<PAGE>
P I M C O
---------
FUNDS
INTERNATIONAL BOND FUND
AND EMERGING MARKETS BOND FUND II
SEMI-ANNUAL REPORT
September 30, 1998
<PAGE>
Chairman's Letter
Dear PIMCO Funds Shareholder:
Foreign events had an unfavorable impact on the stock market over the six-month
period ended September 30, 1998 with stocks posting a negative return of 6.97%,
as measured by the Standard & Poor's 500 Index of stocks. By contrast, the bond
markets generally benefited from international unrest, and the overall bond
market, as measured by the Lehman Brothers Aggregate Bond Index, posted a 6.66%
return.
Volatile Conditions. The stock market was shaken dramatically during the past
quarter as investors reacted to economic and political turmoil which began more
than a year ago in Asia. Eventually, the discord permeated international capital
markets with Russia's default and ruble devaluation, falling global stock
prices, concern about potential currency devaluations in Latin American
countries, the continued economic decline in Asia, and the well-publicized,
near-collapse of several large hedge funds. As a result, there was a "flight to
quality" allocation to the perceived safe haven of U.S. Treasury securities,
driving interest rates to 30-year lows and the benchmark 30-year U.S. Treasury
bond's yield down 0.66% to 4.97% over the six-month period ended September 30,
1998.
Looking Ahead. As we head into 1999, inflation is expected to remain low as
foreign countries boost their exports in an effort to compensate for weak local
demand, thereby increasing competitive pressures on U.S. companies to not raise
prices. Slower economic growth and financial market uncertainty have motivated
the Federal Reserve Board to drop the Federal Funds rate twice in a one-month
period from 5.5% to 5.0%. There are indications that the Fed will decrease rates
further in the coming months which should contribute to an easing of the credit
crunch.
On the following pages, you will find a complete analysis of each Fund's
performance for the six-month period ended September 30, 1998, including
specific market commentary. As always, we appreciate the trust you have placed
in us, and we will continue to work hard to meet your investment needs. If you
have any questions regarding your PIMCO Funds investment, please contact your
account manager, or call one of our shareholder associates at 1-800-927-4648. We
also invite you to visit our Web site at www.pimco.com.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman of the Board
October 30, 1998
1998 Semi-Annual Report 1
<PAGE>
PIMCO International Bond Fund
- --------------------------------------------------------------------------------
FUND CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management (non-U.S.).
Portfolio:
Primarily investment grade foreign bonds.
Duration:
5.7 years
Total Net Assets:
$528 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
United States 58.4%
Finland 7.5%
Greece 6.2%
Canada 6.1%
Spain 5.1%
Short-Term
Instruments 6.9%
Other 9.8%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
AAA 57%
AA 19%
A 14%
BBB 10%
*% of Total Investments as of September 30, 1998
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended September 30, 1998
Salomon Brothers World
Inst'l Class Government Bond Index Lehman Brothers
(Incep. 12/13/89) (Currency Hedged) Aggregate Bond Index
- --------------------------------------------------------------------------------
6 Months 3.93% 8.47% 6.66%
1 Year 7.17% 14.91% 11.51%
3 Years* 13.07% 12.76% 8.67%
5 Years* 8.94% 10.46% 7.21%
Since Inception* 9.35% -- --
* Annualized
CUMULATIVE RETURNS THROUGH SEPTEMBER 30, 1998
$5,000,000 invested at inception
<TABLE>
International Salomon Brothers Lehman Brothers
Bond World Government Aggregate
MONTH Fund Bond Index Bond Index
-------- ------------- ---------------- ---------------
<S> <C> <C> <C>
12/31/89 5,000,000 5,000,000 5,000,000
01/31/90 4,944,945 4,900,984 4,940,584
02/28/90 4,859,860 4,827,959 4,956,571
03/31/90 4,924,925 4,825,552 4,960,222
04/30/90 4,894,711 4,821,681 4,914,778
05/31/90 4,980,318 4,942,718 5,060,297
06/30/90 5,060,889 4,968,415 5,141,490
07/31/90 5,189,338 4,987,802 5,212,613
08/31/90 5,101,993 4,920,469 5,143,001
09/3O/90 5,096,855 4,892,917 5,185,549
10/3l/90 5,191,047 5,033,341 5,251,385
11/30/90 5,295,705 5,115,898 5,364,426
12/3l/90 5,353,791 5,167,065 5,448,011
01/31/91 5,461,621 5,265,238 5,515,358
02/28/91 5,537,103 5,342,635 5,562,437
03/31/91 5,493,971 5,345,843 5,600,705
04/30/91 5,571,350 5,372,037 5,661,380
05/31/91 5,598,986 5,403,733 6,694,486
06/30/91 5,576,878 5,374,552 5,691,591
07/31/91 5,627,372 5,423,461 5,770,519
08/31/91 5,756,415 5,493,423 5,895,393
09/30/91 5,868,626 5,582,966 6,014,854
10/31/91 5,919,955 6,622,605 6,081,823
11/30/91 5,937,064 5,640,596 6,137,588
12/31/91 6,117,563 5,741,001 6,319,864
01/31/92 6,123,555 5,789,224 6,233,887
02/29/92 6,153,514 5,808,328 6,274,421
03/31/92 6,096,592 5,775,221 6,239,048
04/30/92 6,127,014 5,793,124 6,284,114
05/31/92 6,212,196 5,855,689 6,402,694
06/30/92 6,193,943 5,879,698 6,490,811
07/31/92 6,193,943 5,920,856 6,623,238
08/31/92 6,193,943 5,939,803 6,690,332
09/30/92 6,298,508 6,037,215 6,769,637
10/31/92 6,465,397 6,136,225 6,679,884
11/30/92 6,465,397 6,128,249 6,681,395
12/3l/92 6,545,751 6,190,758 6,787,638
01/31/93 6,570,432 6,252,048 6,917,800
02/28/93 6,704,914 6,386,467 7,038,897
03/31/93 6,743,338 6,366,030 7,068,228
04/30/93 6,717,722 6,350,114 7,117,447
05/31/93 6,763,200 6,361,544 7,126,511
06/30/93 6,912,627 6,470,328 7,255,665
07/31/93 6,997,086 6,542,794 7,296,702
08/31/93 7,128,240 6,662,527 7,424,597
09/30/93 7,141,356 6,719,825 7,444,990
10/31/93 7,252,837 6,806,510 7,472,810
11/30/93 7,292,542 6,890,230 7,409,240
12/31/93 7,480,184 7,002,540 7,449,396
01/31/94 7,466,522 6,923,412 7,549,975
02/28/94 7,271,176 6,796,715 7,418,807
03/31/94 7,184,356 6,746,420 7,235,901
04/30/94 7,133,711 6,711,339 7,178,122
05/31/94 6,943,674 6,671,742 7,177,115
06/30/94 6,768,255 6,605,690 7,161,254
07/31/94 6,804,801 6,669,764 7,303,499
08/31/94 6,723,527 6,615,738 7,312,563
09/30/94 6,686,585 6,626,323 7,204,935
10/31/94 6,716,139 6,641,563 7,198,515
11/30/94 6,775,247 6,733,217 7,182,528
12/31/94 6,768,742 6,742,644 7,232,125
01/31/95 6,845,010 6,814,791 7,375,252
02/28/95 6,940,344 6,919,737 7,550,604
03/31/95 7,092,879 7,113,491 7,596,928
04/30/95 7,226,348 7,225,173 7,703,046
05/31/95 7,283,548 7,465,048 8,001,133
06/30/95 7,216,814 7,458,328 8,059,794
07/31/95 7,359,816 7,530,674 8,041,793
08/31/95 7,512,351 7,572,092 8,138,847
09/30/95 7,579,085 7,709,146 8,218,026
10/31/95 7,741,153 7,789,322 8,324,899
11/30/95 8,028,929 7,953,677 8,449,648
12/31/95 8,172,816 7,999,014 8,568,228
01/31/96 8,323,303 8,066,205 8,625,126
02/29/96 8,071,081 7,968,604 8,475,201
03/31/96 8,162,452 8,061,039 8,416,289
04/30/96 8,314,737 8,102,151 8,368,958
05/31/96 8,294,432 8,165,347 8,351,964
06/30/96 8,406,606 8,224,955 8,464,124
07/31/96 8,518,966 8,289,930 8,487,286
08/31/96 8,682,399 8,414,282 8,473,061
09/30/96 8,938,478 8,547,224 8,620,720
10/31/96 9,277,524 8,690,820 8,811,682
11/30/96 9,585,748 8,836,826 8,962,613
12/31/96 9,541,698 8,831,524 8,879,280
01/31/97 9,589,950 8,948,098 8,906,470
02/28/97 9,650,264 9,032,213 8,928,625
03/31/97 9,456,645 9,006,922 8,829,683
04/30/97 9,529,482 9,099,692 8,961,858
05/31/97 9,711,574 9,149,740 9,046,576
06/30/97 9,917,871 9,293,391 9,153,953
07/31/97 10,149,939 9,445,802 9,400,806
08/31/97 10,027,798 9,476,973 9,320,619
09/30/97 10,224,042 9,619,128 9,458,082
10/31/97 10,088,868 9,738,405 9,595,292
11/30/97 10,150,311 9,786,124 9,639,476
12/31/97 10,134,127 9,895,728 9,736,531
01/31/98 10,367,431 10,011,508 9,861,531
02/28/98 10,323,686 10,098,609 9,853,663
03/31/98 10,542,817 10,189,496 9,887,966
04/30/98 10,601,551 10,254,708 9,939,577
05/31/98 10,807,121 10,404,426 10,033,862
06/30/98 10,940,178 10,469,973 10,118,958
07/31/98 10,940,178 10,530,700 10,140,483
08/31/98 10,688,849 10,772,908 10,305,514
09/30/98 10,956,920 11,053,001 10,546,828
</TABLE>
Intl. Bond Fund
- ---------------
Past performance is not an indication of future results. The line graph above
assumes the investment of $5,000,000 on 1/1/90, the first full month following
the Fund's Institutional Class inception on 12/13/89, compared to the Salomon
Brothers World Government Bond Index (Currency Hedged) and the Lehman Brothers
Aggregate Bond Index, each an unmanaged market index. Foreign investing involves
potentially higher risks including foreign currency fluctuations and political
or economic uncertainty.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. For the six-month period ended September 30, 1998, the International Bond
Fund underperformed the benchmark Lehman Brothers Aggregate Bond Index,
returning 3.93% versus the 6.66% posted by the Index.
. The second half of the period saw heightened turmoil in the emerging markets
dominated by Russia's default. Although the Fund had no exposure to Russia
and only modest exposure to the better performing emerging markets, contagion
effects and an underweight bond position in Japan were the primary factors
limiting relative returns.
. A bullish duration stance added to performance overall as yields declined
during the period.
. In addition to the Fund's Japan underweight, an overweight position in Greece
also hurt performance as an EMU convergence rally and lower than expected
inflation numbers gave way to an indiscriminate flight to quality during
August. As yield premiums in dollar denominated Latin American and Eastern
European issues continued to widen, modest emerging market positions also
declined. On a positive note, an overweight in 30-year German Bunds added to
performance as core European markets rallied on flight to quality and
continued subdued inflation.
. The Fund's currency strategy detracted from performance. In Europe, the Fund
overweighted the Norwegian krone versus the Deutschemark and the Swiss franc.
As Russia's financial crisis decreased the demand for Scandinavian
currencies, the long Norwegian krone position declined. The underweight in
the yen versus the dollar and Deutschemark also detracted from performance as
the yen strengthened largely on technical factors.
2 PIMCO Funds
<PAGE>
PIMCO Emerging Markets Bond Fund II
- --------------------------------------------------------------------------------
FUND CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management.
Portfolio:
Primarily emerging market bonds.
Duration:
5.2 years
Total Net Assets:
$91 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
South Korea 20.5%
Mexico 19.4%
Argentina 14.7%
United States 11.5%
Poland 8.1%
Brazil 5.0%
Short-Term
Instruments 12.9%
Other 7.9%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
AAA 10%
A 4%
BBB 13%
BB 73%
*% of Total Investments as of September 30, 1998
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended September 30, 1998
Inst'l Class J.P. Morgan Emerging Lehman Brothers
(Incep. 4/3/98) Markets Plus Index Aggregate Bond Index
- --------------------------------------------------------------------------------
3 Months (7.27)% (21.23)% 4.23%
Since Inception (9.69)% -- --
CUMULATIVE RETURNS THROUGH SEPTEMBER 30, 1998
$5,000,000 invested at inception
<TABLE>
<CAPTION>
J.P. MORGAN
EMERGING MKTS EMERGING MKTS LEHMAN BROTHERS
MONTH BOND II PLUS INDEX AGGREGATE BOND INDEX
-------- ------------- ------------- --------------------
<S> <C> <C> <C>
04/30/98 5,000,000 5,000,000 5,000,000
05/31/98 4,944,400 4,829,347 5,047,429
06/30/98 4,891,710 4,689,782 5,090,236
07/31/98 5,001,037 4,722,141 5,101,064
08/31/98 4,265,043 3,364,998 5,184,081
09/30/98 4,536,231 3,694,095 5,305,471
</TABLE>
Past performance is not an indication of future results. The line graph above
assumes the investment of $5,000,000 on 5/1/98, the first full month following
the Fund's Institutional Class inception date on 4/3/98, compared to the J.P.
Morgan Emerging Markets Plus Index and the Lehman Brothers Aggregate Bond Index,
each an unmanaged market index. The Fund may invest in foreign securities which
involve potentially higher risks including currency fluctuations and political
or economic uncertainty.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. For the three-month period ended September 30, 1998, the Emerging Markets
Bond Fund II returned -7.27%, underperforming the 4.23% return of the Lehman
Brothers Aggregate Bond Index.
. All segments of the high-yield bond market have been hit hard by investor
fears and consequent market volatility, precipitating heavy selling and
resulting in significantly higher yields and lower bond prices.
. Above-index duration detracted from relative returns in an environment where
yield premiums widened.
. The Fund did not hold Russian debt, which was positive for performance.
. Allocations to higher-quality credits, such as Korea and Argentina, boosted
performance.
1998 Semi-Annual Report 3
<PAGE>
Financial Highlights
International Bond Fund
<TABLE>
<CAPTION>
Selected Per Share Data for the Year or Period Ended: 09/30/98 (b) 03/31/98 03/31/97 03/31/96 03/31/95 03/31/94
------------ ------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 7.18 $ 7.79 $ 8.04 $ 7.44 $ 9.93 $ 10.53
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Net Investment Income 0.15(a) 0.64(a) 0.84 0.63 2.18 0.47
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Net Realized / Unrealized Gain (Loss) on Investments 0.13(a) 0.19(a) 0.42 0.49 (2.41) 0.24
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Total Income (Loss) from Investment Operations 0.28 0.83 1.26 1.12 (0.23) 0.71
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Dividends from Net Investment Income (0.10) (0.25) (0.50) (0.39) (2.26) (0.96)
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Dividends in Excess of Net Investment Income 0.00 0.00 0.00 (0.13) 0.00 0.00
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Distributions from Net Realized Capital Gains 0.00 (0.24) (1.01) 0.00 0.00 (0.35)
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Distributions in Excess of Net Realized Capital Gains 0.00 (0.95) (1.51) (0.52) (2.26) 0.00
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Total Distributions (0.10) (1.44) (1.51) (0.52) (2.26) (1.31)
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Net Asset Value End of Period $ 7.36 $ 7.18 $ 7.79 $ 8.04 $ 7.44 $ 9.93
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Total Return (%) 3.93 11.49 15.86 15.08 (1.27) 6.54
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Net Assets End of Period (000s) $ 528,004 $ 730,622 $ 957,950 $2,271,940 $ 45,950 $2,296,978
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Ratio of Expenses to Average Net Assets (%) 0.52+ 0.51 0.50 0.50 0.43 0.43
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Ratio of Net Investment Income
to Average Net Assets (%) 4.08+ 8.17 7.17 6.09 5.90 5.51
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Portfolio Turnover Rate (%) 154 255 875 1,046 674 370
- ----------------------------------------------------- ------------ ------------ ------------ ------------ ---------- -----------
Emerging Markets Bond Fund II
<CAPTION>
Selected Per Share Data for the Period Ended: 09/30/98 (b)(c)
------------------
<S> <C>
Net Asset Value Beginning of Period $ 10.00
- ---------------------------------------------------------------------------------------------------------------- ------------------
Net Investment Income 0.40(a)
- ---------------------------------------------------------------------------------------------------------------- ------------------
Net Realized / Unrealized Loss on Investments (1.35)(a)
- ---------------------------------------------------------------------------------------------------------------- ------------------
Total Income (Loss) from Investment Operations (0.95)
- ---------------------------------------------------------------------------------------------------------------- ------------------
Dividends from Net Investment Income (0.38)
- ---------------------------------------------------------------------------------------------------------------- ------------------
Total Distributions (0.38)
- ---------------------------------------------------------------------------------------------------------------- ------------------
Net Asset Value End of Period $ 8.67
- ---------------------------------------------------------------------------------------------------------------- ------------------
Total Return (%) (9.69)
- ---------------------------------------------------------------------------------------------------------------- ------------------
Net Assets End of Period (000s) $ 90,722
- ---------------------------------------------------------------------------------------------------------------- ------------------
Ratio of Expenses to Average Net Assets (%) 0.86+
- ---------------------------------------------------------------------------------------------------------------- ------------------
Ratio of Net Investment Income
to Average Net Assets (%) 8.73+
- ---------------------------------------------------------------------------------------------------------------- ------------------
Portfolio Turnover Rate (%) 113
- ---------------------------------------------------------------------------------------------------------------- ------------------
</TABLE>
+ Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Unaudited
(c) Commenced operations on April 8, 1998.
4 PIMCO Funds See accompanying notes
<PAGE>
Statement of Assets and Liabilities
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
International Emerging Markets
Amounts in thousands, except per share amounts Bond Fund Bond Fund II
-------------- ----------------
<S> <C> <C>
Assets:
Investments, at value $ 749,063 $ 110,374
- --------------------------------------------------------------------------------------------- -------------- ----------------
Cash and foreign currency 0 0
- --------------------------------------------------------------------------------------------- -------------- ----------------
Receivable for investments and foreign currency sold 28,395 0
- --------------------------------------------------------------------------------------------- -------------- ----------------
Variation margin receivable 159 21
- --------------------------------------------------------------------------------------------- -------------- ----------------
Interest and dividends receivable 20,524 1,720
- --------------------------------------------------------------------------------------------- -------------- ----------------
Other assets 2,687 2
- --------------------------------------------------------------------------------------------- -------------- ----------------
800,828 112,117
============================================================================================= ============== ================
Liabilities:
Payable for investments and foreign currency purchased $ 272,604 $ 21,245
- --------------------------------------------------------------------------------------------- -------------- ----------------
Dividends payable 0 25
- --------------------------------------------------------------------------------------------- -------------- ----------------
Accrued investment advisor's fee 110 32
- --------------------------------------------------------------------------------------------- -------------- ----------------
Accrued administrator's fee 110 28
- --------------------------------------------------------------------------------------------- -------------- ----------------
Other liabilities 0 65
- --------------------------------------------------------------------------------------------- -------------- ----------------
272,824 21,395
============================================================================================= ============== ================
Net Assets $ 528,004 $ 90,722
============================================================================================= ============== ================
Net Assets Consist of:
Paid in capital $ 523,797 $ 102,132
- --------------------------------------------------------------------------------------------- -------------- ----------------
Undistributed (overdistributed) net investment income 28,880 (2)
- --------------------------------------------------------------------------------------------- -------------- ----------------
Accumulated undistributed net realized gain (loss) (11,390) (6,570)
- --------------------------------------------------------------------------------------------- -------------- ----------------
Net unrealized appreciation (depreciation) (13,283) (4,838)
- --------------------------------------------------------------------------------------------- -------------- ----------------
$ 528,004 $ 90,722
- --------------------------------------------------------------------------------------------- ============== ================
Shares Issued and Outstanding: 71,758 10,469
- --------------------------------------------------------------------------------------------- -------------- ----------------
Net Asset Value and Redemption Price Per Share (Net Assets Per Share Outstanding) $ 7.36 $ 8.67
- --------------------------------------------------------------------------------------------- -------------- ----------------
Cost of Investments Owned $ 765,932 $ 115,259
============================================================================================= ============== ================
Cost of Foreign Currency Held $ 16,434 $ 0
============================================================================================= ============== ================
</TABLE>
1998 Semi-Annual Report See accompanying notes 5
<PAGE>
Statement of Operations
For the six months ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
International Emerging Markets
Amounts in thousands Bond Fund Bond Fund II
--------------- ----------------
<S> <C> <C>
Investment Income:
Interest $ 13,415 $ 2,824
============================================================================================= =============== ================
Expenses:
Investment advisory fees 730 134
- --------------------------------------------------------------------------------------------- --------------- ----------------
Administration fees 730 119
- --------------------------------------------------------------------------------------------- --------------- ----------------
Trustees' fees 2 0
- --------------------------------------------------------------------------------------------- --------------- ----------------
Miscellaneous 49 1
- --------------------------------------------------------------------------------------------- --------------- ----------------
Total Expenses 1,511 254
- --------------------------------------------------------------------------------------------- --------------- ----------------
Net Investment Income (Loss) 11,904 2,570
============================================================================================= =============== ================
Net Realized and Unrealized Gain (Loss):
- --------------------------------------------------------------------------------------------- --------------- ----------------
Net realized gain (loss) on investments 3,740 (6,927)
- --------------------------------------------------------------------------------------------- --------------- ----------------
Net realized gain (loss) on futures contracts and written options 1,983 357
- --------------------------------------------------------------------------------------------- --------------- ----------------
Net realized gain (loss) on foreign currency transactions (14,374) 0
- --------------------------------------------------------------------------------------------- --------------- ----------------
Net change in unrealized appreciation (depreciation) on investments 36,978 (4,885)
- --------------------------------------------------------------------------------------------- --------------- ----------------
Net change in unrealized appreciation
(depreciation) on futures contracts and written options 3,825 47
- --------------------------------------------------------------------------------------------- --------------- ----------------
Net change in unrealized appreciation
(depreciation) on translation of assets and liabilities denominated in foreign currencies (21,064) 0
- --------------------------------------------------------------------------------------------- --------------- ----------------
Net Gain 11,088 (11,408)
- --------------------------------------------------------------------------------------------- --------------- ----------------
Net Increase (Decrease) in Assets Resulting from Operations $ 22,992 $ (8,838)
============================================================================================= =============== ================
</TABLE>
6 PIMCO Funds See accompanying notes
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Emerging Markets
Amounts in thousands International Bond Fund Bond Fund II
--------------------------------------- -------------------------
Six Months Ended Year Ended Period from April 3,1998
Increase (Decrease) in Net Assets from: September 30, 1998 March 31, 1998 to September 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operations:
Net investment income (loss) $ 11,904 $ 66,819 $ 2,570
- -------------------------------------------------------------- --------------------------------------- --------------------------
Net realized gain (loss) (8,651) 51,653 (6,570)
- -------------------------------------------------------------- --------------------------------------- --------------------------
Net change in unrealized appreciation (depreciation) 19,739 (24,242) (4,838)
- -------------------------------------------------------------- --------------------------------------- --------------------------
Net increase (decrease) resulting from operations 22,992 94,230 (8,838)
============================================================== ======================================= ==========================
Distributions to Shareholders:
From net investment income
Institutional Class (7,505) (25,130) (2,572)
- -------------------------------------------------------------- --------------------------------------- --------------------------
Administrative Class 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Other Classes 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Issued in reorganization
Other Classes 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
In excess of net investment income
Institutional Class 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Administrative Class 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Other Classes 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
From net realized capital gains
Institutional Class 0 (105,892) 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Administrative Class 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Other Classes 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Total Distributions (7,505) (131,022) (2,572)
============================================================== ======================================= ==========================
Fund Share Transactions:
Receipts for shares sold
Institutional Class 12,487 254,766 102,200
- -------------------------------------------------------------- --------------------------------------- --------------------------
Administrative Class 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Other Classes 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Issued in reorganization
Other Classes 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Issued as reinvestment of distributions
Institutional Class 3,833 129,047 2,437
- -------------------------------------------------------------- --------------------------------------- --------------------------
Administrative Class 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Other Classes 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Cost of shares redeemed
Institutional Class (234,425) (574,349) (2,505)
- -------------------------------------------------------------- --------------------------------------- --------------------------
Administrative Class 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Other Classes 0 0 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
Net increase (decrease) resulting from Fund share transactions (218,105) (190,536) 102,132
- -------------------------------------------------------------- --------------------------------------- --------------------------
Total Increase (Decrease) in Net Assets (202,618) (227,328) 90,722
============================================================== ======================================= ==========================
Net Assets:
Beginning of period 730,622 957,950 0
- -------------------------------------------------------------- --------------------------------------- --------------------------
End of period * $ 528,004 $ 730,622 $ 90,722
- -------------------------------------------------------------- --------------------------------------- --------------------------
*Including net undistributed (overdistributed) investment
income of: $ 28,880 $ 24,481 $ (2)
- -------------------------------------------------------------- --------------------------------------- --------------------------
</TABLE>
1998 Semi-Annual Report See accompanying notes 7
<PAGE>
Statement of Cash Flows
For the six months ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
International Emerging Markets
Amounts in thousands Bond Fund Bond Fund II
----------------- ------------------
<S> <C> <C>
Increase (Decrease) in Cash and Foreign Currency from:
Financing Activities
Sales of Fund shares $ 14,987 $ 102,200
- ----------------------------------------------------------------------------------- ----------------- ------------------
Redemptions of Fund shares (309,425) (2,505)
- ----------------------------------------------------------------------------------- ----------------- ------------------
Cash distributions paid (3,672) (110)
- ----------------------------------------------------------------------------------- ----------------- ------------------
Proceeds from financing transactions (241,744) 17,515
- ----------------------------------------------------------------------------------- ----------------- ------------------
Net increase (decrease) from financing activities (539,854) 117,100
=================================================================================== ================= ==================
Operating Activities
Purchases of long-term securities and foreign currency (1,060,652) (158,435)
- ----------------------------------------------------------------------------------- ----------------- ------------------
Proceeds from sales of long-term securities and foreign currency 1,394,882 60,079
- ----------------------------------------------------------------------------------- ----------------- ------------------
Purchases of short-term securities (net) 191,963 (19,793)
- ----------------------------------------------------------------------------------- ----------------- ------------------
Net investment income 11,904 2,570
- ----------------------------------------------------------------------------------- ----------------- ------------------
Change in other receivables/payables (net) (3,757) (1,521)
- ----------------------------------------------------------------------------------- ----------------- ------------------
Net increase (decrease) from operating activities 534,340 (117,100)
- ----------------------------------------------------------------------------------- ----------------- ------------------
Net Increase in Cash and Foreign Currency (5,514) 0
=================================================================================== ================= ==================
Cash and Foreign Currency
Beginning of period 5,514 0
- ----------------------------------------------------------------------------------- ----------------- ------------------
End of period $ 0 $ 0
=================================================================================== ================= ==================
</TABLE>
8 PIMCO Funds See accompanying notes
<PAGE>
Schedule of Investments
International Bond Fund
September 30, 1998 (Unaudited)
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
ARGENTINA (e) 4.4%
- --------------------------------------------------------------------------------
Republic of Argentina
3.044% due 04/01/01(d) AP 9,537 $ 7,313
3.241% due 09/01/02(d) 22,029 15,436
3.044% due 04/01/07 634 426
--------
Total Argentina 23,175
(Cost $26,232) ========
- --------------------------------------------------------------------------------
AUSTRALIA (c)(e) 2.4%
- --------------------------------------------------------------------------------
Commonwealth of Australia
8.750% due 08/15/08 A$ 11,400 8,692
7.500% due 09/15/09 5,600 3,988
--------
Total Australia 12,680
(Cost $12,245) ========
- --------------------------------------------------------------------------------
CANADA (c)(e) 8.6%
- --------------------------------------------------------------------------------
Commonwealth of Canada
6.625% due 10/03/07 N$ 50,000 25,579
4.250% due 12/01/26(g) C$ 29,565 19,944
--------
Total Canada 45,523
(Cost $52,806) ========
- --------------------------------------------------------------------------------
CROATIA 0.0%
- --------------------------------------------------------------------------------
Republic of Croatia
6.563% due 07/31/06(d) $ 171 120
--------
Total Croatia 120
(Cost $156) ========
- --------------------------------------------------------------------------------
FINLAND (c)(e) 10.6%
- --------------------------------------------------------------------------------
Merita
6.175% due 09/11/03(d) 31,500 31,500
Republic of Finland
6.000% due 04/25/08 FM 110,000 24,506
--------
Total Finland 56,006
(Cost $54,838) ========
- --------------------------------------------------------------------------------
GREECE (c)(e) 8.8%
- --------------------------------------------------------------------------------
Hellenic Republic
11.200% due 05/19/03(d) GD 1,100,000 3,825
11.100% due 06/17/03(d) 1,611,700 5,613
11.000% due 10/23/03(d) 710,400 2,495
8.800% due 06/19/07 9,696,500 34,309
--------
Total Greece 46,242
(Cost $47,152) ========
- --------------------------------------------------------------------------------
ITALY (e) 0.8%
- --------------------------------------------------------------------------------
Republic of Italy
6.000% due 02/15/00 IL 7,050,000 4,391
--------
Total Italy 4,391
(Cost $4,067) ========
- --------------------------------------------------------------------------------
JAPAN (c)(e) 3.1%
- --------------------------------------------------------------------------------
Bank of Tokyo
5.940% due 01/19/99 $ 10,700 10,700
5.938% due 07/20/99 500 500
5.938% due 07/30/99 5,050 5,050
--------
Total Japan 16,250
(Cost $33,916) ========
- --------------------------------------------------------------------------------
NEW ZEALAND (c)(e) 5.7%
- --------------------------------------------------------------------------------
International Bank Reconstruction & Development
7.250% due 06/20/02 N$ 5,050 2,601
Commonwealth of New Zealand
4.500% due 02/15/16(g) 51,900 27,310
--------
Total New Zealand 29,911
(Cost $34,663) ========
- --------------------------------------------------------------------------------
SPAIN (c)(e) 7.2%
- --------------------------------------------------------------------------------
Kingdom of Spain
6.000% due 01/31/08 SP 4,447,400 $ 35,190
6.000% due 01/31/29 361,300 2,757
--------
Total Spain 37,947
(Cost $36,305) ========
- --------------------------------------------------------------------------------
SUPRANATIONAL (e) 0.6%
- --------------------------------------------------------------------------------
World Bank
10.250% due 04/11/02 PP 155,000 2,923
--------
Total Supranational 2,923
(Cost $5,890) ========
- --------------------------------------------------------------------------------
UNITED STATES 82.8%
- --------------------------------------------------------------------------------
Asset-Backed Securities 2.0%
Champion Home Equity Loan Trust
8.531% due 02/25/28(d) $ 4,651 4,746
Emergent Home Equity Loan Trust
6.745% due 05/15/12 3,400 3,439
Pacific Southwest Bank
6.060% due 06/15/02 2,351 2,343
--------
10,528
========
Corporate Bonds & Notes 33.0%
Associates Corp. of North America
5.788% due 08/27/01(d) 4,900 4,913
6.000% due 04/15/03 500 516
CSFP Credit
6.199% due 11/19/04(h) 28,450 27,881
Ford Motor Credit Corp.
5.330% due 03/23/99(d) 12,500 12,492
8.200% due 02/15/02 1,000 1,087
6.125% due 04/28/03 3,100 3,196
Fuji Bank
9.870% due 12/31/49(d) 3,900 1,734
General Motors Acceptance Corp.
6.750% due 02/07/02 900 940
Heller Financial, Inc.
5.796% due 04/01/99(d) 9,000 9,013
J.P. Morgan & Co.
6.189% due 02/15/12(g) 500 477
Lehman Brothers, Inc.
6.150% due 03/15/00 30,000 29,747
Merrill Lynch & Co.
5.758% due 11/01/01(d) 5,890 5,894
Salomon, Smith Barney Holdings
3.650% due 02/14/02(g) 59,886 58,199
Sumitomo
9.400% due 12/29/49(d) 7,500 6,311
TCI Communications, Inc.
6.175% due 04/01/02(d) 7,200 7,127
Tokai Capital Corp.
9.980% due 12/29/49(d) 6,500 4,899
--------
174,426
========
Mortgage-Backed Securities 27.1%
Federal Home Loan Mortgage Corp.
6.000% due 10/14/28 78,800 78,800
7.437% due 06/01/22(d) 2,158 2,201
7.500% due 08/01/22(d) 1,436 1,500
Federal National Mortgage Assn.
5.500% due 02/25/05 911 917
7.535% due 07/01/21-08/01/23(d)(f) 3,247 3,383
7.580% due 01/01/23(d) 2,008 2,083
7.614% due 01/01/23(d) 2,626 2,725
7.757% due 11/01/22(d) 1,899 1,973
Government National Mortgage Assn.
6.500% due 12/20/25-11/20/26(d)(f) 1,847 1,878
6.875% due 04/20/25-05/20/25(d)(f) 7,109 7,270
7.000% due 07/20/22-12/20/26(d)(f) 35,404 36,085
Resolution Trust Corp.
6.681% due 06/25/21(d) 2,147 2,079
Structured Asset Securities Corp.
5.794% due 01/25/00(d) 2,265 2,267
--------
143,161
========
1998 Semi-Annual Report See accompanying notes 9
<PAGE>
Schedule of Investments (Cont.)
International Bond Fund
September 30, 1998 (Unaudited)
Principal
Amount Value
(000s) (000s)
================================================================================
U.S. Government Agencies 6.8%
Federal Home Loan Bank
5.388% due 02/15/02(d) $ 31,480 $ 30,880
Student Loan Marketing Assn.
4.847% due 02/20/00(d) 1,750 1,736
5.877% due 10/25/07(d) 3,500 3,498
----------
36,114
==========
U.S. Treasury Obligations 13.9%
Treasury Inflation Protected Securities
3.625% due 07/15/02(g) 8,274 8,313
U.S. Treasury Bonds
6.000% due 02/15/26 39,509 44,225
U.S. Treasury Notes
5.750% due 11/30/02 11,600 12,205
7.000% due 07/15/06 7,500 8,742
----------
73,485
----------
Total United States 437,714
(Cost $421,482) ----------
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 6.9%
- --------------------------------------------------------------------------------
Commercial Paper 5.7%
General Electric Capital Corp.
5.330% due 10/06/98 2,800 2,798
General Motors Acceptance Corp.
5.530% due 10/07/98 11,600 11,589
Motorola, Inc.
5.390% due 10/06/98 4,000 3,997
National Rural Utilities Cooperative
5.320% due 12/03/98 3,300 3,269
New Center Asset Trust
5.530% due 10/26/98 3,300 3,287
Pfizer, Inc.
5.490% due 10/14/98 5,000 4,990
----------
29,930
==========
U.S. Treasury Bills (b)(f) 1.2%
4.996% due 10/15/98-12/03/98 6,265 6,251
----------
Total Short-Term Instruments 36,181
(Cost $36,180) ----------
Total Investments (a) 141.9% $ 749,063
(Cost $765,932)
Other Assets and Liabilities (Net) (41.9%) (221,059)
----------
Net Assets 100.0% $ 528,004
==========
Notes to Schedule of Investments (amounts in thousands):
(a) At September 30, 1998, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. 9,646
Aggregate gross unrealized depreciation for all
investments in which there was
an excess of tax cost over value. (26,515)
----------
Unrealized depreciation-net $ (16,869)
==========
(b) Securities with an aggregate market value of $6,251
have been segregated with the custodian to cover margin
requirements for the following open futures contracts at
September 30, 1998:
Unrealized
Contracts Appreciation/
Type (Depreciation)
- -------------------------------------------------------------------------------
Deutschmark 10 Year Bond (LIF) (12/98) 350 $ (616)
U.S. Treasury 10 Year Note (12/98) 700 5,431
--------------
$ 4,815
--------------
(c) Foreign forward currency contracts outstanding at September 30, 1998:
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
- -------------------------------------------------------------------------------
Buy A$ 19,245 10/98 $ 4
Sell 19,245 10/98 119
Sell BP 761 10/98 (51)
Buy 369 12/98 7
Buy C$ 59,935 10/98 (149)
Sell 91,513 10/98 2,017
Buy DM 97,878 10/98 475
Sell 988 10/98 (1)
Buy 970 11/98 7
Sell 132,467 11/98 (4,030)
Sell FM 1,816 10/98 (4)
Buy GD 3,508,000 10/98 111
Sell 4,663,545 10/98 (563)
Buy JY 1,344,750 10/98 (110)
Buy 2,593,504 11/98 509
Sell 3,532,499 11/98 (1,412)
Sell 5,099,953 12/98 1,224
Sell N$ 106,191 12/98 762
Buy NK 215,748 10/98 1,115
Sell 40,000 10/98 8
Buy 213,403 11/98 573
Sell 92,665 11/98 (516)
Buy 12,141 12/98 27
Sell SF 26,894 10/98 (616)
Sell SP 79,615 12/98 (5)
--------------
$ (499)
==============
(d) Variable rate security. The rate listed is as of September 30, 1998.
(e) Principal amount denoted in indicated currency:
A$ - Australian Dollar
AP - Argentine Peso
BP - British Pound
C$ - Canadian Dollar
DM - German Mark
FM - Finnish Markka
GD - Greek Drachma
IL - Italian Lira
JY - Japanese Yen
N$ - New Zealand Dollar
NK - Norwegian Kron
PP - Philippines Peso
SF - Swiss Franc
SP - Spanish Peseta
(f) Securities are grouped by coupon and represent a range of maturities.
(g) Principal amount of the security is adjusted for inflation.
(h) Restricted security.
10 PIMCO Funds See accompanying notes
<PAGE>
================================================================================
(i) Swap agreements outstanding at September 30, 1998:
Unrealized
Notional Appreciation/
Type Amount Depreciation
- --------------------------------------------------------------------------------
Receive fixed rate and pay floating rate on
Australian 6 month Bank Bill Rate.
Broker: Deutsche Bank AG New York
Exp. 09/11/07 A$ 176,150 $ 7,508
Receive floating rate on 6 month JY-LIBOR
and pay fixed rate equal to 2.524%
Broker: Deutsche Bank AG New York
Exp. 09/11/07 JY 12,732,500 (10,363)
Receive floating rate on 6 month JY-LIBOR
and pay fixed rate equal to 1.810%
Broker: Deutsche Bank AG New York
Exp. 06/11/08 JY 3,500,000 (1,203)
Receive floating rate based on 6 month Drachma/ATHIMID
and pay fixed rate equal to 13.720%.
Broker: Merrill Lynch
Exp. 03/12/00 GD 9,350,154 1,188
Receive fixed rate equal to 5.95% and pay
floating rate 3 month LIBOR.
Broker: Deutsche Bank AG New York
Exp. 07/28/05 $ 103,000 5,182
Receive floating rate 3 month LIBOR and pay
fixed rate 5.701%.
Broker: Merrill Lynch
Exp. 09/07/05 25,080 849
------------
$ 3,161
============
1998 Semi-Annual Report See accompanying notes 11
<PAGE>
Schedule of Investments
Emerging Markets Bond Fund II
September 30, 1998 (Unaudited)
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
ARGENTINA (c) 17.9%
- --------------------------------------------------------------------------------
Republic of Argentina
8.750% due 07/10/02 AP 2,500 $ 1,738
6.625% due 03/31/05 $ 2,350 1,876
8.726% due 04/10/05(d) 5,000 4,312
11.750% due 02/12/07 AP 2,000 1,455
11.375% due 01/30/17 $ 2,000 1,830
5.750% due 03/31/23(d) 4,000 2,680
6.625% due 03/31/23(d) 3,500 2,341
-----------
Total Argentina 16,232
(Cost $18,272) ===========
- --------------------------------------------------------------------------------
AUSTRIA 2.1%
- --------------------------------------------------------------------------------
Oesterreich Kontrollbank
5.220% due 11/30/98 1,900 1,883
-----------
Total Austria 1,883
(Cost $1,883) ===========
- --------------------------------------------------------------------------------
BRAZIL 6.0%
- --------------------------------------------------------------------------------
Government of Brazil
6.688% due 04/15/12(d) 5,700 2,850
8.000% due 04/15/14 4,409 2,618
-----------
Total Brazil 5,468
(Cost $5,501) ===========
- --------------------------------------------------------------------------------
CANADA 5.0%
- --------------------------------------------------------------------------------
Province of British Columbia
5.510% due 10/05/98 4,500 4,497
-----------
Total Canada 4,497
(Cost $4,497) ===========
- --------------------------------------------------------------------------------
GERMANY 1.4%
- --------------------------------------------------------------------------------
KFW International Finance, Inc.
5.490% due 11/03/98 300 298
5.460% due 11/25/98 1,000 992
-----------
Total Germany 1,290
(Cost $1,290) ===========
- --------------------------------------------------------------------------------
MEXICO 23.6%
- --------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior
7.250% due 02/02/04 4,750 3,881
Petroleos Mexicanos
11.157% due 07/15/05(d) 5,000 4,363
United Mexican States
8.625% due 03/12/08 3,000 2,558
11.375% due 09/15/16 2,500 2,369
6.250% due 12/31/19 11,250 8,212
-----------
Total Mexico 21,383
(Cost $22,870) ===========
- --------------------------------------------------------------------------------
PHILIPPINES 3.6%
- --------------------------------------------------------------------------------
Central Bank Philippines
6.000% due 06/01/08(d) 1,250 888
Republic of Philippines
6.500% due 12/01/17 3,250 2,344
-----------
Total Philippines 3,232
(Cost $3,573) ===========
- --------------------------------------------------------------------------------
POLAND 9.9%
- --------------------------------------------------------------------------------
Republic of Poland
4.000% due 10/27/14 5,000 4,281
3.000% due 10/27/24(d) 4,250 2,784
3.750% due 10/27/24(d) 2,750 1,897
-----------
Total Poland 8,962
(Cost $9,029) ===========
- --------------------------------------------------------------------------------
SOUTH KOREA 25.0%
- --------------------------------------------------------------------------------
Korea Development Bank
6.250% due 05/01/00 2,600 2,370
9.600% due 12/01/00 2,500 2,378
Korean Export-Import Bank
7.100% due 03/15/07 6,100 4,981
Republic of Korea
8.875% due 04/15/08 15,000 12,909
-----------
Total South Korea 22,638
(Cost $23,083) ===========
- --------------------------------------------------------------------------------
SWEDEN 0.4%
- --------------------------------------------------------------------------------
Kingdom of Sweden
5.520% due 12/09/98 400 396
-----------
Total Sweden 396
(Cost $396) ===========
- --------------------------------------------------------------------------------
UNITED STATES 13.9%
- --------------------------------------------------------------------------------
Corporate Bonds & Notes 7.3%
Chrysler Financial Corp.
5.675% due 06/08/01(d) 1,000 998
Contimortgage Home Equity Loan Trust
5.730% due 06/15/28(d) 965 962
Ford Motor Credit Corp.
5.788% due 08/27/01(d) 2,100 2,099
Heller Financial, Inc.
5.830% due 09/25/00(d) 1,000 1,001
National Power Corp.
7.625% due 11/15/00 1,000 877
9.625% due 05/15/28 1,250 802
-----------
6,739
===========
Mortgage-Backed Securities 4.9%
General Electric Capital Mortgage
6.750% due 12/25/12 3,680 3,737
Government National Mortgage Assn.
6.875% due 04/20/27(d) 674 688
-----------
4,425
===========
U.S. Government Agencies 1.7%
Student Loan Marketing Assn.
5.823% due 04/25/07(d) 1,500 1,500
-----------
Total United States 12,664
(Cost $13,137) ===========
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 12.9%
- --------------------------------------------------------------------------------
Commercial Paper 11.2%
E.I. Du Pont de Nemours
5.270% due 10/29/98 700 697
5.480% due 11/04/98 1,600 1,592
Federal Home Loan Mortgage Corp.
5.250% due 10/02/98 500 500
5.190% due 10/16/98 100 100
General Motors Acceptance Corp.
5.490% due 10/21/98 1,700 1,695
IBM Credit Corp.
5.480% due 11/24/98 900 893
National Rural Utilities Cooperative
5.500% due 10/19/98 1,000 997
5.490% due 11/06/98 2,800 2,785
New Center Asset Trust
5.520% due 10/23/98 1,000 997
-----------
10,256
===========
12 PIMCO Funds See accompanying notes
<PAGE>
Principal
Amount Value
(000s) (000s)
================================================================================
Repurchase Agreement 1.5%
State Street Bank
4.750% due 10/01/98 $ 1,329 $ 1,329
(Dated 09/30/98. Collateralized by U.S. Treasury -----------
Note 5.750% 10/31/02 valued at $1,358,900.
Repurchase proceeds are $1,329,175.)
U.S. Treasury Bills (b) 0.2%
4.969% due 12/03/98 145 144
-----------
Total Short-Term Instruments 11,729
(Cost $11,728) ===========
Total Investments (a) 121.7% $ 110,374
(Cost $115,259)
Other Assets and Liabilities (Net) (21.7%) (19,652)
-----------
Net Assets 100.0% $ 90,722
===========
Notes to Schedule of Investments (amounts in thousands):
(a) At September 30, 1998, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess
of value over tax cost. $ 498
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (5,383)
-----------
Unrealized depreciation-net $ (4,885)
===========
(b) Securities with an aggregate market value of $144
have been segregated with the custodian to cover margin
requirements for the following open futures contracts at
September 30, 1998:
Unrealized
Type Contracts Appreciation
- --------------------------------------------------------------------------------
U.S. Treasury 30 Year Bond (12/98) 15 $ 47
(c) Principal amount denoted in indicated currency:
AP - Argentine Peso
(d) Variable rate security. The rate listed is as of September 30, 1998.
1998 Semi-Annual Report See accompanying notes 13
<PAGE>
Notes to Financial Statements
September 30, 1998 (Unaudited)
1. Organization
PIMCO Funds: Pacific Investment Management Series (the "Trust") was established
as a Massachusetts business trust on February 19, 1987. The Trust is registered
under the Investment Company Act of 1940 (the "Act"), as amended, as an open-end
investment management company. The Trust currently consists of 25 separate
investment funds. The International Bond and Emerging Market Bond II Funds (the
"Funds") are a series of the Trust. The following is a summary of significant
accounting policies followed in the preparation of the Funds' financial
statements. The policies are in conformity with generally accepted accounting
principles.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. Portfolio securities and other financial instruments for
which market quotations are readily available are stated at market value. Market
value is determined on the basis of last reported sales prices, or if no sales
are reported, as is the case for most securities traded over-the-counter, the
mean between representative bid and asked quotations obtained from a quotation
reporting system or from established market makers. Fixed income securities,
including those to be purchased under firm commitment agreements (other than
obligations having a maturity of sixty days or less), are normally valued on the
basis of quotes obtained from brokers and dealers or pricing services.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost, which approximates market value. Certain fixed income securities
for which daily market quotations are not available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to fixed income
securities whose prices are more readily obtainable.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled a month or more after the trade date.
Realized gains and losses from securities sold are recorded on the identified
cost basis. Dividend income is recorded on the ex-dividend date, except certain
dividends from foreign securities where the ex-dividend date may have passed,
are recorded as soon as the Fund is informed of the ex-dividend date. Interest
income, adjusted for the accretion of discounts and amortization of premiums, is
recorded on the accrual basis.
14 PIMCO Funds
<PAGE>
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, of Emerging Market Bond Fund II, are declared on each day the
Trust is open for business and are distributed to shareholders monthly.
International Bond Fund declares and distributes dividends representing
substantially all net investment income on a quarterly basis. Net realized
capital gains earned by a Fund, if any, will be distributed no less frequently
than once each year.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for such items as wash sales, foreign currency transactions, net
operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statements of Changes in Net Assets have been reclassified to paid
in capital. In addition, other amounts have been reclassified between
undistributed net investment income, accumulated undistributed net realized
gains or losses and paid in capital to more appropriately conform financial
accounting to tax characterizations of dividends and distributions.
Foreign Currency. Foreign currencies, investments, and other assets and
liabilities are translated into U.S. dollars at the exchange rates prevailing at
the end of the period. Fluctuations in the value of these assets and liabilities
resulting from changes in exchange rates are recorded as unrealized foreign
currency gains (losses). Realized gains (losses) and unrealized appreciation
(depreciation) on investment securities and income and expenses are translated
on the respective dates of such transactions. The effect of changes in foreign
currency exchange rates on investments in securities are not segregated in the
Statements of Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or loss
on investment securities.
Federal Income Taxes. Each Fund intends to qualify as a regulated investment
company and distribute all of its taxable income and net realized gains, if
applicable, to shareholders. Accordingly, no provision for Federal income taxes
has been made.
Financing Transactions. A Fund may enter into financing transactions consisting
of the sale by the Fund of securities, together with a commitment to repurchase
similar securities at a future date. The difference between the selling price
and the future purchase price is an adjustment to interest income. If the
counterparty to whom the Fund sells the security becomes insolvent, a Fund's
right to repurchase the security may be restricted; the value of the security
may change over the term of the financing transaction; and the return earned by
a Fund with the proceeds of a financing transaction may not exceed transaction
costs. Included in payable for investments and foreign currency purchased is
$159,337,482 and $17,515,111 for the International Bond and Emerging Markets
Bond II Funds related to these financing transactions.
Futures and Options. The Funds are authorized to enter into futures contracts
and options. A Fund may use futures contracts and options to manage its exposure
to the securities markets or to movements in interest rates and currency values.
The primary risks associated with the use of futures contracts and options are
imperfect correlation between the change in market value of the securities held
by a Fund and the prices of futures contracts and options, the possibility of an
illiquid market, and the inability of the counterparty to meet the terms of the
contract. Futures contracts and purchased options are valued based upon their
quoted daily settlement prices. The premium received for a written option is
recorded as an asset with an equal liability which is marked to market based on
the option's quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
1998 Semi-Annual Report 15
<PAGE>
Notes to Financial Statements (Cont.)
September 30, 1998 (Unaudited)
Forward Currency Contracts. The Funds are authorized to enter into forward
foreign exchange contracts for the purpose of hedging against foreign exchange
risk arising from the Fund's investment or anticipated investment in securities
denominated in foreign currencies. A Fund also may enter into these contracts
for purposes of increasing exposure to a foreign currency or to shift exposure
to foreign currency fluctuations from one country to another. All commitments
are marked to market daily at the applicable translation rates and any resulting
unrealized gains or losses are recorded. Realized gains or losses are recorded
at the time the forward contract matures or by delivery of the currency. Risks
may arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
Swaps. The Funds are authorized to enter into interest rate, total return and
currency exchange swap agreements in order to obtain a desired return at a lower
cost than if the Fund had invested directly in the asset that yielded the
desired return. Swaps involve commitments to exchange components of income
(generally interest or returns) pegged to the underlying assets based on a
notional principal amount. Swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as unrealized
gains or losses in the Statement of Operations. 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 counterparty.
Delayed Delivery Transactions. A Fund may purchase or sell securities on a
when-issued or delayed delivery basis. These transactions involve a commitment
by a Fund to purchase or sell securities for a predetermined price or yield,
with payment and delivery taking place beyond the customary settlement period.
When delayed delivery purchases are outstanding, a Fund will set aside and
maintain until the settlement date in a segregated account, liquid assets in an
amount sufficient to meet the purchase price. When purchasing a security on a
delayed delivery basis, a 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. A Fund may
dispose of or renegotiate a delayed delivery transaction after it is entered
into, and may sell when-issued securities before they are delivered, which may
result in a capital gain or loss. When the Fund has sold a security on a delayed
delivery basis, the Fund does not participate in future gains and losses with
respect to the security. Forward sales commitments are accounted for by the Fund
in the same manner as forward currency contracts discussed above.
Inflation-Indexed Bonds. Inflation-indexed bonds are fixed income securities
whose principal value is periodically adjusted to the rate of inflation. The
interest rate on these bonds is generally fixed at issuance at a rate lower than
typical bonds. Over the life of an inflation-indexed bond, however, interest
will be paid based on a principal value which is adjusted for inflation. Any
increase in the principal amount of an inflation-indexed bond will be considered
interest income, even though principal is not received until maturity.
Repurchase Agreements. Each Fund may engage in repurchase transactions. Under
the terms of a typical repurchase agreement, the Fund takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time. The
market value of the collateral must be equal at all times to the total amount of
the repurchase obligations, including interest. Generally, in the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred.
16 PIMCO Funds
<PAGE>
Restricted Securities. Certain funds are permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These securities
generally may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. Pacific Investment Management Company (PIMCO) is a
wholly owned subsidiary partnership of PIMCO Advisors L.P. which serves as
investment adviser (the "Adviser") to the Trust, pursuant to an investment
advisory contract. The Adviser receives a monthly fee from each Fund at an
annual rate based on average daily net assets of the Fund. The Advisory Fee is
charged at the annual rate of 0.25% for the International Bond Fund and 0.45%
for the Emerging Market Bond Fund II.
Administration Fee. PIMCO serves as administrator (the "Administrator"), and
provides administrative services to the Trust for which it receives from each
Fund a monthly administrative fee based on each share class's average daily net
assets. The Administration Fee is charged at the annual rate of 0.25% for the
International Bond Fund and 0.40% for the Emerging Markets Bond Fund II.
Expenses. The Trust is responsible for the following expenses: (i) salaries and
other compensation of any of the Trust's executive officers and employees who
are not officers, directors, stockholders or employees of PIMCO or its
subsidiaries or affiliates; (ii) taxes and governmental fees; (iii) brokerage
fees and commissions and other portfolio transaction expenses; (iv) the cost of
borrowing money, including interest expenses; (v) fees and expenses of the
Trustees who are not "interested persons" of PIMCO or the Trust, and any counsel
retained exclusively for their benefit; (vi) extraordinary expenses, including
costs of litigation and indemnification expenses; and (vii) expenses, such as
organizational expenses, which are capitalized in accordance with generally
accepted accounting principles. Each unaffiliated Trustee receives an annual
retainer of $45,000, plus $3,000 for each Board of Trustees meeting attended in
person and $500 for each meeting attended telephonically, plus reimbursement of
related expenses. In addition, each committee chair receives an annual retainer
of $1,500. These expenses are allocated to the Funds of the Trust according to
their respective net assets.
Distributor. PIMCO Funds Distributors LLC, ("PFD"), formerly PIMCO Funds
Distribution Company a wholly-owned subsidiary of PIMCO Advisors L.P., serves as
the distributor of the Funds' shares.
4. Purchases and Sales of Securities
Purchases and sales of investment securities (excluding short-term instruments)
for the period ended September 30, 1998 were as follows (amounts in thousands):
U.S. Government/Agency All Other
-------------------------------------------------
Purchases Sales Purchases Sales
- -------------------------------------------------------------------------------
International Bond Fund $ 328,849 $ 267,813 $ 740,532 $ 932,104
Emerging Markets Bond Fund II 822 0 161,126 59,724
1998 Semi-Annual Report 17
<PAGE>
Notes to Financial Statements (Cont.)
September 30, 1998 (Unaudited)
5. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(shares and amounts in thousands):
<TABLE>
<CAPTION>
Emerging Markets
International Bond Fund Bond Fund II
------------------------------------------------- ------------------------
Six Months Ended 9/30/98 Year Ended 3/31/98 Six Months Ended 9/30/98
Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------- -------------------------------------------------- ------------------------
<S> <C> <C>
Receipts for shares sold 1,248 $ 12,487 33,657 $ 254,766 10,454 $ 102,200
- ---------------------------------------------------- -------------------------------------------------- ------------------------
Issued as reinvestment of distributions 1,011 3,833 18,333 129,047 271 2,437
- ---------------------------------------------------- -------------------------------------------------- ------------------------
Cost of shares redeemed (42,037) (234,425) (73,282) (574,349) (256) (2,505)
- ---------------------------------------------------- -------------------------------------------------- ------------------------
Net increase (decrease) resulting from
Fund share transactions (39,778) $(218,105) (21,292) $ (190,536) 10,469 $ 102,132
==================================================== ================================================== ========================
</TABLE>
6. Federal Income Tax Matters
For the year ended March 31, 1998, the International Bond Fund utilized capital
loss carryforwards of $1,611,744.
18 PIMCO Funds
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Funds. Founded in 1971, Pacific Investment
Management Company currently manages assets in excess of $148 billion on behalf
of mutual fund and institutional clients located around the world.
Pacific Investment Management Company is one of seven investment advisory firms
which form PIMCO Advisors Holdings L.P., the nation's fourth largest publicly
traded investment management concern with combined assets under management in
excess of $226 billion. Widely recognized for providing consistent performance
and high-quality client service, the seven affiliated firms are:
Pacific Investment Management Company/Newport Beach, California
Oppenheimer Capital/New York, New York
Columbus Circle Investors/Stamford, Connecticut
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
Blairlogie Capital Management/Edinburgh, Scotland
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris Chairman and Trustee
R. Wesley Burns President and Trustee
Guilford C. Babcock Trustee
Vern O. Curtis Trustee
Thomas P. Kemp Trustee
William J. Popejoy Trustee
Garlin G. Flynn Secretary
John P. Hardaway Treasurer
Investment Adviser and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
P I M C O
- ---------
FUNDS
840 NEWPORT CENTER DRIVE, SUITE 300
NEWPORT BEACH, CA 92660
800.927.4648
This report is submitted for the general information of the shareholders
of the PIMCO International Bond Fund. It is not authorized for distribution
to prospective investors unless accompanied or preceded by an effective
prospectus for the PIMCO Funds, which contains information covering its
investment policies as well as other pertinent information.
PIMCO Funds Distributors LLC
2187 Atlantic Street, Stamford, CT 06902
