments in certain types of fixed income securities. For a
discussion of the concept of duration, see "Appendix A--Descrip-
tion of Duration."
The investment objective of the Money Market and Short-Term
Funds 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 success-
ful 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 manage-
ment. For a discussion of "real return," see "Total Return and
Real Return," below. The investment objective of the Municipal
Bond Fund is to seek high current income exempt from federal in-
come tax, consistent with preservation of capital. Capital appre-
ciation is a secondary objective of the Municipal Bond Fund. The
investment objective of the Global Bond Fund II is to seek maximum
total return, consistent with the preservation of capital. Each of
the remaining Fixed Income Funds seeks to maximize total return,
consistent with preservation of capital and prudent investment
management.
In selecting securities for each Fixed Income Fund, the Advisor
utilizes economic forecasting, interest rate anticipation, credit
and call risk analysis, foreign currency exchange rate forecast-
ing, and other security selection techniques. The proportion of
each Fund's assets committed to investment in securities with par-
ticular characteristics (such as maturity, type and coupon rate)
will vary based on the Advisor's outlook for the U.S. and foreign
economies, the financial markets, and other factors.
Each of the Fixed Income Funds will invest at least 65% of its
assets in the following types of securities, which, unless specif-
ically provided otherwise in the descriptions of the Funds that
follow, may be issued by domestic or foreign entities and denomi-
nated in U.S. dollars or foreign currencies: securities issued or
guaranteed by the U.S. Government, its agencies or instrumentali-
ties ("U.S. Government securities"); corporate debt securities,
including convertible securities and corporate commercial paper;
mortgage-backed and other asset-backed securities; inflation-in-
dexed bonds issued by both governments and corporations; struc-
tured notes, including hybrid or "indexed" securities, and loan
participations; delayed funding loans and revolving credit facili-
ties; bank certificates of deposit, fixed time deposits and bank-
ers' acceptances; repurchase agreements and reverse repurchase
agreements; debt securities issued by states or local governments
and their agencies, authorities and other instrumentalities; obli-
gations of foreign governments or their subdivi-
12 PIMCO Funds: Pacific Investment Management Series
<PAGE>
sions, agencies and instrumentalities; and obligations of interna-
tional 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 desig-
nated or floating rate, or that vary according to changes in rela-
tive values of currencies. Each of the Fixed Income Funds may hold
different percentages of its assets in these various types of se-
curities, and each Fund, except the Money Market Fund and the Mu-
nicipal Bond Fund, may invest all of its assets in derivative in-
struments or in mortgage- or asset-backed securities. Each of the
Fixed Income Funds, except the Money Market Fund, may adhere to
its investment policy by entering into a series of purchase and
sale contracts or utilizing other investment techniques by which
it may obtain market exposure to the securities in which it pri-
marily invests.
In addition, each of the Fixed Income Funds may lend its port-
folio securities to brokers, dealers and other financial institu-
tions in order to earn income. Each of the Fixed Income Funds may
purchase and sell options and futures subject to the limits dis-
cussed below, engage in credit spread trades and enter into for-
ward foreign currency contracts.
Each of the Real Return Bond, Global Bond II, Foreign Bond, and
Emerging Markets Bond Funds will normally invest at least 80% 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 Pro-
spectus, 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 Emerging Markets Bond Fund) denominated in
currencies other than the U.S. dollar. There can be no assurance
that the Advisor will be successful in doing so. The active use of
currency derivatives involves transaction costs which may ad-
versely effect yield and return.
The compositions of the Fixed Income Funds differ as follows:
MONEY MARKET FUND seeks maximum current income consistent with the
preservation of capital and daily liquidity. It attempts to
achieve this objective by investing at least 95% of its total 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 dollar-weighted average portfolio maturity of the Fund
will not exceed 90 days. The Fund may invest in the following: ob-
ligations of the U.S. Government (including its agencies and in-
strumentalities); short-term corporate debt securities of domestic
and foreign corporations; obligations of domestic and foreign com-
mercial banks, savings banks, and savings and loan associations;
and commercial paper. The Fund may invest more than 25% of its to-
tal assets in securities or obligations issued by U.S. banks.
The Fund may invest only in securities that comply with the
quality, maturity and diversification requirements of Rule 2a-7
under the Investment Company Act of 1940, which regulates money
market funds.
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 Investors
Service, Inc. ("Moody's") or BBB by Standard and Poor's Ratings
Services ("S&P")) 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 secu-
rities 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.
April 1, 1998 Prospectus
13
<PAGE>
LOW DURATION FUND invests in a diversified portfolio of fixed in-
come securities of varying maturities. The average portfolio dura-
tion of this Fund will normally vary within a one- to three-year
time frame based on the Advisor's forecast for interest rates. The
Fund may invest up to 10% of its assets in fixed income securities
that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by the Advisor to be of
comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Ap-
pendix B--Description of Securities Ratings." The Fund may invest
up to 20% of its assets in securities denominated in foreign cur-
rencies, and may invest beyond this limit in U.S. dollar-denomi-
nated securities of foreign issuers. The total rate of return for
this Fund is expected to exhibit less volatility than that of the
Total Return Fund because its duration will be shorter.
REAL RETURN BOND FUND invests under normal circumstances at least
65% of its total assets 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 de-
nominated in foreign currencies, (and the Fund may also invest be-
yond 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.
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.
HIGH YIELD FUND invests under normal circumstances at least 65% of
its assets in a diversified portfolio of fixed income securities
rated lower than Baa by Moody's or lower than BBB by S&P but rated
at least B by Moody's or S&P (or, if unrated, determined by the
Advisor to be of comparable quality). The remainder of the Fund's
assets may be invested in
14
PIMCO Funds: Pacific Investment Management Series
<PAGE>
investment grade fixed income securities (i.e., securities rated
at least Baa by Moody's or BBB by S&P, or, if unrated, deemed by
the Advisor to be of comparable quality). The average portfolio
duration of this Fund will normally vary within a two- to six-year
time frame depending on the Advisor's view of the potential for
total return offered by a particular 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 ("Junk
Bonds")."
MUNICIPAL BOND FUND seeks high current income exempt from federal
income tax, consistent with preservation of capital. Capital ap-
preciation is a secondary objective. The Fund seeks its objectives
by investing in debt securities whose interest is, in the opinion
of bond counsel for the issuer at the time of issuance, exempt
from federal income tax ("Municipal Bonds"). Municipal Bonds gen-
erally are issued by states and local governments and their agen-
cies, authorities and other instrumentalities. It is a policy of
the Fund that, under normal market conditions, at least 80% of its
net assets will be invested in Municipal Bonds. The Fund may in-
vest up to 20% of its net assets in U.S. Government securities,
money market instruments and/or "private activity" bonds. Under
normal circumstances, the average portfolio duration of the Munic-
ipal Bond Fund will vary within a three- to ten-year time frame,
based on the Advisor's forecast for interest rates.
The Fund may invest up to 10% of its net assets in Municipal
Bonds or "private activity" bonds which are rated below Baa by
Moody's or BBB by S&P but which are rated at least Ba by Moody's
or BB by 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."
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 (U.S.) is-
suers 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 addi-
tion, the Fund will not acquire a security if, as a result, more
than 10% of the Fund's total assets would be invested in securi-
ties 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.
GLOBAL BOND FUND II invests in a portfolio of fixed income securi-
ties denominated in major currencies, baskets of foreign curren-
cies (such as the ECU), and the U.S. dollar. Under normal circum-
stances, at least 65% of the Fund's assets will be invested in
fixed income securities of issuers located in at least three coun-
tries (one of which may be the United States), which may be repre-
sented by futures contracts (including related options) with re-
spect to such securities, and options on such securities, when the
Advisor deems it appropriate to do so. Depending on the Advisor's
current opinion
15
April 1, 1998 Prospectus
<PAGE>
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 Advisor to be of comparable quality). 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 six-year time frame.
The Foreign Bond Fund differs from the Global Bond Fund II pri-
marily in the extent to which assets are invested in the securi-
ties 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 believes to be rele-
vant.
FOREIGN BOND FUND invests in a portfolio of fixed income securi-
ties primarily denominated in major foreign currencies and baskets
of foreign currencies (such as the European Currency Unit, or
"ECU"). The Advisor will invest the assets of the Fund in a number
of international bond markets so that, under normal circumstances,
the Fund will invest at least 85% of its assets in securities of
issuers located outside the United States, representing at least
three foreign countries, which may be represented by futures con-
tracts (including related options) with respect to such securi-
ties, and options on such securities, when the Advisor deems it
appropriate to do so. The Fund may invest up to 10% of its assets
in fixed income securities that are rated below investment grade
but rated B or higher by Moody's or S&P (or, if unrated, deter-
mined by the Advisor to be of comparable quality). Securities
rated below investment grade may be referred to colloquially as
"junk bonds." For information on the risks associated with invest-
ments in securities rated below investment grade, see "Appendix
B--Description of Securities Ratings." The average portfolio dura-
tion of this Fund will normally vary within a three- to six-year
time frame.
EMERGING MARKETS BOND FUND invests in a portfolio of fixed income
securities denominated in foreign currencies and the U.S. dollar.
Under normal market conditions, the Fund will invest at least 80%
of its assets in fixed income securities of issuers that economi-
cally are tied to countries with emerging securities markets. The
Fund may invest up to 20% of its assets in other types of fixed
income instruments, including securities of issuers located in, or
securities denominated in currencies of, countries with developed
foreign securities markets. The Fund also may invest up to 10% of
its assets in shares of investment companies that invest primarily
in emerging market debt securities. The average portfolio duration
of the Fund will vary based on the Advisor's view of the potential
for total return offered by a particular duration strategy and,
under normal market conditions, is not expected to exceed eight
years.
The Advisor has broad discretion to identify and invest in
countries that it considers to qualify as emerging securities mar-
kets. However, the Advisor generally considers an emerging securi-
ties market to be one located in any country that is defined as an
emerging or developing economy by any of the following: the Inter-
national Bank for Reconstruction and Development (i.e., the World
Bank), including its various offshoots, such as the International
Finance Corporation, or the United Nations or its authorities. The
Fund's investments in emerging market fixed income securities may
be represented by futures contracts (including related options)
with respect to such securities, options on such securities, eq-
uity securities (including common stocks) upon the conversion of
convertible securities, or securities the return on which is de-
rived primarily from emerging securities markets, when the Advisor
deems it appropriate to do so.
The Fund emphasizes countries with relatively low gross na-
tional product per capita and with the potential for rapid eco-
nomic growth. The Advisor will select the Fund's country and cur-
rency composition based on its evaluation of relative interest
rates, inflation rates, exchange rates, monetary and fiscal poli-
cies, trade and current account balances, and any other specific
factors the Advisor believes to be relevant. The Fund likely will
concentrate its investments in Asia, Africa, the Middle East,
Latin America and the developing countries of Europe. Accordingly,
the Fund will be particularly susceptible to the effects of polit-
ical and economic developments in these regions. This effect may
be
16
PIMCO Funds: Pacific Investment Management Series
<PAGE>
exacerbated by a relative scarcity of issuers in certain of these
markets, which may result in the Fund being highly concentrated in
a small number of issuers. For a further discussion of the special
risks of investing in foreign and emerging market countries, see
"Characteristics and Risks of Securities and Investment Tech-
niques--Foreign Securities."
The Fund may invest substantially all of its assets in securi-
ties 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 compa-
rable quality). Such securities are colloquially referred to as
"junk bonds." While these securities generally provide greater po-
tential opportunity for capital appreciation and higher yields
than investments in higher rated securities, they also entail
greater risk, including the possibility of default or bankruptcy
of the issuer of the securities. Risk of default or bankruptcy may
be greater in periods of economic uncertainty or recession, as the
issuers may be less able to withstand general economic downturns
affecting the regions in which the Fund invests. The Advisor seeks
to reduce risk through diversification, credit analysis and atten-
tion to current developments and trends in emerging market econo-
mies and markets. The value of all fixed income securities, in-
cluding those held by the Fund, can be expected to change in-
versely with interest rates. For a further discussion of the spe-
cial risks of investing in lower rated securities, see "Character-
istics and Risks of Securities and Investment Techniques--High
Yield Securities ("Junk Bonds")."
STOCK FUND STOCKSPLUS FUND, as its investment objective, seeks to achieve to-
DESCRIPTION tal return which exceeds the total return performance of the Stan-
dard & Poor's 500 Composite Stock Price Index ("S&P 500").
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 Advisor expects that under normal market conditions,
the Fund will invest substantially all of its assets in S&P 500
derivatives, backed by a portfolio of fixed income securities. The
Advisor 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 du-
ration which is normally not expected to exceed one year. See "Ap-
pendix 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. S&P chooses the
stocks to be included in the S&P 500 solely on a statistical ba-
sis. The weightings of stocks in the index are based on each
stock's relative total market value, that is, its market price per
share times the number of shares outstanding. Stocks represented
currently in the S&P 500 represent approximately two-thirds of the
total market value of all U.S. common stocks. The Fund is neither
sponsored by nor affiliated with S&P. The Fund will seek to remain
invested in S&P 500 derivatives or S&P 500 stocks even when the
S&P 500 is declining.
When S&P 500 derivatives appear to be overvalued relative to
the S&P 500, the Fund may invest up to 100% of its assets in a
"basket" of S&P 500 stocks. The composition of this basket will be
determined by standard statistical techniques that analyze the
historical correlation between the return of every stock currently
in the S&P 500 and the return on the S&P 500 itself. The Advisor
may employ fundamental stock analysis only to choose among stocks
that have already satisfied the statistical correlation tests.
Stocks chosen for the Fund are not limited to those with any par-
ticular weighting in the S&P 500.
Positions in S&P 500 futures and options on futures will be en-
tered into only to the extent they constitute permissible posi-
tions for the Fund according to applicable rules of the Commodity
Futures Trading Commission ("CFTC"). From time to time, the Advi-
sor may be constrained in its ability to use S&P 500 derivatives
either by requirements of the Internal Revenue Code or by an unan-
ticipated inability to close out positions when it would be most
advantageous to do so. A large number of investors use S&P 500 de-
rivatives for both hedging and speculative purposes, and although
generally this helps guarantee a liquid market in those instru-
ments, at times liquidity may be limited. For more information
about S&P 500 derivatives, see "Characteristics and Risks of
Securities and Investment Techniques--Derivative Instruments."
April 1, 1998 Prospectus 17
<PAGE>
Assets of the StocksPLUS Fund not invested in equity securities
may be invested in securities eligible for purchase by the Fixed
Income Funds. The Fund may invest up to 10% of its assets in fixed
income securities that are below "investment grade," i.e., rated
below Baa by Moody's or BBB by S&P, but at least B (or, if
unrated, determined by the Advisor to be of comparable quality).
In addition, the StocksPLUS Fund may lend its portfolio securities
to brokers, dealers and other financial institutions in order to
earn income. The Fund may also invest all of its assets in deriva-
tive instruments, as described under "Characteristics of Securi-
ties and Investment Techniques--Derivative Instruments." In addi-
tion, the Fund 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.
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.
"Real Return," or "Inflation Adjusted Return," as referenced in
the name and investment objective of the Real Return Bond Fund, is
a measure of the change in purchasing power of money invested in a
particular instrument after adjusting for inflation. An investment
in a security generating a high nominal return (such as a typical
U.S. Government Treasury bond) may not generate a high real return
once inflation is considered. For example, an instrument generat-
ing a 9% nominal return at a time when inflation is 6% has a real
return of approximately 3%; that is, the purchasing power of the
money invested in that instrument would only increase by approxi-
mately 3%. On the other hand, an inflation-indexed instrument gen-
erating a 5% real return would generate a 5% increase in purchas-
ing power regardless of the rate of inflation. As stated above,
the investment objective of the Fund is to seek to achieve maximum
real return. The total return (not adjusted for inflation) at-
tained by this Fund may be less than the total return attained by
other of the Funds that do not invest primarily in inflation-in-
dexed securities.
In the case of inflation-indexed bonds, changes in market value
are tied to the relationship between nominal interest rates and
the rate of inflation. If inflation were to rise at a faster rate
than nominal interest rates, real interest rates might decline,
leading to an increase in value of inflation-indexed bonds. In
contrast, if nominal interest rates
18
PIMCO Funds: Pacific Investment Management Series
<PAGE>
increase at a faster rate than inflation, real interest rates
might increase, leading to a decrease in value of inflation-
indexed bonds.
Investment Risks and Considerations
The following are some of the principal risks of investing in the
Funds. Investors should read this Prospectus carefully for a more
complete discussion of the risks relating to an investment in the
Funds. The net asset value per share of any Fund may be less at
the time of redemption than it was at the time of investment. Gen-
erally, the value of fixed income securities can be expected to
vary inversely with changes in prevailing interest rates, i.e., as
interest rates rise, market value tends to decrease, and vice
versa, although this may not be true in the case of inflation-
indexed bonds. In addition, certain of the Funds may invest in se-
curities rated lower than Baa by Moody's or S&P. Such securities
carry a high degree of credit risk and are considered speculative
by the major rating agencies.
Certain Funds may invest in securities of foreign issuers,
which may be subject to additional risk factors, including foreign
currency and political risks, not applicable to securities of U.S.
issuers. Certain of the Funds' investment techniques may involve a
form of borrowing, which may tend to exaggerate the effect on net
asset value of any increase or decrease in the market value of a
Fund's portfolio and may require liquidation of portfolio posi-
tions when it is not advantageous to do so. Certain Funds may sell
securities short, which exposes the Fund to a risk of loss if the
value of the security sold short should increase.
All Funds (except the Money Market Fund) may use derivative in-
struments, consisting of futures, options, options on futures, and
swap agreements, for hedging purposes or as part of their invest-
ment strategies. Use of these instruments may involve certain
costs and risks, including the risk that a Fund could not close
out a position when it would be most advantageous to do so, the
risk of an imperfect correlation between the value of the securi-
ties being hedged and the value of the particular derivative in-
strument, and the risk that unexpected changes in interest rates
may adversely affect the value of a Fund's investments in particu-
lar derivative instruments. Unless otherwise indicated, all limi-
tations applicable to Fund investments (as stated in this Prospec-
tus and in the Statement of Additional Information) apply only at
the time a transaction is entered into. Any subsequent change in a
rating assigned by any rating service to a security (or, if
unrated, deemed to be of comparable quality), or change in the
percentage of Fund assets invested in certain securities or other
instruments, or change in the average duration of a Fund's invest-
ment portfolio, resulting from market fluctuations or other
changes in a Fund's total assets, will not require a Fund to dis-
pose of an investment until the Advisor determines that is practi-
cable to sell or close out the investment without undue market or
tax consequences to the Fund. In the event that ratings services
assign different ratings to the same security, the Advisor will
determine which rating it believes best reflects the security's
quality and risk at that time, which may be the higher of the sev-
eral 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 Real Return Bond, Global Bond II, Foreign Bond and Emerging
Market Bond Funds are "non-diversified" for purposes of the In-
vestment 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. The Funds are still, however,
subject to diversification requirements imposed by the Internal
Revenue Code of 1986, as amended, which means that as of the end
of each calendar quarter, a Fund may have no more than 25% of its
assets invested in the securities of a single issuer, and may,
with respect to 50% of its assets, have no more than 5% of its as-
sets invested in the securities of a single issuer. As "non-diver-
sified" portfolios, these Funds may be more susceptible to risks
associated with a single economic, political or regulatory occur-
rence than a diversified portfolio might be.
19
April 1, 1998 Prospectus
<PAGE>
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 securities may also include
forms of preferred or preference stock. The rate of interest on a
corporate debt security may be fixed, floating or variable, and
may vary inversely with respect to a reference rate. See "Variable
and Floating Rate Securities" below. The rate of return or return
of principal on some debt obligations may be linked or indexed to
the level of exchange rates between the U.S. dollar and a foreign
currency or currencies.
Investments in corporate debt securities that are rated below
investment grade (rated below Baa (Moody's) or BBB (S&P)) are de-
scribed as "speculative" both by Moody's and S&P. Such securities
are sometimes referred to as "junk bonds," and may be subject to
greater market fluctuations, less liquidity and greater risk of
loss of income or principal, including a greater possibility of
default or bankruptcy of the issuer of such securities, than are
more highly rated debt securities. Moody's also describes securi-
ties rated Baa as having speculative characteristics. The Advisor
seeks to minimize these risks through diversification, in-depth
credit analysis and attention to current developments in interest
rates and market conditions. See "Appendix B--Description of Secu-
rities Ratings." Investments in high yield securities are dis-
cussed separately below under "High Yield Securities ("Junk
Bonds")."
20
PIMCO Funds: Pacific Investment Management Series
<PAGE>
CONVERTIBLE Each Fund (except the Municipal Bond Fund) may invest in convert-
SECURITIES ible securities, which may offer higher income than the common
stocks into which they are convertible. Typically, convertible se-
curities are callable by the company, which may, in effect, force
conversion before the holder would otherwise choose.
The convertible securities in which the Funds may invest con-
sist of bonds, notes, debentures and preferred stocks which may be
converted or exchanged at a stated or determinable exchange ratio
into underlying shares of common stock. A Fund may be required to
permit the issuer of a convertible security to redeem the securi-
ty, convert it into the underlying common stock, or sell it to a
third party. Thus, a Fund may not be able to control whether the
issuer of a convertible security chooses to convert that security.
If the issuer chooses to do so, this action could have an adverse
effect on a Fund's ability to achieve its investment objectives.
While the Fixed Income Funds intend to invest primarily in
fixed income securities, each may invest in convertible securities
or equity securities. While some countries or companies may be re-
garded as favorable investments, pure fixed income opportunities
may be unattractive or limited due to insufficient supply, legal
or technical restrictions. In such cases, a Fund may consider eq-
uity securities or convertible bonds to gain exposure to such in-
vestments.
LOAN Certain Funds may invest in fixed- and floating-rate loans ar-
PARTICI- ranged through private negotiations between an issuer of debt in-
PATIONS struments and one or more financial institutions ("lenders"). Gen-
AND erally, the Funds' investments in loans are expected to take the
ASSIGN- form of loan participations and assignments of portions of loans
MENTS from third parties.
Large loans to corporations or governments may be shared or
syndicated among several lenders, usually banks. The Funds may
participate in such syndicates, or can buy part of a loan, becom-
ing a direct lender. Participations and assignments involve spe-
cial types of risk, including limited marketability and the risks
of being a lender. See "Illiquid Securities" for a discussion of
the limits on a Fund's investments in loan participations and as-
signments with limited marketability. If a Fund purchases a par-
ticipation, it may only be able to enforce its rights through the
lender, and may assume the credit risk of the lender in addition
to the borrower. In assignments, the Funds' rights against the
borrower may be more limited than those held by the original lend-
er.
DELAYED The Funds (except the PIMCO Money Market and Municipal Bond Funds)
FUNDING may also enter into, or acquire participations in, delayed funding
LOANS AND loans and revolving credit facilities. Delayed funding loans and
REVOLVING revolving credit facilities are borrowing arrangements in which
CREDIT the lender agrees to make loans up to a maximum amount upon demand
FACILITIES by the borrower during a specified term. A revolving credit facil-
ity differs from a delayed funding loan in that as the borrower
repays the loan, an amount equal to the repayment may be borrowed
again during the term of the revolving credit facility. These com-
mitments may have the effect of requiring a Fund to increase its
investment in a company at a time when it might not otherwise de-
cide to do so (including at a time when the company's financial
condition makes it unlikely that such amounts will be repaid).
The Funds may acquire a participation interest in delayed fund-
ing loans or revolving credit facilities from a bank or other fi-
nancial institution. See "Loan Participations and Assignments."
The terms of the participation require the Fund to make a pro rata
share of all loans extended to the borrower and entitles the Fund
to a pro rata share of all payments made by the borrower. Delayed
funding loans and revolving credit facilities usually provide for
floating or variable rates of interest. To the extent that a Fund
is committed to advance additional funds, it will at all times
segregate 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 such commitments.
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
April 1, 1998 Prospectus 21
<PAGE>
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") and (except the Money Market and Munici-
pal Bond Funds) engage in credit spread trades. 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 in-
terest rate on a floater resets periodically, typically every six
months. While, because of the interest rate reset feature, float-
ers 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. A credit spread trade is an investment
position relating to a difference in the prices or interest rates
of two securities or currencies, where the value of the investment
position is determined by movements in the difference between the
prices or interest rates, as the case may be, of the respective
securities or currencies.
Each of the Fixed Income Funds (except the Money Market Fund
and the Municipal Bond 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 mar-
ket rate of interest to which the inverse floater is indexed. An
inverse floating rate security may exhibit greater price volatil-
ity 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 discus-
sion of IOs and POs.
INFLATION- Inflation-indexed bonds are fixed income securities whose princi-
INDEXED pal value is periodically adjusted according to the rate of infla-
BONDS tion. The interest rate on these bonds is generally fixed at issu-
ance at a rate lower than typical bonds. Over the life of an in-
flation-indexed bond, however, interest will be paid based on a
principal value which is adjusted for inflation.
Inflation-indexed securities issued by the U.S. Treasury will
initially have maturities of five or ten years, although it is an-
ticipated that securities with other maturities will be issued in
the future. The securities will pay interest on a semi-annual ba-
sis, equal to a fixed percentage of the inflation-adjusted princi-
pal amount. For example, if an investor purchased an inflation-in-
dexed 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 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.
22
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 that a Fund may be forced to liquidate positions when
it would not be advantageous to do so. There also can be no assur-
ance 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 is-
suing inflation-indexed bonds, and there may be a more liquid mar-
ket 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 and the Municipal
RELATED AND Bond Fund) may invest all of its assets in mortgage- or other as-
OTHER set-backed securities. The value of some mortgage- or asset-backed
ASSET- securities in which the Funds invest may be particularly sensitive
BACKED to changes in prevailing interest rates, and, like the other in-
SECURITIES vestments of the Funds, the ability of a Fund to successfully uti-
lize these instruments may depend in part upon the ability of the
Advisor to forecast interest rates and other economic factors cor-
rectly.
MORTGAGE-PASS-THROUGH SECURITIES are securities representing in-
terests in "pools" of mortgage loans secured by residential or
commercial real property in which payments of both interest and
principal on the securities are generally made monthly, in effect
"passing through" monthly payments made by the individual borrow-
ers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early re-
payment of principal on some mortgage-related securities (arising
from prepayments of principal due to sale of the underlying prop-
erty, refinancing, or foreclosure, net of fees and costs which may
be incurred) may expose a Fund to a lower rate of return upon re-
investment of principal. Also, if a security subject to prepayment
has been purchased at a premium, the value of the premium would be
lost in the event of prepayment. Like other fixed income securi-
ties, when interest rates rise, the 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.
April 1, 1998 Prospectus
23
<PAGE>
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") are hybrid mortgage-
related instruments. Interest and pre-paid principal on a CMO are
paid, in most cases, on a monthly basis. CMOs may be collateral-
ized 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 pay-
ments 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 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 mortgage dollar rolls (see "Reverse Repur-
chase Agreements, Dollar Rolls, and Borrowings"), CMO residuals or
stripped mortgage-backed securities ("SMBS"), and may be struc-
tured in classes with rights to receive varying proportions of
principal and interest.
A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while
the other class will receive most of the interest and the remain-
der of the principal. In the most extreme case, one class will re-
ceive all of the interest (the interest-only, or "IO" class),
while the other class will receive all of the principal (the prin-
cipal-only, or "PO" class). The yield to maturity on an IO class
is extremely sensitive to the rate of principal payments (includ-
ing prepayments) on the related underlying mortgage assets, and a
rapid rate of principal payments may have a material adverse ef-
fect on a Fund's yield to maturity from these securities. The
Funds have adopted a policy under which no Fund will invest more
than 5% of its net assets in any combination of IO, PO, or 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.
MUNICIPAL The Municipal Bond Fund invests in Municipal Bonds which are gen-
BONDS erally issued by states and local governments and their agencies,
authorities and other instrumentalities. The Municipal Bonds which
the Municipal Bond Fund may purchase include general obligation
bonds and limited obligation bonds (or revenue bonds), including
industrial development bonds issued pursuant to former federal tax
law. General obligation bonds are obligations involving the credit
of an issuer possessing taxing power and are payable from such is-
suer's general revenues and not from any particular source. Lim-
ited obligation bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other specific
revenue source. Tax-exempt "private activity" bonds and industrial
development bonds generally are also revenue bonds and thus are
not payable from the issuer's general revenues. The Municipal Bond
Fund may invest in Municipal Bonds with credit enhancements such
as letters of credit, municipal bond insurance and Standby Bond
Purchase Agreements. The Municipal Bond Fund may also invest in
municipal lease obligations, as well as securities derived from
Municipal Bonds, such as residual interest bonds and participation
interests.
24
PIMCO Funds: Pacific Investment Management Series
<PAGE>
Municipal Bonds are subject to credit and market risk. Credit
risk relates to the ability of the issuer to make payments of
principal and interest. The ability of an issuer to make such pay-
ments could be affected by litigation, legislation or other polit-
ical events or the bankruptcy of the issuer. Market risk relates
to changes in a security's value as a result of changes in inter-
est rates. Lower rated Municipal Bonds generally provide higher
yields but are subject to greater credit and market risk than
higher quality Municipal Bonds.
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 involves the sale of a security by
REPURCHASE a Fund and its agreement to repurchase the instrument at a speci-
AGREEMENTS, fied time and price. Under a reverse repurchase agreement, the
DOLLAR Fund continues to receive any principal and interest payments on
ROLLS, AND the underlying security during the term of the agreement. The Fund
BORROWINGS generally will maintain a segregated account consisting of assets
determined to be liquid by the Advisor in accordance with proce-
dures established by the Board of Trustees to cover its obliga-
tions under reverse repurchase agreements and, to this extent, a
reverse repurchase agreement (or economically similar transaction)
will not be considered a "senior security" subject to the 300% as-
set coverage requirements otherwise applicable to borrowings by a
Fund.
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.
To the extent that positions in reverse repurchase agreements,
dollar rolls or similar transactions are not covered through the
maintenance of a segregated account consisting of liquid assets at
least equal to the amount of any forward purchase commitment, such
transactions would be subject to the Funds' limitations on
borrowings, which would restrict the aggregate of such transac-
tions (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
such transactions, a Fund will not borrow money, except for tempo-
rary administrative purposes. The Global Bond Fund II may not bor-
row 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 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 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 re-
turn of the securities loaned;
25
April 1, 1998 Prospectus
<PAGE>
(iii) the Fund will receive any interest or dividends paid on
the loaned securities; and
(iv) the aggregate market value of securities loaned will not
at any time exceed 33 1/3% (25% in the case of the Global
Bond Fund II) of the total assets of the Fund.
Each Fund's performance will continue to reflect changes in the
value of the securities loaned and will also reflect the receipt
of either interest, through investment of cash collateral by the
Fund in permissible investments, or a fee, if the collateral is
U.S. Government 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 security loaned
or become insolvent. The Funds may pay lending fees to the party
arranging the loan.
WHEN- Each of the Funds may purchase or sell securities on a when-is-
ISSUED, sued, delayed delivery, or forward commitment basis. These trans-
DELAYED actions involve a commitment by the Fund to purchase or sell secu-
DELIVERY rities for a predetermined price or yield, with payment and deliv-
AND FORWARD ery taking place more than seven days in the future, or after a
COMMITMENT period longer than the customary settlement period for that type
TRANS- of security. When such purchases are outstanding, the Fund will
ACTIONS set aside and maintain until the settlement date in a segregated
account, assets determined to be liquid by the Advisor in accor-
dance with procedures established by the Board of Trustees, in an
amount sufficient to meet the purchase price. Typically, no income
accrues on securities a Fund has committed to purchase prior to
the time delivery of the securities is made, although a Fund may
earn income on securities it has deposited in a segregated ac-
count. When purchasing a security on a when-issued, delayed deliv-
ery, or forward commitment basis, the Fund assumes the rights and
risks of ownership of the security, including the risk of price
and yield fluctuations, and takes such fluctuations into account
when determining its net asset value. Because the Fund is not re-
quired to pay for the security until the delivery date, these
risks are in addition to the risks associated with the Fund's
other investments. If the Fund remains substantially fully in-
vested at a time when when-issued, delayed delivery, or forward
commitment purchases are outstanding, the purchases may result in
a form of leverage. When the Fund has sold a security on a when-
issued, delayed delivery, or forward commitment basis, the Fund
does not participate in future gains or losses with respect to the
security. If the other party to a transaction fails to deliver or
pay for the securities, the Fund could miss a favorable price or
yield opportunity or could suffer a loss. A Fund may dispose of or
renegotiate a transaction after it is entered into, and may sell
when-issued or forward commitment securities before they are de-
livered, which may result in a capital gain or loss. There is no
percentage limitation on the extent to which the Funds may pur-
chase or sell securities on a when-issued, delayed delivery, or
forward commitment basis.
SHORT SALES Each of the Funds (except the High Yield and StocksPLUS Funds) may
from time to time effect short sales as part of their overall
portfolio management strategies, including the use of derivative
instruments, or to offset potential declines in value of long po-
sitions in similar securities as those sold short. A short sale
(other than a short sale against the box) is a transaction in
which a Fund sells a security it does not own at the time of the
sale in anticipation that the market price of that security will
decline. To the extent that a Fund engages in short sales, it must
(except in the case of short sales "against the box") maintain as-
set coverage in the form of assets determined to be liquid by the
Advisor in accordance with procedures established by the Board of
Trustees, in a segregated account, or otherwise cover its position
in a permissible manner. A short sale is "against the box" to the
extent that the Fund contemporaneously owns, or has the right to
obtain at no added cost, securities identical to those sold short.
The Global Bond Fund II may only engage in short sales that are
"against the box."
FOREIGN
SECURITIES Each of the Funds (except the Municipal Bond Fund and the Long-
Term U.S. Government Fund) may invest directly in fixed income se-
curities of non-U.S. issuers. The Money Market and High Yield
Funds may only invest in U.S. dollar-denominated fixed income se-
curities of non-U.S. issuers. The StocksPLUS Fund may invest di-
rectly in foreign equity securities.
Except for the Emerging Markets Bond Fund, each of the Funds
will concentrate its foreign investments in securities of issuers
based in developed countries. However, the Short-Term and Low Du-
ration Funds may each invest
26
PIMCO Funds: Pacific Investment Management Series
<PAGE>
up to 5% of its assets in securities of issuers based in the
emerging market countries in which the Emerging Markets Bond Fund
may invest, and each of the remaining Fixed Income Funds that may
invest in foreign securities may invest up to 10% of its assets in
such securities.
Individual foreign economies may differ favorably or unfavor-
ably from the U.S. economy in such respects as growth of gross do-
mestic product, rate of inflation, capital reinvestment, re-
sources, self-sufficiency and balance of payments position. The
securities markets, values of securities, yields, and risks asso-
ciated with securities markets in different countries may change
independently of each other. Investing in the securities of is-
suers in any foreign country involves special risks and considera-
tions not typically associated with investing in U.S. companies.
Shareholders should consider carefully the substantial risks in-
volved in investing in securities issued by companies and govern-
ments of foreign nations. These risks include: differences in ac-
counting, auditing and financial reporting standards; generally
higher commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or confiscatory tax-
ation; adverse changes in investment or exchange control regula-
tions (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, for-
eign securities and dividends and interest payable on those secu-
rities 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 there-
fore may exhibit greater price volatility. Additional costs asso-
ciated 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 for-
eign exchange rates also will affect the value of securities de-
nominated or quoted in currencies other than the U.S. dollar.
Certain of the Funds, and particularly the Emerging Markets
Bond Fund, will invest in the securities of issuers based in coun-
tries with developing economies. Investing in developing (or
"emerging market") 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. A number of emerging market countries re-
strict, to varying degrees, foreign investment in securities. Re-
patriation of investment income, capital, and the proceeds of
sales by foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the
currencies of emerging market countries have experienced signifi-
cant declines against the U.S. dollar in recent years, and devalu-
ation may occur subsequent to investments in these currencies by a
Fund. Inflation and rapid fluctuations in inflation rates have
had, and may continue to have, negative effects on the economies
and securities markets of certain emerging market countries. Many
of the emerging securities markets are relatively small, have low
trading volumes, suffer periods of relative illiquidity, and are
characterized by significant price volatility. There is a risk in
emerging market countries that a future economic or political cri-
sis could lead to price controls, forced mergers of companies, ex-
propriation or confiscatory taxation, seizure, nationalization, or
creation of government monopolies, any of which may have a detri-
mental effect on a Fund's investment.
Additional risks of investing in emerging market countries may
include: currency exchange rate fluctuations; greater social, eco-
nomic and political uncertainty and instability (including the
risk of war); more substantial governmental involvement in the
economy; less governmental supervision and regulation of the secu-
rities markets and participants in those markets; unavailability
of currency hedging techniques in certain emerging market coun-
tries; the fact that companies in emerging market countries may be
newly organized and may be smaller and less seasoned companies;
the difference in, or lack of, auditing and financial reporting
standards, which may result in unavailability of material informa-
tion about issuers; the risk that it may be more difficult to ob-
tain and/or enforce a judgment in a court outside the United
States; and significantly smaller market capitalization of securi-
ties markets. Also, any change in the leadership or policies of
Eastern European countries, or the countries that exercise a sig-
nificant influence over those countries, may halt the expansion of
or reverse the liberalization of foreign investment policies now
occurring and adversely affect existing investment opportunities.
In addition, emerging securities markets may have different
clearance and settlement procedures, which may be unable to keep
pace with the volume of securities transactions or otherwise make
it difficult to engage in such transac-
April 1, 1998 Prospectus
27
<PAGE>
tions. Settlement problems may cause a Fund to miss attractive in-
vestment opportunities, hold a portion of its assets in cash pend-
ing investment, or delay in disposing of a portfolio security.
Such a delay could result in possible liability to a purchaser of
the security.
Each of the Fixed Income Funds (except the Municipal Bond and
Long-Term U.S. Government Funds) may invest in Brady Bonds. Brady
Bonds are securities created through the exchange of existing com-
mercial bank loans to sovereign entities for new obligations in
connection with debt restructurings under a debt restructuring
plan introduced by former U.S. Secretary of the Treasury, Nicholas
F. Brady. Brady Bonds have been issued only recently, and for that
reason do not have a long payment history. Brady Bonds may be col-
lateralized or uncollateralized, are issued in various currencies
(but primarily the U.S. dollar), and are actively traded in the
over-the-counter secondary market. Brady Bonds are not considered
to be U.S. Government securities. In light of the residual risk of
Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities in
countries issuing Brady Bonds, investments in Brady Bonds may be
viewed as speculative. There can be no assurance that Brady Bonds
acquired by a Fund will not be subject to restructuring arrange-
ments or to requests for new credit, which may cause the Fund to
suffer a loss of interest or principal on any of its holdings. For
further information, see the Statement of Additional Information.
Certain of the Funds also may invest in sovereign debt (other
than Brady Bonds) issued by governments, their agencies or instru-
mentalities, or other government-related entities located in
emerging market countries. Holders of sovereign debt may be re-
quested to participate in the rescheduling of such debt and to ex-
tend further loans to governmental entities. In addition, there is
no bankruptcy proceeding by which defaulted sovereign debt may be
collected.
A Fund's investments in foreign currency denominated debt obli-
gations and hedging activities will likely produce a difference
between its book income and its taxable income. This difference
may cause a portion of the Fund's income distributions to consti-
tute returns of capital for tax purposes or require the Fund to
make distributions exceeding book income to qualify as a regulated
investment company for federal tax purposes.
FOREIGN Foreign currency exchange rates may fluctuate significantly over
CURRENCY short periods of time. They generally are determined by the forces
TRANS- of supply and demand in the foreign exchange markets and the rela-
ACTIONS 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.
For example, significant uncertainty surrounds the proposed intro-
duction of the euro (a common currency for the European Union) in
January 1999 and its effect on the value of securities denominated
in local European currencies. These and other currencies in which
the Funds' assets are denominated may be devalued against the U.S.
dollar, resulting in a loss to the Funds.
All Funds that may invest in securities denominated in foreign
currencies may buy and sell foreign currencies on a spot and 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
28
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 as-
sets determined to be liquid by the Advisor in accordance with
procedures established by the Board of Trustees, in a segregated
account to cover its obligations under forward foreign currency
exchange contracts entered into for non-hedging purposes.
All Funds that may invest in securities denominated in foreign
currencies may invest in options on foreign currencies and foreign
currency futures and options thereon. The Funds also may invest in
foreign currency exchange-related securities, such as foreign cur-
rency warrants and other instruments whose return is linked to
foreign currency exchange rates. Each Fund that may invest in se-
curities denominated in foreign currencies, except the Emerging
Markets 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 The High Yield Fund invests at least 65% of its assets, and the
SECURITIES Emerging Markets Bond Fund may invest up to 100% of its assets, in
("JUNK fixed income securities rated lower than Baa by Moody's or lower
BONDS") than BBB by S&P but rated at least B by Moody's or S&P (or, if not
rated, determined by the Advisor to be of comparable quality). In
addition, each of the Short-Term, Low Duration, Total Return,
Global Bond II, Foreign Bond and StocksPLUS Funds may invest up to
10% of its assets in such securities. The Municipal Bond Fund may
invest up to 10% of its assets in securities rated lower than Baa
by Moody's or BBB by S&P but rated at least Ba by Moody's or BB by
S&P. 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 specu-
lative 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 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.
April 1, 1998 Prospectus
29
<PAGE>
During the year ended March 31, 1997, 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.
FIXED INCOME SECURITIES RATINGS
<TABLE>
<CAPTION>
BELOW
FUND PRIME 1 Aaa Aa A PRIME 1 Baa Ba B
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM 31% 26% 3% 12% 0% 20% 7% 1%
-------------------------------------------------------------
LOW DURATION 24 55 1 3 0 13 4 0
-------------------------------------------------------------
TOTAL RETURN 13 66 2 4 0 9 5 1
-------------------------------------------------------------
HIGH YIELD 6 1 0 0 0 3 48 42
-------------------------------------------------------------
GLOBAL BOND II 21 58 15 1 0 4 1 0
-------------------------------------------------------------
FOREIGN BOND 21 58 14 0 0 3 4 0
-------------------------------------------------------------
STOCKSPLUS 32 29 5 7 0 17 9 1
</TABLE>
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 and the Municipal Bond Fund)
also may enter into swap agreements with respect to foreign cur-
rencies, interest rates, and securities indexes. The Funds may use
these techniques to hedge against changes in interest rates, for-
eign currency exchange rates or securities prices or as part of
their overall investment strategies. The Funds (except the Money
Market Fund and the Municipal Bond Fund) may also purchase and
sell options relating to foreign currencies for purposes of in-
creasing 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 limit
leveraging of the Fund.
Derivative instruments are considered for these purposes 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 depends upon cash flows from underlying assets,
such as mortgage-related or asset-backed securities. Each Fund
(except the Money Market Fund and the Municipal Bond Fund) may in-
vest 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 particu-
larly sensitive to changes in prevailing interest rates, and, like
the other investments of the Funds, the ability of a Fund to suc-
cessfully utilize these instruments may depend in part upon the
ability of the Advisor to forecast interest rates and other eco-
nomic factors correctly. If the Advisor 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.
30 PIMCO Funds: Pacific Investment Management Series
<PAGE>
The Funds might not employ any of the strategies described be-
low, and no assurance can be given that any strategy used will
succeed. If the Advisor incorrectly forecasts interest rates, mar-
ket values or other economic factors in utilizing a derivatives
strategy for a Fund, the Fund might have been in a better position
if it had not entered into the transaction at all. The use of
these strategies involves certain special risks, including a pos-
sible imperfect correlation, or
even no correlation, between price movements of derivative instru-
ments 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 in-
vestments or otherwise, due to the possible inability of a Fund to
purchase or sell a portfolio security at a time that otherwise
would be favorable or the possible need to sell a portfolio secu-
rity 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 substan-
tial increases in prices of securities the Fund intends to pur-
chase pending its ability to invest in such securities in an or-
derly manner. An option on a security (or index) is a contract
that gives the holder of the option, in return for a premium, the
right to buy from (in the case of a call) or sell to (in the case
of a put) the writer of the option the security underlying the op-
tion (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an
option on a security has the obligation upon exercise of the op-
tion to deliver the underlying security upon payment of the exer-
cise price or to pay the exercise price upon delivery of the un-
derlying security. Upon exercise, the writer of an option on an
index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified mul-
tiplier for the index option. An index is designed to reflect
specified facets of a particular financial or securities market, a
specific group of financial instruments or securities, or certain
economic indicators.
A Fund may sell put or call options it has previously pur-
chased, which could result in a net gain or loss depending on
whether the amount realized on the sale is more or less than the
premium and other transaction costs paid on the put or call option
which is sold. A Fund may write a call or put option only if the
option is "covered" by the Fund holding a position in the under-
lying securities or by other means which would permit immediate
satisfaction of the Fund's obligation as writer of the option.
Prior to exercise or expiration, an option may be closed out by an
offsetting purchase or sale of an option of the same series.
The Funds may write covered straddles consisting of a combina-
tion of a call and a put written on the same underlying security.
A straddle will be covered when sufficient assets are deposited to
meet the Funds' immediate obligations. The Funds may use the same
liquid assets to cover both the call and put options where the ex-
ercise price of the call and put are the same, or the exercise
price of the call is higher than that of the put. In such cases,
the Funds will also segregate liquid assets equivalent to the
amount, if any, by which the put is "in the money."
The purchase and writing of options involves certain risks.
During the option period, the covered call writer has, in return
for the premium on the option, given up the opportunity to profit
from a price increase in the underlying security above the exer-
cise price, but, as long as its obligation as a writer continues,
has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer
of the option. Once an option writer has received an exercise no-
tice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the un-
derlying security at the exercise price. If a put or call option
purchased by the Fund is not sold when it has remaining value, and
if the market price of the underlying security remains equal to or
greater than the exercise price (in the case of a put), or remains
less than or equal to the exercise price (in the case of a call),
the Fund will lose its entire investment in the option. Also,
where a put or call option on a particular security is purchased
to hedge against price movements in a related security,
31
April 1, 1998 Prospectus
<PAGE>
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. 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 in which certain Funds may invest dif-
fer 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 cer-
tain written over-the-counter options.
SWAP AGREEMENTS The Funds (except the Money Market Fund and the
Municipal Bond Fund) 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 stan-
dard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) earned or realized on par-
ticular predetermined investments or instruments, which may be ad-
justed for an interest factor. The gross returns to be exchanged
or "swapped" between the parties are generally calculated with re-
spect to a "notional amount," i.e., the return on or increase in
value of a particular dollar amount invested at a particular in-
terest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Forms of swap agree-
ments include interest rate caps, under which, in return for a
premium, one party agrees to make payments to the other to the ex-
tent that interest rates exceed a specified rate, or "cap"; inter-
est 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." Con-
sequently, a Fund's current obligations (or rights) under a swap
agreement will generally be equal only to the net amount to be
paid or received under the agreement based on the relative values
of the positions held by each party to the agreement (the "net
amount"). A Fund's current obligations under a swap agreement will
be accrued daily (offset against amounts owed to the Fund), and
any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account con-
sisting of assets determined to be liquid by the Advisor in accor-
dance with procedures established by the Board of Trustees, to
limit any potential leveraging of the Fund's portfolio. Obliga-
tions under swap agreements so covered will not be construed to be
"senior securities" for purposes of the Funds' investment restric-
tion concerning senior securities. A Fund will not enter into a
swap agreement with any single party if the net amount owed or to
be received under existing contracts with that party would exceed
5% of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in
furthering its investment objective will depend on the Advisor's
ability to predict correctly whether certain types of investments
are likely to produce greater returns than other investments. Be-
cause they are two-party contracts and because they may have terms
of greater than seven days, swap agreements may be considered to
be illiquid investments. Moreover, a Fund bears the risk of loss
of the amount expected to be received under a swap agreement in
the event of the default or bankruptcy of a swap agreement
counterparty. The Funds will enter into swap agreements only with
counterparties that meet certain standards for creditworthiness
(generally, such counterparties would have to be eligible
counterparties under the terms of the Funds' repurchase agreement
guidelines). Certain restrictions imposed on the Funds by the In-
ternal Revenue Code may limit the Funds' ability to use swap
agreements. The swaps market is a relatively new market and is
largely unregulated. It is
32
PIMCO Funds: Pacific Investment Management Series
<PAGE>
possible that developments in the swaps market, including poten-
tial government regulation, could adversely affect a Fund's abil-
ity 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 and the Municipal
Bond Fund) may invest in interest rate futures contracts and op-
tions 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. The Munic-
ipal Bond Fund may purchase and sell futures contracts on U.S.
Government securities and Municipal Bonds, as well as purchase put
and call options on such futures contracts. The StocksPLUS Fund
may invest in interest rate, stock index and foreign currency
futures contracts and options thereon.
There are several risks associated with the use of futures and
futures options for hedging purposes. There can be no guarantee
that there will be a correlation between price movements in the
hedging vehicle and in the portfolio securities being hedged. An
incorrect correlation could result in a loss on both the hedged
securities in a Fund and the hedging vehicle, so that the portfo-
lio return might have been greater had hedging not been attempted.
There can be no assurance that a liquid market will exist at a
time when a Fund seeks to close out a futures contract or a
futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures con-
tract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day
at a price beyond that limit. In addition, certain of these in-
struments are relatively new and without a significant trading
history. As a result, there is no assurance that an active second-
ary market will develop or continue to exist. Lack of a liquid
market for any reason may prevent a Fund from liquidating an unfa-
vorable position, and the Fund would remain obligated to meet mar-
gin requirements until the position is closed.
The Funds may write covered straddles consisting of a call and
a put written on the same underlying futures contract. A straddle
will be covered when sufficient assets are deposited to meet the
Funds' immediate obligations. A Fund may use the same liquid as-
sets to cover both the call and put options where the exercise
price of the call and put are the same, or the exercise price of
the call is higher than that of the put. In such cases, the Funds
will also segregate liquid assets equivalent to the amount, if
any, by which the put is "in the money."
The Funds will only enter into futures contracts or futures op-
tions which are standardized and traded on a U.S. or foreign ex-
change or board of trade, or similar entity, or quoted on an auto-
mated quotation system. Each Fund will use financial futures con-
tracts and related options only for "bona fide hedging" purposes,
as such term is defined in applicable regulations of the CFTC or,
with respect to positions in financial futures and related options
that do not qualify as "bona fide hedging" positions, will enter
such positions only to the extent that aggregate initial margin
deposits plus premiums paid by it for open futures option posi-
tions, less the amount by which any such positions are "in-the-
money," would not exceed 5% of the Fund's net assets.
HYBRID A hybrid instrument can combine the characteristics of securities,
INSTRUMENTS futures, and options. For example, the principal amount or
interest rate of a hybrid could be tied (positively or negatively)
to the price of some commodity, currency or securities index or
another interest rate (each a "benchmark"). The interest rate or
(unlike most fixed income securities) the principal amount payable
at maturity of a hybrid security may be increased or decreased,
depending on changes in the value of the benchmark.
Hybrids can be used as an efficient means of pursuing a variety
of investment goals, including currency hedging, duration manage-
ment, and increased total return. Hybrids may not bear interest or
pay dividends. The value of a hybrid or its interest rate may be a
multiple of a benchmark and, as a result, may be leveraged and
move (up or down) more steeply and rapidly than the benchmark.
These benchmarks may be sensitive to economic and political
events, such as commodity shortages and currency devaluations,
which cannot be readily foreseen by the purchaser of a hybrid. Un-
der certain conditions, the redemption value of a hybrid could be
zero. Thus, an investment in a hybrid may entail significant mar-
ket risks that are not associated with a similar investment in a
traditional, U.S. dollar-denominated bond that
33
April 1, 1998 Prospectus
<PAGE>
has a fixed principal amount and pays a fixed rate or floating
rate of interest. The purchase of hybrids also exposes a Fund to
the credit risk of the issuer of the hybrids. These risks may
cause significant fluctuations in the net asset value of the Fund.
Accordingly, no Fund will invest more than 5% of its assets in hy-
brid instruments.
Certain issuers of structured products such as hybrid instru-
ments may be deemed to be investment companies as defined in the
1940 Act. As a result, the Funds' investments in these products
will be subject to limits applicable to investments in investment
companies and may be subject to restrictions contained in the 1940
Act.
INVESTMENT Each of the Funds may invest in securities of other investment
IN companies, such as closed-end management investment companies, or
INVESTMENT in pooled accounts or other investment vehicles. As a shareholder
COMPANIES of an investment company, a Fund may indirectly bear service and
other fees which are in addition to the fees the Fund pays its
service providers.
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.
High portfolio turnover (e.g., over 100%) involves correspondingly
greater expenses to a Fund, including commissions or dealer mark-
ups and other transaction costs on the sale of securities and
reinvestments in other securities. See "Management of the Trust--
Portfolio Transactions." Such sales may result in realization of
taxable capital gains. See "Taxes." The portfolio turnover rate
for certain of the Funds is set forth under "Financial High-
lights." The portfolio turnover rate for certain of the Funds,
which offer Institutional or Administrative Class shares, is in-
corporated by reference in the Statement of Additional Informa-
tion.
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 those for 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, re-
purchase agreements with maturities in excess of seven days, cer-
tain 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 and other
securities which legally or in the Advisor's opinion may be deemed
illiquid (not including 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).
Illiquid securities may include privately placed securities,
which are sold directly to a small number of investors, usually
institutions. Unlike public offerings, such securities are not
registered under the federal securities laws. Although certain of
these securities may be readily sold, for example, under Rule
144A, others may be illiquid, and their sale may involve substan-
tial delays and additional costs.
SERVICE Many of the services provided to the Funds depend on the smooth
SYSTEMS-- functioning of computer systems. Many systems in use today cannot
YEAR 2000 distinguish between the year 1900 and the year 2000. Should any of
PROBLEM the service systems fail to process information properly, that
could have an adverse impact on the Funds' operations and services
provided to shareholders. The Advisor, Distributor, Shareholder
Servicing and Transfer Agent, Custodian, and certain other service
providers to the Funds have reported that each is working toward
mitigating the risks associated with the so-called "year 2000
problem." However, there can be no assurance that the problem will
be corrected in all respects and that the Funds' operations and
services provided to shareholders will not be adversely affected.
34
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 de-
scribed 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 performance of a Fund's Class B and
Class C shares will be lower than that of the Fund's Class A
shares although an investment in Class B or Class C shares is not
reduced by the front-end sales charge generally applicable to an
investment in Class A shares.
From time to time, the yield and total return for each class of
shares of the Funds may be included in advertisements or reports
to shareholders or prospective investors. Yield quotations for the
Money Market Fund may include current yield and effective yield.
Current yield will be based on income received by a hypothetical
investment over a given seven-day period (less expenses accrued
during the period) and "annualized" (i.e., assuming that the sev-
en-day yield would be received for 52 weeks, stated in terms of an
annual percentage return on the investment). Effective yield for
the Fund is calculated in the manner similar to that used to cal-
culate current yield, but reflects the compounding effect on earn-
ings of reinvested dividends. For the remaining Funds, quotations
of yield for a Fund or class will be based on the investment in-
come per share (as defined by the Securities and Exchange Commis-
sion) during a particular 30-day (or one-month) period (including
dividends and interest), less expenses accrued during the period
("net investment income"), and will be computed by dividing net
investment income by the maximum public offering price per share
on the last day of the period. The tax equivalent yield of the Mu-
nicipal Bond Fund's Class A, Class B and Class C shares may also
be advertised, calculated like yield except that, for any given
tax bracket, net investment income will be calculated as the sum
of (i) any taxable income of the class plus (ii) the tax exempt
income of the class divided by the difference between 1 and the
effective federal income tax rates for taxpayers in that tax
bracket.
The total return of Class A, Class B and/or Class C shares of
all Funds may be included in advertisements or other written mate-
rial. When a Fund's total return is advertised with respect to its
Class A, Class B and Class C shares, it will be calculated for the
past year, the past five years, and the past ten years (or if the
Fund has been offered for a period shorter than one, five or ten
years, that period will be substituted) since the establishment of
the Fund (or its predecessor series of PIMCO Advisors Funds for
the Global Bond Fund II), as more fully described in the Statement
of Additional Information. Consistent with Securities and Exchange
Commission rules and informal guidance, for periods prior to the
initial offering date of a particular class, total return presen-
tations for the class will be based on the historical performance
of an older class of the Fund (the older class to be used in each
case is set forth in the Statement of Additional Information) re-
stated to reflect current sales charges (if any) of the newer
class, but not reflecting any higher operating expenses (such as
12b-1 distribution and servicing fees and administrative fee
charges) associated with the newer class. All other things being
equal, such higher expenses would have adversely affected (i.e.,
reduced) total return for a newer class (i.e., if the newer class
had been issued since the inception of the Fund) by the amount of
such higher expenses, compounded over the relevant period. Total
return for each class is measured by comparing the value of an in-
vestment in the Fund at the beginning of the relevant period (in
the case of Class A shares, giving effect to the maximum initial
sales charge) to the redemption value of the investment in the
Fund at the end of the period (assuming immediate reinvestment of
any dividends or capital gains distributions at net asset value
and giving effect to the deduction of the maximum CDSC which would
be payable). Total return may be advertised using alternative
methods that reflect all elements of return, but that may be ad-
justed to reflect the cumulative impact of alternative fee and ex-
pense structures, such as the currently effective advisory and ad-
ministrative fees for the Funds.
The Funds may also 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
35
April 1, 1998 Prospectus
<PAGE>
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 indexes, such as the Standard & Poor's 500 Com-
posite Stock Price Index, the Lehman Brothers Aggregate Bond In-
dex, the Lehman Brothers Mortgage-Backed Securities Index, the
Merrill Lynch 1 to 3 Year Treasury Index, the Lehman Intermediate
and 20+ Year Treasury Blend Index, the Lehman BB Intermediate Cor-
porate Index, indexes prepared by Lipper Analytical Services, the
J.P. Morgan Global Index, the J.P. Morgan Emerging Markets Bond
Index Plus, 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 advis-
ers. Unmanaged indexes (i.e., other than Lipper) generally do not
reflect deductions for administrative and management costs and ex-
penses. The Advisor may also report to shareholders or to the pub-
lic 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 information may be compiled or provided
by independent ratings services or by news organizations. Any per-
formance information, whether related to the Funds or to the Advi-
sor, should be considered in light of the Funds' investment objec-
tives and policies, characteristics and quality of the Funds'
portfolios, and the market conditions during the time period indi-
cated, 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 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 Distributors LLC (the "Distributor"), and through
other firms which have dealer agreements with the Distributor
("participating brokers") or which have agreed to act as introduc-
ing brokers for the Distributor ("introducing brokers").
There are two ways to purchase Class A, Class B or Class C
shares: either 1) through your dealer or broker which has a dealer
agreement with the Distributor; or 2) directly by mailing a PIMCO
Funds account application (the "account application") with pay-
ment, as described below under the heading Direct Investment, to
the Distributor (if no dealer is named in the account application,
the Distributor may act as dealer).
Each Fund currently offers and sells three classes of shares in
this Prospectus (Class A, Class B and Class C). Shares may be pur-
chased 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. See "Alternative Purchase Ar-
rangements." Purchase payments for Class B and Class C shares are
fully invested at the net asset value next determined after ac-
ceptance 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.
36
PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 9:30 a.m.,
Eastern time on the next business day. Purchase orders received on
other than a regular business day will be executed on the next
succeeding regular business day. The Distributor, in its sole dis-
cretion, may accept or reject any order for purchase of Fund
shares. The sale of shares will be suspended during any period in
which the Exchange is closed for other than weekends or holidays,
or if permitted by the rules of the Securities and Exchange Com-
mission, when trading on the Exchange is restricted or during an
emergency which makes it impracticable for the Funds to dispose of
their securities or to determine fairly the value of their net as-
sets, or during any other period as permitted by the Securities
and Exchange Commission for the protection of investors.
Except for purchases through the PIMCO Funds Auto-Invest plan,
the PIMCO Funds Auto-Exchange plan, investments pursuant to the
Uniform Gifts to Minors Act, and tax-qualified and wrap programs
referred to below under "Tax-Qualified Retirement Plans" and
"Sales at Net Asset Value", the minimum initial investment in
Class A, Class B or Class C shares of any Fund of the Trust or any
series of PIMCO Funds: Multi-Manager Series is $2,500, and the
minimum additional investment is $100 per Fund. For information
about dealer commissions, see "Alternative Purchase Arrangements"
below. Persons selling Fund shares may receive different compensa-
tion for selling Class A, Class B or Class C shares. Normally,
Fund shares purchased through participating brokers are held in
the investor's account with that broker. No share certificates
will be issued unless specifically requested in writing by an in-
vestor or broker-dealer.
DIRECT Investors who wish to invest in Class A, Class B or Class C shares
INVESTMENT of the Trust directly, rather than through a participating broker,
may do so by opening an account with the Distributor. To open an
account, an investor should complete the account application. All
shareholders who open direct accounts with the Distributor will
receive from the Distributor individual confirmations of each pur-
chase, redemption, dividend reinvestment, exchange or transfer of
Trust shares, including the total number of Trust shares owned as
of the confirmation date, except that purchases which result from
the reinvestment of daily-accrued dividends and/or distributions
will be confirmed once each calendar quarter. See "Distributions"
below. Information regarding direct investment or any other fea-
tures or plans offered by the Trust may be obtained by calling the
Distributor at 800-426-0107 or by calling your broker.
PURCHASE BY Investors who wish to invest directly may send a check payable to
MAIL PIMCO Funds Distributors LLC, along with a completed application
form to:
PIMCO Funds Distributors LLC
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 Funds Auto-Invest plan, the PIMCO Funds Auto-Exchange
plan, tax-quali-
April 1, 1998 Prospectus
37
<PAGE>
fied programs and PIMCO Funds 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 Distributors LLC
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), including Roth
RETIREMENT IRAs, for which First National Bank of Boston serves as trustee
PLANS and for IRA accounts established with Form 5305-SIMPLE under the
Internal Revenue Code. These accounts include Simplified Employee
Pension Plan (SEP) and Salary Reduction Simplified Employee Pen-
sion Plan (SAR/SEP) IRA accounts and prototype documents. In addi-
tion, prototype documents are available for establishing 403(b)(7)
Custodial Accounts with First National Bank of Boston as custodi-
an. This type of plan is available to employees of certain non-
profit organizations.
The Distributor also makes available prototype documents for
establishing Money Purchase and/or Profit Sharing Plans and 401(k)
Retirement Savings Plans. Investors should call the Distributor at
800-426-0107 for further information about these plans and should
consult with their own tax advisers before establishing any re-
tirement plan. Investors who maintain their accounts with partici-
pating brokers should consult their broker about similar types of
accounts that may be offered through the broker. The minimum ini-
tial investment for all tax qualified plans (except for employer-
sponsored plans, SIMPLE IRAs, SEPs and SAR/SEPs) is $1,000 per
Fund and the minimum subsequent investment is $100 and the minimum
initial investment for employer-sponsored plans, SIMPLE IRAs, SEPs
and SAR/SEPs and the minimum subsequent investment per Fund for
all such plans is $50.
PIMCO FUNDS The PIMCO Funds Auto-Invest plan provides for periodic investments
AUTO-INVEST into the shareholder's account with the Trust by means of auto-
matic transfers of a designated amount from the shareholder's bank
account. The minimum investment for eligibility in the PIMCO Funds
Auto-Invest plan is $1,000 per Fund. Subsequent 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 pur-
chased through the plan. Further information regarding the PIMCO
Funds Auto-Invest plan is available from the Distributor or par-
ticipating brokers. You may enroll by completing the appropriate
section on the account application, or you may obtain an Auto-In-
vest application by calling the Distributor or your broker.
PIMCO FUNDS The PIMCO Funds Auto-Exchange plan establishes regular, periodic
AUTO- exchanges from one Fund to another Fund or a series of PIMCO
EXCHANGE 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 Funds Auto-Exchange plan is available from the Distributor
at 800-426-0107 or participating brokers. You may enroll by com-
pleting an application which may be obtained from the Distributor
or by telephone request at 800-426-0107. For more information on
exchanges, see "Exchange Privilege."
PIMCO FUNDS PIMCO Funds Fund Link ("Fund Link") connects your Fund account
FUND LINK with a bank account. Fund Link may be used for subsequent pur-
chases and for redemptions and other transactions described under
"How to Redeem." Purchase transactions are effected by electronic
funds transfers from the shareholder's account at a U.S. bank or
other financial institution that is an Automated Clearing House
("ACH") member. Investors may use Fund Link to make subsequent
purchases of shares in amounts from $50 to $10,000. To initiate
such purchases, call 800-426-0107. All such calls will be record-
ed. Fund Link is normally established within 45 days of receipt of
a Fund Link application by Shareholder Services, Inc. (the "Trans-
fer Agent"). The minimum investment by Fund Link is $50 per Fund.
Shares will be pur-
38 PIMCO Funds: Pacific Investment Management Series
<PAGE>
chased on the regular business day the Distributor receives the
funds through the ACH system, provided the funds are received be-
fore the close of regular trading on the Exchange. If the funds
are received after the close of regular trading, the shares will
be purchased on the next regular business day.
Fund Link privileges must be requested on the account applica-
tion. To establish Fund Link on an existing account, complete a
Fund Link application, which is available from the Distributor or
your broker, with signatures guaranteed from all shareholders of
record for the account. See "Signature Guarantee" below. Such
privileges apply to each shareholder of record for the account un-
less and until the Distributor receives written instructions from
a shareholder of record canceling such privileges. Changes of bank
account information must be made by completing a new Fund Link ap-
plication signed by all owners of record of the account, with all
signatures guaranteed. The Distributor, the Transfer Agent and the
Fund may rely on any telephone instructions believed to be genuine
and will not be responsible to shareholders for any damage, loss
or expenses arising out of such instructions. The Fund reserves
the right to amend, suspend or discontinue Fund Link privileges at
any time without prior notice. Fund Link does not apply to shares
held in broker "street name" accounts.
SIGNATURE When a signature guarantee is called for, the shareholder should
GUARANTEE have "Signature Guaranteed" stamped under his signature and guar-
anteed by any of the following entities: U.S. banks, foreign banks
having a U.S. correspondent bank, credit unions, savings associa-
tions, U.S. registered dealers and brokers, municipal securities
dealers and brokers, government securities dealers and brokers,
national securities exchanges, registered securities associations
and clearing agencies (each an "Eligible Guarantor Institution").
The Distributor reserves the right to reject any signature guaran-
tee pursuant to its written signature guarantee standards or pro-
cedures, which may be revised in the future to permit it to reject
signature guarantees from Eligible Guarantor Institutions that do
not, based on credit guidelines, satisfy such written standards or
procedures. The Trust may change the signature guarantee require-
ments from time to time upon notice to shareholders, which may be
given by means of a new or supplemented Prospectus.
ACCOUNT Changes in registration or account privileges may be made in writ-
REGISTRA- ing to the Transfer Agent. Signature guarantees may be required.
TION See "Signature Guarantee" above. All correspondence must include
CHANGES the account number and must be sent to:
PIMCO Funds Distributors LLC
P.O. Box 5866
Denver, CO 80217-5866
SMALL Because of the disproportionately high costs of servicing accounts
ACCOUNT FEE with low balances, a fee at an annual rate of $16, paid to Pacific
Investment Management, the Funds' administrator, will automati-
cally be deducted from direct accounts with balances falling below
a minimum level. The valuation of accounts and the deduction are
expected to take place during the last five days of each calendar
quarter. The fee will be deducted in quarterly installments from
accounts with balances below $2,500 except for Uniform Gift to Mi-
nors, IRA, Roth IRA and Auto-Invest accounts, for which the limit
is $1,000. The fee will not apply to employer-sponsored retirement
accounts or 403(b)(7) custodial accounts. (A separate custodial
fee may apply to IRAs, Roth IRAs and other retirement accounts.)
No fee will be charged on any account of a shareholder if the ag-
gregate value of all of the shareholder's accounts is at least
$50,000. No small account fee will be charged to employee and em-
ployee-related accounts of PIMCO Advisors and/or its affiliates.
MINIMUM Due to the relatively high cost to the Funds of maintaining small
ACCOUNT accounts, you are asked to maintain an account balance of at least
SIZE the amount necessary to open the type of account involved. If your
balance is below such minimum for three months or longer, the
Fund's administrator shall have the right (except in the case of
employer-sponsored retirement accounts) to close your account af-
ter giving you 60 days in which to increase your balance. Your ac-
count will not be liquidated if the reduction in size is due
solely to market decline in the value of your Fund shares or if
the aggregate value of all your accounts in PIMCO Funds exceeds
$50,000.
April 1, 1998 Prospectus 39
<PAGE>
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 separate prospectuses, certain of the Funds offer
up to three additional classes of shares, Class D, Institutional
Class and Administrative Class shares. During the second quarter
of 1998, it is anticipated that Class D shares will be offered,
primarily through financial intermediaries. Institutional Class
and Administrative Class shares are offered to pension and profit
sharing plans, employee benefit plans, endowments, foundations,
corporations and other high net worth individuals. Class D, Insti-
tutional 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 op-
erating expenses, Class D, Administrative Class and Institutional
Class shares are generally expected to achieve higher investment
returns than Class A, Class B or Class C shares. To obtain more
information about the other classes of shares, please call the
Distributor at 800-927-4648 (for Institutional and Administrative
Classes) or 888-87-PIMCO (for Class D).
The alternative purchase arrangements offered in this Prospec-
tus are designed to enable a retail investor to choose the method
of purchasing Fund shares that is most beneficial to the investor
based on all factors to be considered, which include: the amount
and intended length of the investment; the particular Fund; and
whether the investor intends to exchange shares for shares of
other Funds. Generally, when making an investment decision, in-
vestors should consider the anticipated life of an intended in-
vestment in the Funds, the accumulated distribution and servicing
fees plus CDSCs on Class B or Class C shares, the initial sales
charge plus accumulated servicing fees on Class A shares (plus a
CDSC in certain circumstances), the possibility that the antici-
pated higher return on Class A shares due to the lower ongoing
charges will offset the initial sales charge paid on such shares,
the automatic conversion of Class B shares to Class A shares and
the difference in the CDSCs applicable to Class A, Class B and
Class C shares.
CLASS A The initial sales charge alternative (Class A) might be
preferred by investors purchasing shares of sufficient aggregate
value to qualify for reductions in the initial sales charge appli-
cable to such shares. Similar reductions are not available on the
contingent deferred sales charge alternative (Class B) or the as-
set based sales charge alternative (Class C). Class A shares are
subject to a servicing fee but are not subject to a distribution
fee and, accordingly, such shares are expected to pay correspond-
ingly higher dividends on a per share basis. However, because ini-
tial sales charges are deducted at the time of purchase, not all
of the purchase payment for Class A shares is invested initially.
Class B and Class C shares might be preferable to investors who
wish to have all purchase payments invested initially, although
remaining subject to higher distribution and servicing fees and,
for certain periods, being subject to a CDSC. An investor who
qualifies for an elimination of the Class A initial sales charge
should also consider whether he or she anticipates redeeming
shares in a time period which will subject such shares to a CDSC
as described below. See "Initial Sales Charge Alternative--Class A
Shares--Class A Deferred Sales Charge" below.
CLASS B Class B shares might be preferred by investors who intend
to invest in the Funds for longer periods and who do not intend to
purchase shares of sufficient aggregate value to qualify for sales
charge reductions applicable to Class A shares. Both Class B and
Class C shares can be purchased at net asset value without an ini-
tial sales charge. However, unlike Class C shares, Class B shares
convert into Class A shares after the shares have been held for
seven years. After the conversion takes place, the shares will no
longer be subject to a CDSC, and will be subject to the servicing
fees charged for Class A shares which are lower than the distribu-
tion and servicing fees charged on either Class B or Class C
shares. See "Deferred Sales Charge Alternative--Class B Shares"
below. Class B shares are not available for purchase by employer
sponsored retirement plans.
40
PIMCO Funds: Pacific Investment Management Series
<PAGE>
CLASS C Class C shares might be preferred by investors who intend
to purchase shares which are not of sufficient aggregate value to
qualify for Class A sales charges of 1% or less and who wish to
have all purchase payments invested initially. Class C shares are
preferable to Class B shares for investors who intend to maintain
their investment for intermediate periods and therefore may also
be preferable for investors who are unsure of the intended length
of their investment. Unlike Class B shares, Class C shares are not
subject to a CDSC after they have been held for one year and are
subject to only a 1% CDSC during the first year. However, because
Class C shares do not convert into Class A shares, Class B shares
are preferable to Class C shares for investors who intend to main-
tain their investment in the Funds for long periods. See "Asset
Based Sales Charge Alternative--Class C Shares" below.
In determining which class of shares to purchase, an investor
should always consider whether any waiver or reduction of a sales
charge or a CDSC is available. See generally "Initial Sales Charge
Alternative--Class A Shares" and "Waiver of Contingent Deferred
Sales Charges" below.
The maximum single purchase of Class B shares of the Trust and
series of PIMCO Funds: Multi-Manager Series accepted is $249,999.
The maximum single purchase of Class C shares of the Trust and se-
ries of PIMCO Funds: Multi-Manager Series accepted is $999,999.
The Funds may refuse any order to purchase shares.
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 any of the following
distributions from a retirement plan, including a 403(b)(7) custo-
dial account or an IRA (with the exception of a Roth IRA), that
qualify for exemption from the additional tax on early distribu-
tions under Section 72(t) of the Internal Revenue Code of 1986, as
amended (the "Code"): (a) upon attaining age 59 1/2, (b) on ac-
count of death or disability, (c) as part of a series of substan-
tially equal periodic payments, (d) in the case of an IRA (with
the exception of a Roth IRA), attributable to qualified higher ed-
ucation expenses or to qualified first-time home-buyer expenses,
or (e) in the case of a retirement plan other than an IRA, upon
separation from service after attaining age 55; (ii) any partial
or complete redemption in connection with a qualifying loan or
hardship withdrawal from an employer sponsored retirement plan;
(iii) any complete redemption in connection with a distribution
from a qualified employer retirement plan in connection with ter-
mination of employment or termination of the employer's plan and
the transfer to another employer's plan or to an IRA (with the ex-
ception of a Roth IRA); (iv) any partial or complete redemption
following death or disability (as defined in the Code) of a share-
holder (including one who owns the shares as joint tenant with his
or her spouse) from an account in which the deceased or disabled
is named, provided the redemption is requested within one year of
the death or initial determination of disability; (v) any redemp-
tion resulting from a return of an excess contribution to a quali-
fied employer retirement plan or an IRA (with the exception of a
Roth IRA); (vi) up to 10% per year of the value of an account
which (a) has the value of at least $10,000 at the start of such
year and (b) is subject to an Automatic Withdrawal Plan; (vii) re-
demptions by Trustees, officers and employees of the Trust, and by
directors, officers and employees of the Distributor and the Advi-
sor; (viii) redemptions effected pursuant to a Fund's right to in-
voluntarily 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) involuntary redemptions caused by operation of law;
(x) redemption of shares of any Fund that is combined with another
Fund, investment company, or personal holding company by virtue of
a merger, acquisition or other similar reorganization transaction;
(xi) redemptions by a shareholder who is a participant making pe-
riodic 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 pur-
chases; (xii) redemptions effected by trustees or other fiducia-
ries who have purchased shares for employer sponsored plans, the
trustee, administrator, fiduciary, broker, trust company or regis-
tered investment adviser for which has an agreement with the Dis-
tributor with respect to such purchases; or (xiii) redemptions in
connection with IRA accounts established with Form 5305-SIMPLE un-
der the Code for which the Trust is the designated financial
institution.
April 1, 1998 Prospectus
41
<PAGE>
The CDSC applicable to Class B shares is currently waived for
any partial or complete redemption in each of the following cases:
(a) in connection with a distribution without penalty under Sec-
tion 72(t) of the Code from a 403(b)(7) plan or an IRA (with the
exception of a Roth 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) up to 10%
per year of the value of an account which (i) has a value of at
least $100,000 at the start of such year and (ii) is subject to an
Automatic Withdrawal Plan. See "How to Redeem--Automatic With-
drawal 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.
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
ALTER- investors that purchase $1,000,000 ($250,000 in the case of the
NATIVE -- Short-Term Fund) or more of any Fund's Class A shares (and thus
CLASS A pay no initial sales charge) may be subject to a 1% CDSC if they
SHARES redeem such shares during the first 18 months after their pur-
chase.
TOTAL RETURN, HIGH YIELD, LONG-TERM U.S. GOVERNMENT, GLOBAL BOND
II, FOREIGN BOND AND EMERGING MARKETS BOND 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, REAL RETURN BOND, MUNICIPAL BOND 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+ 0.00%/(1)/ 0.00%/(1)/ 0.25%/(2)/
</TABLE>
42
PIMCO Funds: Pacific Investment Management Series
<PAGE>
1. As shown, investors that purchase more than $1,000,000 of any
Fund's Class A shares ($250,000 in the case of the Short-Term
Fund) will not pay any initial sales charge on such purchase. How-
ever, except with regard to purchases of Class A shares of the
Money Market Fund, purchasers of $1,000,000 ($250,000 in the case
of the Short-Term Fund) or more of Class A shares (other than
those purchasers described below under "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 purchaser is eligible for a
waiver of the CDSC as described under "Waiver of Contingent De-
ferred Sales Charges" above. See "Class A Deferred Sales Charge"
below.
2. The Distributor will pay a commission to dealers who sell
amounts of $1,000,000 ($250,000 in the case of the Short-Term
Fund) 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 except 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
$250,000.
No initial sales charge applies to purchases of Class A shares
of the Money Market Fund. However, if a shareholder exchanges
Class A shares of the Money Market Fund, for which no sales load
was paid at the time of purchase, for Class A shares of any other
Fund, the sales charge shown above for the other Fund applies at
the time of the exchange.
Each Fund receives the entire net asset value of its Class A
shares purchased by investors. The Distributor receives the sales
charge shown above less any applicable discount or commission
"reallowed" to participating brokers in the amounts indicated in
the table above. The Distributor may, however, elect to reallow
the entire sales charge to participating brokers for all sales
with respect to which orders are placed with the Distributor for
any particular Fund during a particular period. During such peri-
ods as may from time to time be designated by the Distributor, the
Distributor will pay an additional amount of up to .50% of the
purchase price on sales of Class A shares of all or selected Funds
purchased to each participating broker which obtains purchase or-
ders in amounts exceeding thresholds established from time to time
by the Distributor. From time to time, the Distributor, its parent
and/or its affiliates may make additional payments to one or more
participating brokers based upon factors such as the level of
sales or the length of time clients' assets have remained in the
Trust.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are issued at net asset
value and are not subject to any sales charges.
Under the circumstances described below, investors may be enti-
tled to pay reduced sales charges for Class A shares.
COMBINED PURCHASE PRIVILEGE Investors may qualify for a reduced
sales charge by combining purchases of the Class A shares of one
or more Funds or series of PIMCO Funds: Multi-Manager Series which
offer Class A shares (together, "eligible PIMCO Funds") into a
"single purchase," if the resulting purchase totals at least
$50,000. The term single purchase refers to:
(i) a single purchase by an individual, or concurrent
purchases, which in the aggregate are at least equal to
the prescribed amounts, by an individual, his or her
spouse and their children under the age of 21 years
purchasing Class A shares of the eligible PIMCO Funds for
his, her or their own account;
(ii) a single purchase by a trustee or other fiduciary
purchasing shares for a single trust, estate or fiduciary
account although more than one beneficiary is involved;
or
(iii) a single purchase for the employee benefit plans of a
single employer.
For further information, 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."
43
April 1, 1998 Prospectus
<PAGE>
For example, if you owned Class A shares of the Total Return
Fund worth $25,000 at the current maximum offering price and
wished to purchase Class A shares of the Global Bond Fund II worth
an additional $30,000, the sales charge for the $30,000 purchase
would be at the 4.00% rate applicable to a single $55,000 purchase
of shares of the Global Bond Fund II, rather than the 4.50% rate.
LETTER OF INTENT An investor may also obtain a reduced sales
charge by means of a written Letter of Intent, which expresses an
intention to invest not less than $50,000 within a period of 13
months in Class A shares of any eligible PIMCO Fund(s) (other than
the Money Market Fund). Each purchase of shares under a Letter of
Intent will be made at the public offering price or prices appli-
cable at the time of such purchase to a single transaction of the
dollar amount 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 the Money Market, Short-
Term, Low Duration, Real Return Bond, Municipal Bond 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. If you are a current Class A shareholder desiring to
do so you can obtain a form of Letter of Intent by contacting the
Distributor at 800-426-0107 or any broker participating in this
program.
REINSTATEMENT PRIVILEGE A Class A shareholder who has caused any
or all of his shares (other than Money Market Fund shares that
were not acquired by exchanging Class A shares of another Fund) to
be redeemed may reinvest all or any portion of the redemption 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.
44
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, a parent, brother or sister of any such
officer, trustee, director or employee or a spouse or child of any
of the foregoing persons, or any trust, profit sharing or pension
plan for the benefit of any such person and to any other person if
the Distributor anticipates that there will be minimal sales ex-
penses associated with the sale, (b) current or retired trustees
of PIMCO Funds: Multi-Manager Series, a registered investment com-
pany for which PIMCO Advisors L.P., an affiliate of the Advisor,
acts as investment adviser, (c) current registered representatives
and other full-time employees of participating brokers or such
persons' spouses or for trust or custodial accounts for their mi-
nor children, (d) trustees or other fiduciaries purchasing shares
for certain employer sponsored plans that have at least 100 eligi-
ble participants or at least $1 million in total plan assets,
(e) trustees or other fiduciaries purchasing shares for certain
plans sponsored by employers, professional organizations or asso-
ciations, or charitable organizations, the trustee, administrator,
fiduciary, broker, trust company or registered investment adviser
for which has an agreement with the Distributor with respect to
such purchases, and to participants in such plans and their
spouses purchasing for their accounts(s) or IRAs (with the excep-
tion of Roth IRAs), (f) participants investing through accounts
known as "wrap accounts" established with brokers or dealers ap-
proved by the Distributor where such brokers or dealers are paid a
single, inclusive fee for brokerage and investment management
services, (g) client accounts of broker-dealers or registered in-
vestment advisers affiliated with such broker-dealers with which
the Distributor has an agreement for the use of PIMCO Funds in
particular investment products or programs, and (h) accounts for
which a trust company affiliated with the Trust or the Advisor
serves as trustee or custodian. As described above, the Distribu-
tor 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.
NOTIFICATION OF DISTRIBUTOR An investor or participating broker
must notify the Distributor whenever a quantity discount or re-
duced sales charge is applicable to a purchase and must provide
the Distributor with sufficient information at the time of pur-
chase to verify that each purchase qualifies for the privilege or
discount. Upon such notification, the investor will receive the
lowest applicable sales charge. The quantity discounts described
above may be modified or terminated at any time.
CLASS A DEFERRED SALES CHARGE For all Funds except the Money Mar-
ket Fund, investors who purchase $1,000,000 ($250,000 in the case
of the Short-Term Fund) or more of Class A shares (and, thus, pur-
chase 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 ap-
ply to investors purchasing $1,000,000 or more of any Fund's Class
A shares ($250,000 in the case of the Short-Term Fund) if such in-
vestors are otherwise eligible to purchase Class A shares without
any sales charge because they are described under "Sales at Net
Asset Value" above.
For purchases subject to the Class A CDSC, a 1% CDSC will apply
for any redemption of such Class A shares that occurs within 18
months of their purchase. No CDSC will be imposed if the shares
redeemed have been acquired through the reinvestment of dividends
or capital gains distributions or if the amount redeemed is 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 ($250,000 in the case of the
Short-Term Fund) 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.
April 1, 1998 Prospectus
45
<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 Charges." For more
information about the Class A CDSC, call the Distributor at 800-
426-0107.
PARTICIPATING BROKERS Investment dealers and other financial in-
termediaries provide varying arrangements for their clients to
purchase and redeem Fund shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange
with their clients for other investment or administrative services
and may independently establish and charge transaction fees and/or
other additional amounts to their clients for such services, which
charges would reduce clients' return. Firms also may hold Fund
shares in nominee or street name as agent for and on behalf of
their customers. In such instances, the Trust's transfer agent
will have no information with respect to or control over accounts
of specific shareholders. Such shareholders may obtain access to
their accounts and information about their accounts only from
their broker. In addition, certain privileges with respect to the
purchase and redemption of shares or the reinvestment of dividends
may not be available through such firms. Some firms may partici-
pate in a program allowing them access to their clients' accounts
for servicing including, without limitation, transfers of regis-
tration 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.
ALTERNATIVE A CDSC will be imposed on Class B shares of all Funds if an in-
- -- CLASS B vestor redeems an amount which causes the current value of the in-
SHARES vestor's account for a Fund to fall below the total dollar amount
of purchase payments subject to the CDSC, except that no CDSC is
imposed if the shares redeemed have been acquired through the re-
investment of dividends or capital gains distributions or if the
amount redeemed is derived from increases in the value of the ac-
count above the amount of purchase payments subject to the CDSC.
Class B shares of the Short-Term Fund and the Money Market Fund
are not offered for initial purchase but may be obtained through
exchanges of Class B shares of other Funds. See "Exchange Privi-
lege" below. Class B shares are not available for purchase by em-
ployer sponsored retirement plans.
Whether a CDSC is imposed and the amount of the CDSC will de-
pend on the number of years since the investor made a purchase
payment from which an amount is being redeemed. Purchases are sub-
ject to the CDSC according to the following schedule:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PERCENTAGE CONTINGENT
PAYMENT WAS MADE DEFERRED SALES CHARGE
-------------------------------------------
<S> <C>
First 5%
-------------------------------------------
Second 4
-------------------------------------------
Third 3
-------------------------------------------
Fourth 3
-------------------------------------------
Fifth 2
-------------------------------------------
Sixth 1
-------------------------------------------
Seventh 0*
</TABLE>
*After the seventh year,
Class B shares convert into
Class A shares as described
below.
In determining whether a CDSC is payable, it is assumed that
the purchase payment from which a redemption is made is the earli-
est purchase payment from which a redemption or exchange has not
already been fully effected.
46
PIMCO Funds: Pacific Investment Management Series
<PAGE>
The following example will illustrate the operation of
the Class B CDSC:
Assume that an individual opens an account and makes a
purchase payment of $10,000 for Class B shares of a Fund
(except the Money Market and Short-Term Funds) and that
six months later the value of the investor's account for
that Fund has grown through invest-ment performance and
reinvestment of distributions to $11,000. The investor
then may redeem up to $1,000 from that Fund ($11,000 mi-
nus $10,000) without incurring a CDSC. If the investor
should re-deem $3,000, a CDSC would be imposed on $2,000
of the redemption (the amount by which the investor's
account for the Fund was re-duced below the amount of the
purchase payment). At the rate of 5%, the Class B CDSC
would be $100.
In determining whether an amount is available for
redemption without incurring a CDSC, the purchase payments
made for all Class B shares in the shareholder's account
with the particular Fund are aggregated, and the current
value of all such shares is aggregat-ed. Any CDSC imposed
on a redemption of Class B shares is paid to the
Distributor.
Class B shares are subject to higher distribution fees
than Class A shares for a fixed period after their
purchase, after which they automatically convert to Class
A shares and are no longer subject to such higher
distribution fees. Class B shares of each Fund
automatically convert into Class A shares after they have
been held for seven years.
For sales of Class B shares made and services rendered
to Class B shareholders, the Distributor intends to make
payments to par-ticipating brokers, at the time a
shareholder purchases Class B shares, of 4% of the
purchase amount for each of the Funds. During such periods
as may from time to time be designated by the Dis-
tributor, the Distributor will pay selected participating
brokers an additional amount of up to .50% of the purchase
price on sales of Class B shares of all or selected Funds
purchased to each par-ticipating broker which obtains
purchase orders in amounts exceed-ing thresholds
established from time to time by the Distributor.
The Class B CDSC is currently waived in connection with
certain redemptions as described above under "Alternative
Purchase Ar-rangements--Waiver of Contingent Deferred
Sales Charges." For more information about the Class B
CDSC, call the Distributor at 800-426-0107.
ASSET BASED Class C shares are sold at their current net asset value
SALES without any initial sales charge. A CDSC is imposed on
CHARGE Class C shares of all Funds if an investor redeems an
ALTERNATIVE -- which causes the current value of the investor's
CLASS C 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 reinvestment of dividends or capital gains
distributions or if the amount redeemed is derived from
increases in the value of the account above the amount of
purchase payments subject to the CDSC. All of an
investor's purchase payments are invested in shares of the
Fund(s) selected.
Whether a CDSC is imposed and the amount of the CDSC
will depend on the number of years since the investor
made a purchase payment from which an amount is being
redeemed. Purchases are subject to the CDSC according to
the following 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 earliest purchase payment (from which a
redemption or exchange has not already been effected).
The following example will illustrate the operation of
the Class C CDSC:
Assume that an individual opens an account and makes a
purchase payment of $10,000 for Class C shares of a Fund
and that six months later the value of the investor's
account for that Fund has grown through investment
performance and reinvestment of distributions to $11,000.
The investor then may redeem up to $1,000 from that Fund
April 1, 1998 Prospectus
47
<PAGE>
($11,000 minus $10,000) without incurring a CDSC. If the investor
should redeem $3,000, a CDSC would be imposed on $2,000 of the re-
demption (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 Money Market, Short-Term, Low Duration, Real
Return Bond, Municipal Bond and StocksPLUS Funds. For the Low Du-
ration, Real Return Bond, Municipal Bond and StocksPLUS Funds, the
Distributor expects to make payments of .75% (representing .50%
distribution fees and .25% service fees); for the Short-Term Fund,
the Distributor expects to make payments of .55% (representing
.30% distribution fees and .25% service fees); and for the Money
Market Fund, the Distributor expects to make no payment. For sales
of Class C shares made to participants making periodic purchases
of not less than $50 through certain employer sponsored savings
plans which are clients of a broker-dealer with which the 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 Distributor at
800-426-0107.
Exchange Privilege
A shareholder may exchange Class A, Class B and Class C shares of
any Fund for the same Class of shares of any other Fund in an ac-
count with identical registration on the basis of their respective
net asset values (except that a sales charge will apply on ex-
changes of Class A shares of the Money Market Fund on which no
sales charge was paid at the time of purchase). Class A, Class B
and Class C shares of each Fund may also be exchanged for shares
of the same class of a series which offers such classes (except
for the Opportunity Fund if a restriction applies) of PIMCO Funds:
Multi-Manager Series, an affiliated mutual fund family comprised
primarily of equity portfolios managed by the subsidiary partner-
ships of PIMCO Advisors L.P. Class A shares of the Money Market
Fund may be exchanged for Class A shares of any other Fund, but
the usual sales charges applicable to investments in such other
Fund apply on shares for which no sales load was paid at the time
of purchase. There are currently no exchange fees or charges. Ex-
cept with respect to tax- qualified programs and exchanges ef-
fected through the PIMCO Funds Auto-Exchange plan, exchanges are
subject to the $2,500 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
Distributors LLC, P.O. Box 5866, Denver, CO 80217-5866 or, unless
the investor has specifically declined telephone exchange privi-
leges on the account application or elected in writing not to uti-
lize telephone exchanges, by a telephone request to the Transfer
Agent at 800-426-0107. The Trust will employ reasonable procedures
to confirm that instructions communicated by telephone are genu-
ine, and may be liable for any losses due to unauthorized or
fraudulent instructions if it fails to employ such procedures. The
Trust will require a form of personal identification prior to act-
ing on a caller's telephone instructions, will provide written
confirmations of such transactions and will record telephone in-
structions. Exchange forms are available from the Distributor at
800-426-0107 and may be used if
48
PIMCO Funds: Pacific Investment Management Series
<PAGE>
there will be no change in the registered name or address of the
shareholder. Changes in registration information or account privi-
leges may be made in writing to the Transfer Agent, Shareholder
Services, Inc., P.O. Box 5866, Denver, Colorado 80217-5866, or by
use of forms which are available from the Distributor. A signature
guarantee is required. See "How to Buy Shares--Signature Guaran-
tee." Telephone exchanges may be made between 9:00 a.m., Eastern
time and the close of regular trading (normally 4:00 p.m., Eastern
time) on the Exchange on any day the Exchange is open (generally
weekdays other than normal holidays). The Trust reserves the right
to refuse exchange purchases if, in the judgment of the Advisor,
the purchase would adversely affect the Fund and its shareholders.
In particular, a pattern of exchanges characteristic of "market-
timing" strategies may be deemed by the Advisor to be detrimental
to the Trust or a particular Fund. Although the Trust has no cur-
rent 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' advance notice to shareholders of any
termination or material modification of the exchange privilege.
For further information about exchange privileges, contact your
participating broker or call the Transfer Agent at 800-426-0107.
With respect to Class B and Class C shares, or Class A shares
subject to a CDSC, if less than all of an investment is exchanged
out of a Fund, any portion of the investment attributable to capi-
tal appreciation and/or reinvested dividends or capital gains dis-
tributions will be exchanged first, and thereafter any portions
exchanged will be from the earliest investment made in the Fund
from which the exchange was made. Shareholders should take into
account the effect of any exchange on the applicability of any
CDSC that may be imposed upon any subsequent redemption. Although
the Class A CDSC does not apply to Class A shares of the Money
Market Fund, Class A shares purchased in a transaction that would
otherwise be subject to the Class A CDSC (i.e., most purchases of
$1,000,000 or more) are subsequently exchanged for Class A shares
of any other Fund, a Class A CDSC will apply to the shares of the
Fund acquired by exchange for a period of 18 months from the date
of the exchange. See "Initial Sales Charge Alternative--Class A
Shares--Class A Deferred Sales Charge" above.
Investors may also select the PIMCO Funds Auto-Exchange plan
which establishes automatic periodic exchanges. For further infor-
mation on automatic exchanges see "How to Buy Shares--PIMCO Funds
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 Funds
Fund Link.
A CDSC may apply to a redemption of Class A, Class B or Class C
shares. See "Alternative Purchase Arrangements" above. Shares are
redeemed at their net asset value next determined after a proper
redemption request has been received, less any applicable CDSC.
There is no charge by the Distributor (other than an applicable
CDSC) with respect to a redemption; however, a participating bro-
ker who processes a redemption for an investor may charge custom-
ary commissions for its services. Dealers and other financial
services firms are obligated to transmit orders promptly. Requests
for redemption received by dealers or other firms prior to the
close of regular trading (normally 4:00 p.m., Eastern time) on the
Exchange on a regular business day and received by the Distributor
prior to the close of the Distributor's business day will be con-
firmed at the net asset value effective as of the closing of the
Exchange on that day, less any applicable CDSC.
DIRECT
REDEMPTION A shareholder's original account application permits the share-
holder to redeem by written request and by telephone (unless the
shareholder specifically elects not to utilize telephone redemp-
tions) and to elect one or more of the additional redemption pro-
cedures described below. A shareholder may change the instructions
indicated on his original account application, or may request ad-
ditional redemption options, only by transmitting a written direc-
tion to the
49
April 1, 1998 Prospectus
<PAGE>
Transfer Agent. Requests to institute or change any of the addi-
tional 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 To redeem shares in writing (whether or not represented by certif-
REQUESTS icates), a shareholder must send the following items to the Trans-
fer Agent, Shareholder Services, Inc., P.O. Box 5866, Denver, Col-
orado 80217-5866:
(1) a written request for redemption signed by all registered
owners exactly as the account is registered on the
Transfer Agent's records, including fiduciary titles, if
any, and specifying the account number and the dollar
amount or number of shares to be redeemed;
(2) for certain redemptions described below, a guarantee of
all signatures on the written request or on the share
certificate or accompanying stock power, if required, as
described under "How to Buy Shares--Signature Guarantee";
(3) any share certificates issued for any of the shares to be
redeemed (see "Certificated Shares" below); and
(4) any additional documents which may be required by the
Transfer Agent for redemption by corporations,
partnerships or other organizations, executors,
administrators, trustees, custodians or guardians, or if
the redemption is requested by anyone other than the
shareholder(s) of record.
Transfers of shares are subject to the same requirements. A
signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record for
the account, to be sent to the address of record for that account.
To avoid delay in redemption or transfer, shareholders having any
questions about these requirements should contact the Transfer
Agent in writing or by calling 1-800-426-0107 before submitting a
request. Redemption or transfer requests will not be honored until
all required documents in the proper form have been received by
the Transfer Agent. This redemption option does not apply to
shares held in broker "street name" accounts.
If the proceeds of the redemption (i) exceed $50,000, (ii) are
to be paid to a person other than the record owner, (iii) are to
be sent to an address other than the address of the account on the
Transfer Agent's records, or (iv) are to be paid to a corporation,
partnership, trust or fiduciary, the signature(s) on the redemp-
tion request and on the certificates, if any, or stock power must
be guaranteed as described above, except that the Distributor may
waive the signature guarantee requirement for redemptions up to
$2,500 by a trustee of a qualified retirement plan, the adminis-
trator for which has an agreement with the Distributor.
TELEPHONE The Trust accepts telephone requests for redemption of shares for
REDEMPTIONS amounts up to $50,000 within any 7 calendar day period, except for
investors who have specifically declined telephone redemption
privileges on the account application or elected in writing not to
utilize telephone redemptions. The proceeds of a telephone redemp-
tion will be sent to the record shareholder at his record address.
Changes in account information must be made in a written authori-
zation with a signature guarantee. See "How to Buy Shares--Signa-
ture Guarantee". Telephone redemptions will not be accepted during
the 30-day period following any change in an account's record ad-
dress. This redemption option does not apply to shares held in
broker "street name" accounts.
By completing an account application, an investor agrees that
the Trust, the Distributor and the Transfer Agent shall not be li-
able for any loss incurred by the investor by reason of the Trust
accepting unauthorized telephone redemption requests for his ac-
count if the Trust reasonably believes the instructions to be gen-
uine. Thus, shareholders risk possible losses in the event of a
telephone redemption not authorized by them. The Trust may accept
telephone redemption instructions from any person identifying him-
self as the owner of an account or the owner's broker where the
owner has not declined in writing to utilize this service. The
Trust will employ reasonable procedures to confirm that
50 PIMCO Funds: Pacific Investment Management Series
<PAGE>
instructions communicated by telephone are genuine, and may be li-
able 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 tel-
ephone instructions, will provide written confirmations of such
transactions and will record telephone instructions.
A shareholder making a telephone redemption should call the
Transfer Agent at 800-426-0107 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 Ex-
change, the redemption is effected on the following Trust business
day at that day's net asset value and the proceeds are usually
sent to the investor on the second following Trust business day.
The Trust reserves the right to terminate or modify the telephone
redemption service at any time. During times of severe disruptions
in the securities markets, the volume of calls may make it diffi-
cult to redeem by telephone, in which case a shareholder may wish
to send a written request for redemption as described under "Writ-
ten Requests" above. Telephone communications may be recorded by
the Distributor or the Transfer Agent.
FUND LINK If a shareholder has established Fund Link, the shareholder may
REDEMPTIONS redeem shares by telephone and have the redemption proceeds sent
to a designated account at a financial institution. Fund Link is
normally established within 45 days of receipt of a Fund Link ap-
plication by the Transfer Agent. To use Fund Link for redemptions,
call the Transfer Agent at 800-426-0107. Subject to the limita-
tions set forth above under "Telephone Redemptions," the Distribu-
tor, the Trust and the Transfer Agent may rely on instructions by
any registered owner believed to be genuine and will not be re-
sponsible to any shareholder for any loss, damage or expense aris-
ing out of such instructions. Requests received by the Transfer
Agent prior to the close of regular trading (normally 4:00 p.m.,
Eastern time) on the Exchange on a business day will be processed
at the net asset value on that day and the proceeds (less any
CDSC) will normally be sent to the designated bank account on the
following business day and received by the bank on the second or
third business day. If the redemption request is received after
the close of regular trading on the Exchange, the redemption is
effected on the following business day. Shares purchased by check
may not be redeemed through Fund Link until such shares have been
owned (i.e., paid for) for at least 15 days. Fund Link may not be
used to redeem shares held in certificated form. Changes in bank
account information must be made by completing a new Fund Link ap-
plication, signed by all owners of record of the account, with all
signatures guaranteed. See "How to Buy Shares--Signature Guaran-
tee." See "How to Buy Shares-- PIMCO Funds 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. This redemption option does not apply to shares held in
broker "street name" accounts.
PIMCO FUNDS PIMCO Funds Automated Telephone System ("ATS") is an automated
AUTOMATED telephone system that enables shareholders to perform a number of
TELEPHONE account transactions automatically using a touch-tone telephone.
SYSTEM ATS may be used on already-established Fund accounts after you ob-
tain a Personal Identification Number (PIN) by calling the special
ATS number: 1-800-223-2413.
PURCHASING SHARES. You may purchase shares in amounts up to
$100,000 by telephone by calling 1-800-223-2413. You must have es-
tablished ATS privileges to link your bank account with the Fund
to pay for these purchases.
EXCHANGING SHARES. With the PIMCO Funds Exchange Privilege, you
can exchange shares automatically by telephone from your Fund Link
Account to another PIMCO Funds account you have already estab-
lished by calling 1-800-223-2413. Please refer to "Exchange Privi-
lege" below for details.
REDEMPTIONS. You may redeem shares by telephone automatically by
calling 1-800-223-2413 and the Fund will send the proceeds di-
rectly to your Fund bank account. Please refer to "How to Redeem"
below for details.
51
April 1, 1998 Prospectus
<PAGE>
EXPEDITED
WIRE If a shareholder has given authorization for expedited wire re-
TRANSFER demption, shares can be redeemed and the proceeds sent by federal
REDEMPTIONS wire transfer to a single previously designated bank account. Re-
quests received by the Trust prior to the close of the Exchange
will result in shares being redeemed that day at the next deter-
mined net asset value (less any CDSC) and normally the proceeds
being sent to the designated bank account the following business
day. The bank must be a member of the Federal Reserve wire system.
Delivery of the proceeds of a wire redemption request may be de-
layed by the Trust for up to 7 days if the Distributor deems it
appropriate under then current market conditions. Once authoriza-
tion is on file, the Trust will honor requests by any person iden-
tifying himself as the owner of an account or the owner's broker
by telephone at 800-426-0107 or by written instructions. The Trust
cannot be responsible for the efficiency of the Federal Reserve
wire system or the shareholder's bank. The Trust does not cur-
rently charge for wire transfers. The shareholder is responsible
for any charges imposed by the shareholder's bank. The minimum
amount that may be wired is $2,500. The Trust reserves the right
to change this minimum or to terminate the wire redemption privi-
lege. Shares purchased by check may not be redeemed by wire trans-
fer until such shares have been owned (i.e., paid for) for at
least 15 days. Expedited wire transfer redemptions may be autho-
rized by completing a form available from the Distributor. Wire
redemptions may not be used to redeem shares in certificated form.
To change the name of the single bank account designated to re-
ceive wire redemption proceeds, it is necessary to send a written
request with signatures guaranteed to PIMCO Funds Distributors
LLC, P.O. Box 5866, Denver, CO 80217-5866. See "How to Buy
Shares-- Signature Guarantee." This redemption option does not ap-
ply to shares held in broker "street name" accounts.
CER- To redeem shares for which certificates have been issued, the cer-
TIFICATED tificates must be mailed to or deposited with the Trust, duly en-
SHARES dorsed or accompanied by a duly endorsed stock power or by a writ-
ten request for redemption. Signatures must be guaranteed as de-
scribed under "How to Buy Shares--Signature Guarantee." Further
documentation may be requested from institutions or fiduciary ac-
counts, such as corporations, custodians (e.g., under the Uniform
Gifts to Minors Act), executors, administrators, trustees or
guardians ("institutional account owners"). The redemption request
and stock power must be signed exactly as the account is regis-
tered, including indication of any special capacity of the regis-
tered owner.
AUTOMATIC An investor who owns or buys shares of a Fund having a net asset
WITHDRAWAL value of $10,000 or more may open an Automatic Withdrawal Plan and
PLAN have a designated sum of money (not less than $100 per Fund) paid
monthly (or quarterly) to the investor or another person. Such a
plan may be established by completing the appropriate section of
the Account Application or you may obtain an Automatic Withdrawal
Plan Application from the Distributor or your broker. If an Auto-
matic Withdrawal Plan is set up after the account is established
providing for payment to a person other than the record share-
holder or to an address other than the address of record, a signa-
ture guarantee is required. See "How to Buy Shares--Signature
Guarantee." Class A, Class B and Class C shares of any Fund are
deposited in a plan account and all distributions are reinvested
in additional shares of that class of the Fund at net asset value.
Shares in a plan account are then redeemed at net asset value
(less any applicable CDSC) to make each withdrawal payment. Any
applicable CDSC may be waived for certain redemptions under an Au-
tomatic Withdrawal Plan. See "Alternative Purchase Arrangements--
Waiver of Contingent Deferred Sales Charges."
Redemptions for the purpose of withdrawals are ordinarily made
on the business day preceding the day of payment at that day's
closing net asset value and checks are mailed on the day of pay-
ment selected by the shareholder. The Transfer Agent may acceler-
ate the redemption and check mailing date by one day to avoid
weekend delays. Payment will be made to any person the investor
designates; however, if the shares are registered in the name of a
trustee or other fiduciary, payment will be made only to the fidu-
ciary, except in the case of a profit-sharing or pension plan
where payment will be made to the designee. As withdrawal payments
may include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with an Automatic Withdrawal
Plan may result in a gain or loss for tax purposes. Continued
withdrawals in excess of income will reduce and possibly exhaust
invested principal, especially in the event of a market decline.
The maintenance of an
52
PIMCO Funds: Pacific Investment Management Series
<PAGE>
Automatic Withdrawal Plan concurrently with purchases of addi-
tional shares of the Fund would be disadvantageous to the investor
because of the CDSC that may become payable on such withdrawals in
the case of Class A, Class B or Class C shares and because of the
initial sales charge in the case of Class A shares. For this rea-
son, the minimum investment accepted for a Fund while an Automatic
Withdrawal Plan is in effect for that Fund is $1,000, and an in-
vestor may not maintain a plan for the accumulation of shares of
the Fund (other than through reinvestment of distributions) and an
Automatic Withdrawal Plan at the same time. The Trust or the Dis-
tributor may terminate or change the terms of the Automatic With-
drawal 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
The Distributor, a wholly owned subsidiary of PIMCO Advisors L.P.,
is the principal underwriter of the Trust's shares and in that
connection makes distribution and servicing payments to partici-
pating brokers and servicing payments to certain banks and other
financial intermediaries in connection with the sale of Class B
and Class C shares and servicing payments to participating bro-
kers, certain banks and other financial intermediaries in connec-
tion with the sale of Class A shares. In the case of Class A
shares, these parties are also compensated based on the amount of
the front-end sales charge reallowed by the Distributor, except in
cases where Class A shares are sold without a front-end sales
charge. In the case of Class B shares, participating brokers and
other financial intermediaries are compensated by an advance of a
sales commission by the Distributor. In the case of Class C
shares, part or all of the first year's distribution and servicing
fee is generally paid at the time of sale. Pursuant to a Distribu-
tion 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. The Distributor, located at 2187 Atlantic Street,
Stamford, Connecticut 06902, is a broker-dealer registered with
the Securities and Exchange Commission.
CLASS A SERVICING FEES As compensation for services rendered and
expenses borne by the Distributor in connection with personal
services rendered to Class A shareholders of the Trust and the
maintenance of Class A shareholder accounts, the Trust pays the
Distributor servicing fees up to the annual rates set forth below
(calculated as a percentage of each Fund's average daily net as-
sets attributable to Class A shares):
<TABLE>
<CAPTION>
SERVICING
FUND FEE
-----------------------------
<S> <C>
All Funds except the
Money Market Fund .25%
-----------------------------
Money Market Fund* .10%
</TABLE>
*Subject to increase by action of the Trust's Trustees to a rate
not exceeding .25% per annum. Also, subject to increase to a rate
not exceeding .20% if the Distributor ceases to voluntarily waive
any portion of the fee.
April 1, 1998 Prospectus
53
<PAGE>
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>
Total Return,
High Yield,
Municipal Bond,
Long-Term U.S.
Government,
Global Bond II,
Foreign Bond
and Emerging
Markets Bond
Funds .25% .75%
-------------------------------------
Low Duration,
Real Return
Bond, Municipal
Bond and
StocksPLUS
Funds* .25% .50%
-------------------------------------
Short-Term Fund* .25% .30%
-------------------------------------
Money Market
Fund* .10% .00%
</TABLE>
*Subject to increase by action of the Trust's Trustees to a rate
not exceeding .75% per annum with respect to the distribution fee
on shares of the Low Duration and Money Market Funds, and .25% per
annum with respect to the servicing fee on shares of the Money
Market Fund. With respect to the servicing fee on shares of the
Money Market Fund, such fee is subject to increase to a rate of
.20% if the Distributor ceases to voluntarily waive any portion of
the fee. With respect to the distribution fee on shares of each of
the Short-Term, Real Return Bond and StocksPLUS Funds, such fee is
subject to an increase to a rate of .75% if the Distributor ceases
to voluntarily waive any portion of the fee.
The Class A servicing fees and Class B and Class C distribution
and servicing fees paid to the Distributor are made under Distri-
bution and Servicing Plans adopted pursuant to Rule 12b-l under
the 1940 Act and are of the type known as "compensation" plans.
This means that, although the Trustees of the Trust are expected
to take into account the expenses of the Distributor and its pred-
ecessors in their periodic review of the Distribution and Servic-
ing Plans, the fees are payable to compensate the Distributor for
services rendered even if the amount paid exceeds the Distribu-
tor's expenses.
The distribution fee applicable to Class B and Class C shares
may be spent by the Distributor on any activities or expenses pri-
marily intended to result in the sale of Class B or Class C
shares, respectively, including compensation to, and expenses (in-
cluding overhead and telephone expenses) of, financial consultants
or other employees of the Distributor or of participating or in-
troducing brokers who engage in distribution of Class B or Class C
shares, printing of prospectuses and reports for other than exist-
ing Class B or Class C shareholders, advertising, and preparation,
printing and distribution of sales literature. The servicing fee,
applicable to Class A, Class B and Class C shares of the Trust,
may be spent by the Distributor on personal services rendered to
shareholders of the Trust and the maintenance of shareholder ac-
counts, including compensation to, and expenses (including tele-
phone and overhead expenses) of, financial consultants or other
employees of participating or introducing brokers, certain banks
and other financial intermediaries who aid in the processing of
purchase or redemption requests or the processing of dividend pay-
ments, who provide
54
PIMCO Funds: Pacific Investment Management Series
<PAGE>
information periodically to shareholders showing their positions
in a Fund's shares, who forward communications from the Trust to
shareholders, who render ongoing advice concerning the suitability
of particular investment opportunities offered by the Trust in
light of the shareholders' needs, who respond to inquiries from
shareholders relating to such services, or who train personnel in
the provision of such services. Distribution and servicing fees
may also be spent on interest relating to unreimbursed distribu-
tion 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(/1/)
-----------------------------
<S> <C>
All Funds except the
Money Market Fund .25%
-----------------------------
Money Market Fund .10%
</TABLE>
CLASS B SHARES(/2/)
<TABLE>
<CAPTION>
SERVICING
FEE
-----------------
<S> <C>
All Funds .25%
</TABLE>
CLASS C SHARES--
PURCHASED ON OR AFTER
7/1/91(/3/)
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FEE(/1/) FEE(/1/)
------------------------------------
<S> <C> <C>
Total Return,
High Yield,
Long-Term U.S.
Government,
Global Bond II,
Foreign Bond
and Emerging
Markets Bond
Funds .25% .65%
------------------------------------
Low Duration,
Real Return
Bond, Municipal
Bond and
StocksPLUS
Funds .25% .45%
------------------------------------
Short-Term Fund .25% .25%
------------------------------------
Money Market
Fund .10% .00%
</TABLE>
CLASS C SHARES--
PURCHASED BEFORE 7/1/91
<TABLE>
<CAPTION>
SERVICING
FEE(/1/)
-----------------------------
<S> <C>
All Funds except the
Money Market Fund .25%
-----------------------------
Money Market Fund .10%
</TABLE>
1. Applies, in part, to Class A, Class B and Class C shares of the
Trust issued to former shareholders of PIMCO Advisors Funds in
connection with the reorganizations/mergers of series of PIMCO Ad-
visors Funds as/with Funds of the Trust in a transaction which
took place on January 17, 1997.
2. Payable only with respect to shares outstanding for one year or
more.
3. Payable only with respect to shares outstanding for one year or
more except in the case of shares for which no payment is made to
the party at the time of sale.
April 1, 1998 Prospectus
55
<PAGE>
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 shares of the Funds and in connec-
tion with the servicing of shareholders of the Funds and the main-
tenance of shareholder accounts may exceed the distribution and
servicing fees collected by the Distributor. As of March 31, 1997,
such expenses were approximately $430,000 in excess of payments
under the Funds' Class A Distribution and Servicing Plan and
$1,192,000 in excess of payments under the Funds' Class B Distri-
bution and Servicing Plan. Expenses did not exceed payments under
the Funds' Class C Distribution and Servicing Plan.
How Net Asset Value Is Determined
The net asset value per share of Class A, Class B and Class C
shares of each Fund will be determined once on each day on which
the Exchange is open as of the close of regular trading (normally
4:00 p.m., Eastern time) on the Exchange 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 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.
56
PIMCO Funds: Pacific Investment Management Series
<PAGE>
Each Fund's liabilities are allocated among its classes. The
total of such liabilities allocated to a class plus that class's
distribution and/or servicing fees and any other expenses spe-
cially allocated to that class are then deducted from the class's
proportionate interest in the Fund's assets, and the resulting
amount for each class is divided by the number of shares of that
class outstanding to produce the class's "net asset value" per
share. Under certain circumstances, the per share net asset value
of the Class B and Class C shares of the Funds that do not declare
regular income dividends on a daily basis may be lower than the
per share net asset value of the Class A shares as a result of the
daily expense accruals of the distribution fee applicable to the
Class B and Class C shares. Generally, for Funds that pay income
dividends, those dividends are expected to differ over time by ap-
proximately the amount of the expense accrual differential between
a particular Fund's classes.
Distributions
Each Fund pays out as dividends substantially all of its net in-
vestment income (which comes from dividends and interest it re-
ceives or is deemed to receive from its investments) and net real-
ized short-term capital gains. For these purposes and for federal
income tax purposes, a portion of the premiums from certain ex-
pired call or put options written by the Fund, net gains from
closing purchase and sale transactions with respect to such op-
tions, and net gains from futures transactions are treated as
short-term capital gains. Each Fund distributes substantially all
of its net realized capital gains, if any, after giving effect to
any available capital loss carry-over.
Shares begin earning dividends on the day after the date that
funds are received by the Trust for the purchase of shares. For
the Fixed Income Funds, dividends are declared daily from net in-
vestment income to shareholders of record at the close of the pre-
vious business day, and distributed to shareholders monthly. The
StocksPLUS Fund intends to declare and pay as a dividend substan-
tially all of its net investment income on a quarterly basis. Any
net realized capital gains from the sale of portfolio securities
will be distributed no less frequently than once yearly. Dividend
and capital gain distributions of a Fund will be reinvested in ad-
ditional shares of that Fund unless the shareholder elects to have
them paid in cash. There are no sales charges on reinvested divi-
dends. If a shareholder has elected to receive dividends and/or
capital gain distributions in cash and the postal or other deliv-
ery service is unable to deliver checks to the shareholder's ad-
dress of record, such shareholder's distributions will automati-
cally be invested in the Money Market Fund until such shareholder
is located. 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.
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 Code. As such, a Fund generally will not pay fed-
eral 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
April 1, 1998 Prospectus
57
<PAGE>
not be subject to federal income tax to the extent permitted under
applicable tax law. 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 de-
rived from the Fund's net capital gain (that is, the excess of net
long-term gain over net short-term loss) are taxable to sharehold-
ers as long-term capital gain except as provided by an applicable
tax exemption. Under the Taxpayer Relief Act of 1997, long-term
capital gains will generally be taxed at a 28% or 20% rate, de-
pending upon the holding period of the portfolio securities. Any
distributions that are not from a Fund's net investment income,
short-term capital gain, or net capital gain may be characterized
as a return of capital to shareholders or, in some cases, as capi-
tal gain. Certain dividends declared in October, November or De-
cember of a calendar year are taxable to shareholders (who 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 in-
vestment 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.
Dividends paid to shareholders by the Municipal Bond Fund which
are derived from interest on Municipal Bonds are expected to be
designated by the Fund as "exempt-interest dividends," and share-
holders may generally exclude such dividends from gross income for
federal income tax purposes. However, if a shareholder receives
social security or railroad retirement benefits, the shareholder
may be taxed on a portion of those benefits as a result of receiv-
ing tax-exempt income. In addition, certain exempt-interest divi-
dends could, as discussed below, cause certain shareholders to be-
come subject to the alternative minimum tax and may increase the
alternative minimum tax liability of shareholders already subject
to this tax.
To the extent that dividends paid to shareholders by the Munic-
ipal Bond Fund are derived from taxable interest or from capital
gains, such dividends will be subject to federal income tax. Any
gain realized on a redemption of shares will be taxable gain, sub-
ject to any applicable tax exemption for which an investor may
qualify.
Dividends derived from interest on certain U.S. Government se-
curities may be exempt from state and local taxes, although inter-
est on mortgage-backed U.S. Government securities is generally not
so exempt. The distributions of "exempt-interest dividends" paid
by the Municipal Bond Fund may be exempt from state and local tax-
ation when received by a shareholder to the extent that they are
derived from interest on Municipal Bonds issued by the state or
political subdivision in which such shareholder resides. The fed-
eral exemption for "exempt-interest dividends" attributable to Mu-
nicipal Bonds does not necessarily result in exemption of such
dividends from income for the purpose of state and local taxes.
The Trust will report annually on a state-by-state basis the
source of income the Municipal Bond Fund receives on Municipal
Bonds that was paid out as dividends during the preceding year.
The Code also provides that exempt-interest dividends allocable
to interest received from "private activity bonds" issued after
August 7, 1986 are an item of tax preference for individual and
corporate alternative minimum tax at the applicable rate for indi-
viduals and corporations. Therefore, if the Municipal Bond Fund
invests in such private activity bonds, certain of its sharehold-
ers may become subject to the alternative minimum tax on that part
of its distributions to them that are derived from interest income
on such bonds, and certain shareholders already subject to such
tax may have increased liability therefor. However, it is the
present policy of the Municipal Bond Fund to invest no more than
20% of its assets in such bonds. Other provisions of the Code af-
fect the tax treatment of distributions from the Municipal Bond
Fund for corporations, casualty insurance companies, and financial
institutions. In particular, under the Code, for corporations, al-
ternative minimum taxable income will be increased by a percentage
of the amount by which the corporation's "adjusted current earn-
ings" (which includes various items of tax exempt income) exceeds
the amount otherwise determined to be alternative minimum taxable
income. Accordingly, an investment in the Municipal Bond Fund may
cause shareholders to be subject to (or result in an increased li-
ability under) the alternative minimum tax.
58
PIMCO Funds: Pacific Investment Management Series
<PAGE>
Dividends to shareholders of the Municipal Bond Fund derived
from money market instruments and U.S. Government securities are
generally taxable as ordinary income. The Fund may seek to reduce
fluctuations in its net asset value by engaging in portfolio
strategies involving options on securities, futures contracts, and
options on futures contracts. Any gain derived by the Fund from
the use of such instruments, including by reason of "marking to
market," will be treated as a combination of short-term and long-
term capital gain and, if not offset by realized capital losses
incurred by the Fund, will be distributed to shareholders (possi-
bly requiring the liquidation of other portfolio securities) and
will be taxable to shareholders as a combination of ordinary in-
come and long-term capital gain.
Interest accrued 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, regardless of whether the Fund receives any cash
payments. 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 advanta-
geous 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 dis-
tributed 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, R.
Wesley Burns, Vern O. Curtis, Brent R. Harris, Thomas P. Kemp, 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 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 $118 billion in assets under management as of
December 31, 1997. Pacific Investment Management is a subsidiary
of PIMCO Advisors L.P. ("PIMCO Advisors"). The general partners of
PIMCO Advisors are PIMCO Partners, G.P. and PIMCO Advisors Hold-
ings L.P. PIMCO Partners, G.P. is a general partnership between
PIMCO Holding LLC, a Delaware limited liability company and indi-
rect wholly-owned subsidiary of Pacific Life Insurance Company,
and PIMCO Partners LLC, a California limited liability company
controlled by the Managing Directors of Pacific Investment Manage-
ment. PIMCO Partners, G.P. is the sole general partner of PIMCO
Advisors Holdings L.P. Pacific Investment Management's address is
840 Newport Center Drive, Suite 360, Newport Beach, California
92660. Pacific Investment Management is registered as an invest-
ment adviser with the Securities and Exchange Commission and as a
commodity trading advisor with the CFTC.
The Advisor manages the investment and reinvestment of the as-
sets of each Fund. The Advisor is responsible for placing orders
for the purchase and sale of each Fund's investments directly with
brokers or dealers selected by it in its discretion. See "Portfo-
lio Transactions" in the Statement of Additional Information.
59
April 1, 1998 Prospectus
<PAGE>
Information about the individual portfolio managers responsible
for management of the Trust's currently operational Funds offered
in this Prospectus, including their occupations for the past five
years, is provided below.
<TABLE>
<CAPTION>
PORTFOLIO MANAGER AND BUSINESS
FUND EXPERIENCE (PAST FIVE YEARS)
--------------------------------------------------------------------
<C> <S>
MONEY MARKET FUND Leslie Barbi, Senior 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 proprie-
tary Portfolio Manager.
--------------------------------------------------------------------
SHORT-TERM FUND William H. Gross, Managing Director,
LOW DURATION FUND Pacific Investment Management. A
TOTAL RETURN FUND Fixed Income Portfolio Manager, Mr.
STOCKSPLUS FUND Gross is one of the founders of Pa-
cific Investment Management and has
managed the Total Return and Low Du-
ration Funds since their inception,
May 11, 1987. Mr. Gross is the leader
of the team which has managed the
Short-Term and StocksPLUS Funds since
January 6, 1998.
---------------------------------------------------------------------
REAL RETURN BOND FUND John Brynjolfsson, Vice President,
Pacific Investment Management. A
Fixed Income Portfolio Manager, Mr.
Brynjolfsson joined Pacific Invest-
ment Management in 1989, and has man-
aged the Real Return Bond Fund since
its inception, January 29, 1997.
--------------------------------------------------------------------
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.
--------------------------------------------------------------------
MUNICIPAL BOND FUND Benjamin Ehlert, Executive Vice Pres-
ident, PIMCO. A Fixed Income Portfo-
lio Manager, Mr. Ehlert has been as-
sociated with PIMCO for over 23
years.
--------------------------------------------------------------------
LONG-TERM U.S. GOVERNMENT FUND Pasi Hamalainen, Executive Vice Pres-
ident, Pacific Investment Management.
A Fixed Income Portfolio Manager, Mr.
Hamalainen joined Pacific Investment
Management in 1994 and has managed
the Long-Term U.S. Government Fund
since July 1, 1997.
--------------------------------------------------------------------
GLOBAL BOND FUND II Lee R. Thomas, III, Managing Director
FOREIGN BOND FUND and Senior International Portfolio
Manager, Pacific Investment Manage-
ment. A Fixed Income Portfolio
Manager, Mr. Thomas has managed the
Foreign Bond Fund since July 13,
1995, and the Global Bond Fund II
since October 1, 1995. Prior to join-
ing Pacific Investment Management in
1995, Mr. Thomas was associated with
Investcorp as a member of the manage-
ment committee responsible for global
securities and foreign exchange trad-
ing. Prior to Investcorp, he was as-
sociated with Goldman Sachs as an Ex-
ecutive Director in foreign fixed in-
come.
--------------------------------------------------------------------
EMERGING MARKETS BOND FUND Michael J. Rosborough, Senior Vice
President, Pacific Investment Manage-
ment. A Fixed Income Portfolio Manag-
er, Mr. Rosborough was associated
with RBC Dominion in Tokyo as a Vice
President and Manager in foreign
fixed income prior to joining Pacific
Investment Management in 1994.
</TABLE>
FUND Pacific Investment Management also serves as administrator for the
ADMINIS- Funds' Class A, Class B and Class C shares pursuant to an adminis-
TRATOR tration agreement with the Trust. Pacific Investment Management
provides administrative services for Class A, Class B and Class C
shareholders of the Funds, which include clerical help and ac-
counting, bookkeeping, internal audit services, and certain other
services required by the Funds, preparation of reports to the
Funds' shareholders and regulatory filings. Pacific Investment
Management may also retain certain of its affiliates to provide
certain of these services. 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
60 PIMCO Funds: Pacific Investment Management Series
<PAGE>
employees of Pacific Investment Management or its subsidiaries or
affiliates; (ii) taxes and governmental fees; (iii) brokerage fees
and commissions and other portfolio transaction expenses; (iv) the
costs of borrowing money, including interest expenses; (v) fees
and expenses of the Trustees who are not "interested persons" of
Pacific Investment Management or the Trust, and any counsel re-
tained exclusively for their benefit; (vi) extraordinary expenses,
including costs of litigation and indemnification expenses; (vii)
expenses, such as organizational expenses, which are capitalized
in accordance with generally accepted accounting principles; and
(viii) any expenses allocated or allocable to a specific class of
shares, which include distribution and servicing fees payable with
respect to Class A, Class B and Class 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:
ADVISORY
AND
ADMINISTRATIVE
FEES
<TABLE>
<CAPTION>
ADVISORY
FUND FEE RATE
--------------------------------------------------
<S> <C>
Money Market Fund .15%
--------------------------------------------------
StocksPLUS Fund .40%
--------------------------------------------------
Emerging Markets Bond Fund .45%
--------------------------------------------------
All other Funds .25%
<CAPTION>
ADMINISTRATIVE
FUND FEE RATE
--------------------------------------------------
<S> <C>
Money Market, Short-Term and Munici-
pal Bond Funds .35%
--------------------------------------------------
Global Bond II and Foreign Bond Funds .45%
--------------------------------------------------
Emerging Markets Bond Fund .55%
--------------------------------------------------
All other Funds .40%
</TABLE>
Both the investment advisory contract and administration agree-
ment with respect to Class A, Class B and Class C shares of the
Funds may be terminated by the Trustees at any time on 60 days'
written notice. The investment advisory contract may be terminated
by Pacific Investment Management on 60 days' written notice. Fol-
lowing the expiration of the one-year period commencing with the
effectiveness of the administration agreement, it may be
terminated by Pacific Investment Management on 60 days' written
notice. Following its initial two-year term, the investment advi-
sory contract will continue from year to year if approved by the
Trustees. Following its initial one-year term, the administration
agreement with respect to Class A, Class B and Class C shares of
the Funds will continue from year-to-year if approved by the
Trustees.
PORTFOLIO Pursuant to the advisory contract, the Advisor places orders for
TRANS- the purchase and sale of portfolio investments for the Funds' ac-
ACTIONS 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.
April 1, 1998 Prospectus 61
<PAGE>
The Advisor manages the Funds without regard generally to re-
strictions on portfolio turnover, except those imposed on its
ability to engage in short-term trading by provisions of the fed-
eral tax laws. The use of certain derivative instruments with rel-
atively short maturities may tend to exaggerate the portfolio
turnover rate for some of the Funds. Trading in fixed income secu-
rities does not generally involve the payment of brokerage commis-
sions, 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 Pro-
spectus is set forth under "Financial Highlights."
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. The Advisor may
aggregate orders for the Funds with simultaneous transactions en-
tered into on behalf of other clients of the Advisor so long as
price and transaction expenses are averaged either for that trans-
action or for the day.
Description of the Trust
CAPITA- The Trust was organized as a Massachusetts business trust on Feb-
LIZATION 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, certain Funds
CLASSES OF also offer Institutional Class and Administrative Class shares
SHARES through a separate prospectus. During the second quarter of 1998,
it is anticipated that certain Funds will offer a new class of
shares, Class D shares, through a separate prospectus. See "Alter-
native Purchase Arrangements." These other classes of shares of
the Funds may have different sales charges and expense levels,
which will affect performance accordingly. This Prospectus relates
only to the Class A, Class B and Class C shares of the Funds.
VOTING Shareholders have the right to vote on the election of Trustees
and on any and all matters on which the law or the Declaration of
Trust states they may be entitled to vote. The Trust is not 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.
62 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Shares entitle their holders to one vote per share (with
proportionate voting for fractional shares). As of February 28,
1998, the following were shareholders of record of at least 25% of
the outstanding voting securities of the indicated Fund: Pacific
Investment Management Company (Newport Beach, California) with
respect to the Municipal Bond Fund; Canterbury/Uniform Code
Council (Pittsburgh, Pennsylvania) with respect to the Global Bond
Fund II; and National Financial Services Corporation (New York,
New York) with respect to the Real Return Bond Fund. 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. As used in this Prospectus, the phrase
"vote of a majority of the outstanding shares" of a Fund (or the
Trust) means the vote of the lesser of: (1) 67% of the shares of
the Fund (or the Trust) present at a meeting, if the holders of
more than 50% of the outstanding shares are present in person or
by proxy; or (2) more than 50% of the outstanding shares of the
Fund (or the Trust).
Mailings to Shareholders
To reduce the volume of mail shareholders receive, it is 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.
April 1, 1998 Prospectus 63
<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.
64
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
SERVICE, quality. They carry the smallest degree of investment risk and are
INC. generally referred to as "gilt edge." Interest payments are pro-
tected by a large or by an exceptionally stable margin and princi-
pal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to im-
pair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than with Aaa se-
curities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obliga-
tions. Factors giving security to principal and interest are con-
sidered adequate but elements may be present that suggest a sus-
ceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative el-
ements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very mod-
erate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long pe-
riod of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such is-
sues may be in default or there may be present elements of danger
with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor pros-
pects of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each ge-
neric rating classified from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in
the higher end of its generic rating category; the modifier 2 in-
dicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
65
April 1, 1998 Prospectus
<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
RATINGS
SERVICES
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Ca-
pacity 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 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.
66
PIMCO Funds: Pacific Investment Management Series
<PAGE>
B: Debt rated B has a greater vulnerability to default but cur-
rently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions
will likely impair capacity or willingness to pay interest and re-
pay principal. The B rating category is also used for debt subor-
dinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability
to default and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and re-
payment of principal. In the event of adverse business, financial
or economic conditions, it is not likely to have the capacity to
pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an ac-
tual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC- debt rat-
ing. The C rating may be used to cover a situation where a bank-
ruptcy petition has been filed, but debt service payments are con-
tinued.
CI: The rating CI is reserved for income bonds on which no in-
terest is being paid.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The D rating will also be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modi-
fied by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful com-
pletion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or
entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such com-
pletion. The investor should exercise his own judgment with re-
spect to such likelihood and risk.
r: The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indica-
tion that an obligation will exhibit no volatility or variability
in total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the
obligor but do not take into account currency exchange and related
uncertainties.
COMMERCIAL PAPER RATING DEFINITIONS
An S&P 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 catego-
ries, 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 designa-
tion is satisfactory. However, the relative degree of safety is
not as high as for issues designated A-1.
67
April 1, 1998 Prospectus
<PAGE>
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 S&P by the issuer or
obtained from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occa-
sion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in or un-
availability of such information.
68
PIMCO Funds: Pacific Investment Management Series
<PAGE>
<TABLE>
<C> <S>
------------------------------------------------------------------------------------------
PIMCO Funds: INVESTMENT ADVISOR AND ADMINISTRATOR
Pacific Investment Pacific Investment Management Company, 840 Newport Center Drive, Suite 360,
Management Series Newport Beach, CA 92660
------------------------------------------------------------------------------------------
DISTRIBUTOR
PIMCO Funds Distributors LLC, 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
------------------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1055 Broadway, Kansas City, MO 64105
------------------------------------------------------------------------------------------
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street N.W., Washington, D.C. 20006-2401
------------------------------------------------------------------------------------------
For further information about the PIMCO Funds, call 1-800-426-0107 or vist our Web site at
http://www.pimcofunds.com.
</TABLE>
