<PAGE>
P I M C O
Funds
International Bond Fund
Annual Report
March 31, 1998
<PAGE>
CHAIRMAN'S LETTER
Dear Client:
Developed bond markets around the globe experienced strong returns for the one-
year period ended March 31, 1998. Continued low inflation, modest economic
growth and two significant international events, the European Monetary Union
("EMU") and the Asian economic crisis, were central themes.
In Europe, market movements were dominated by the steady march toward monetary
union. As the fiscal year advanced, the probability of broad EMU participation
kept most markets keenly focused on German interest rate movements. Investors
were rewarded when German interest rates eased lower on little evidence of
inflation, continued high unemployment and restrained growth. This set the tone
for the balance of Europe where interest rates also declined - substantially in
Spain and Italy - toward the convergence that is necessary to support a single
currency. The Japanese market, already weak from tepid domestic demand, was
adversely impacted by the well-documented economic woes of its regional trading
partners which pushed the world's lowest bond yields even lower to a scant 1.86%
by the end of March.
Because real yields were very similar among developed countries, opportunities
to add significant value through foreign investing were limited and the average
account allocation to the Fund was a modest 4%. Although the Fund's 11.49%
return trailed the 11.98% advance of the Lehman Aggregate Bond Index, and the
13.13% increase posted by the currency-hedged Salomon World Government Bond
Index, the performance impact on a typical account was small. Shown below is a
summary of the Fund's investment performance compared to these market indices
over various time periods. Performance of the Fund is net of fees and reflects
the reinvestment of dividends.
TOTAL RETURN INVESTMENT PERFORMANCE
Annualized Returns Ended March 31, 1998
<TABLE>
<CAPTION>
International Salomon World Lehman Brothers
Bond Fund Government Aggregate
(Incep. 12/13/89) Bond Index Bond Index
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year 11.49% 13.13% 11.98%
3 Years 14.12% 12.73% 9.18%
5 Years 9.35% 9.86% 6.94%
Since Inception 9.44% - -
</TABLE>
CUMULATIVE RETURNS THROUGH MARCH 31, 1998
$5,000,000 invested at inception
<TABLE>
<CAPTION>
Salomon World Lehman Brothers
International Government Aggregate
MONTH Bond Bond Index Bond Index
- -------------------------------------------------------------------------
<S> <C> <C> <C>
12/31/89 5,000,000.00 5,000,000.00 5,000,000.00
01/31/90
02/28/90
03/31/90 4,924,924.92 4,825,551.51 4,960,221.55
04/30/90
05/31/90
06/30/90 5,060,889.11 4,968,415.16 5,141,490.43
07/31/90
08/31/90
09/30/90 5,096,854.82 4,892,917.32 5,185,548.84
10/31/90
11/30/90
12/31/90 5,353,790.72 5,167,064.59 5,448,011.08
01/31/91
02/28/91
03/31/91 5,493,970.54 5,345,842.58 5,600,704.93
04/30/91
05/31/91
06/30/91 5,576,877.54 5,374,551.92 5,691,591.14
07/31/91
08/31/91
09/30/91 5,868,625.66 5,582,966.31 6,014,853.98
10/31/91
11/30/91
12/31/91 8,117,563.28 5,741,001.09 6,319,864.05
01/31/92
02/29/92
03/31/92 6,096,692.20 5,775,220.70 6,239,048.34
04/30/92
05/31/92
06/30/92 6,193,942.98 5,879,697.88 6,490,810.67
07/31/92
08/31/92
09/30/92 6,298,508.05 6,037,215.46 6,769,637.46
10/31/92
11/30/92
12/31/92 6,545,750.76 6,190,758.10 6,787,638.47
01/31/93
02/28/93
03/31/93 6,743,337.87 6,366,029.55 7,068,227.59
04/30/93
05/31/93
06/30/93 6,912,627.05 6,470,327.82 7,255,664.65
07/31/93
08/31/93
09/30/93 7,141,355.65 6,719,825.26 7,444,989.93
10/31/93
11/30/93
12/31/93 7,480,183.96 7,002,540.45 7,449,395.77
01/31/94
02/28/94
03/31/94 7,184,356.46 6,746,420.28 7,235,901.31
04/30/94
05/31/94
06/30/94 6,768,254.92 6,605,690.48 7,161,253.78
07/31/94
08/31/94
09/30/94 6,686,584.71 6,626,323.08 7,204,934.54
10/31/94
11/30/94
12/31/94 6,768,742.45 6,742,643.76 7,232,124.87
01/31/95
02/28/95
03/31/95 7,092,879.41 7,113,490.73 7,596,928.50
04/30/95
05/31/95
06/30/95 7,216,814.14 7,458,328.18 8,059,793.55
07/31/95
08/31/95
09/30/95 7,579,084.86 7,709,146.27 8,218,016.18
10/31/95
11/30/95
12/31/95 8,172,816.16 7,999,014.40 8,568,227.59
01/31/96
02/29/96
03/31/96 8,162,452.04 8,061,039.08 8,416,289.02
04/30/96
05/31/96
06/30/96 8,406,605.60 8,224,954.95 8,464,123.87
07/31/96
08/31/96
09/30/96 8,938,478.46 8,547,224.37 8,620,720.04
10/31/96
11/30/96
12/31/96 9,541,698.32 8,831,523.68 8,879,279.96
01/31/97
02/28/97
03/31/97 9,456,645.41 9,006,921.99 8,829,682.78
04/30/97
05/31/97
06/30/97 9,917,870.53 9,293,390.93 9,153,952.67
07/31/97
08/31/97
09/30/97 10,224,041.93 9,619,127.86 9,458,081.57
10/31/97
11/30/97
12/31/97 10,134,126.89 9,895,727.75 9,736,530.72
01/31/98
02/28/98
03/31/98 10,542,816.70 10,189,496.01 9,887,210.47
</TABLE>
Past performance is not an indication of future results. The line graph above
assumes the investment of $5,000,000 on 1/1/90, the first full month following
the Fund's inception on 12/13/89, compared to the Salomon Brothers World
Government Bond Index (Currency Hedged) and the Lehman Brothers Aggregate Bond
Index, each an unmanaged market index. Foreign investing involves potentially
higher risks including foreign currency fluctuations and political or economic
uncertainty.
Within PIMCO's total return investment discipline, success can derive from a
number of sources, including foreign securities. PIMCO believes that the
discretion to utilize the Fund in your account provides the most efficient means
to allocate opportunistically to growing foreign markets.
Sincerely,
/s/ BRENT R. HARRIS
Brent R. Harris
Chairman of the Board
May 15, 1998
1998 Annual Report 1
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected Per Share Data for the Year Ended: 03/31/98 03/31/97 03/31/96 03/31/95 03/31/94
-------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 7.79 $ 8.04 $ 7.44 $ 9.93 $ 10.53
Net investment income 0.64 0.84 0.63 2.18 0.47
Net realized and unrealized gain (loss) 0.19 0.42 0.49 (2.41) 0.24
Total income (loss) from investment operations 0.83 1.26 1.12 (0.23) 0.71
Dividends from net investment income (0.25) (0.50) (0.39) (2.26) (0.96)
Dividends in excess of net investment income 0.00 0.00 (0.13) 0.00 0.00
Distributions from net realized capital gains (0.24) (1.01) 0.00 0.00 (0.35)
Distributions in excess of net realized capital gains (0.95) 0.00 0.00 0.00 0.00
Total distributions (1.44) (1.51) (0.52) (2.26) (1.31)
Net asset value end of period $ 7.18 $ 7.79 $ 8.04 $ 7.44 $ 9.93
Total return (%) 11.49 15.86 15.08 (1.27) 6.54
Net assets end of period (000's) $730,622 $957,950 $2,271,940 $45,950 $2,296,978
Ratio of expenses to average net assets (%) 0.51 0.50 0.50 0.43 0.43
Ratio of net investment income to average net assets (%) 8.17 7.17 6.09 5.90 5.51
Portfolio turnover rate (%) 255 875 1,046 674 370
</TABLE>
2 PIMCO Funds See accompanying notes
<PAGE>
Statement of Assets and Liabilities
March 31, 1998
Amounts in thousands, except per share amounts
<TABLE>
<S> <C>
Assets:
Investments, at value $1,104,207
Cash and foreign currency 5,514
Receivable for investments and foreign currency sold 199,750
Receivable for Fund shares sold 2,500
Variation margin receivable 1,172
Interest and dividends receivable 15,870
Others assets 1,464
----------
1,330,477
==========
Liabilities:
Payable for investments and foreign currency purchased 509,413
Payable for Fund shares redeemed 75,000
Due to custodian 15,106
Accrued investment advisor's fee 168
Accrued administrator's fee 168
----------
599,855
==========
Net Assets $ 730,622
==========
Net Assets Consist of:
Paid in capital $ 741,902
Undistributed net investment income 24,481
Accumulated undistributed net realized loss (2,739)
Net unrealized depreciation (33,022)
----------
$ 730,622
==========
Shares Issued and Outstanding 101,717
----------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 7.18
----------
Cost of Investments Owned $1,157,672
==========
Cost of Foreign Currency Held $ 5,551
==========
</TABLE>
1998 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
For the year ended March 31, 1998
Amounts in thousands
<TABLE>
<S> <C>
Investment Income:
Interest $ 70,974
==========
Expenses:
Investment advisory fees 2,045
Administration fees 2,045
Trustees' fees 11
Miscellaneous 54
----------
Total Expenses 4,155
----------
Net Investment Income 66,819
==========
Net Realized and Unrealized Gain (Loss):
Net realized gain on investments 26,415
Net realized gain on futures contracts and written options 6,104
Net realized gain on foreign currency transactions 19,134
Net change in unrealized depreciation on investments (22,614)
Net change in unrealized appreciation on futures contracts and written options 2,052
Net change in unrealized depreciation on translation of assets
and liabilities denominated in foreign currencies (3,680)
----------
Net Gain 27,411
----------
Net Increase in Assets Resulting from Operations $ 94,230
==========
</TABLE>
4 PIMCO Funds See accompanying notes
<PAGE>
Statement of Changes in Net Assets
Amounts in thousands
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 66,819 $ 80,122
Net realized gain 51,653 102,137
Net change in unrealized depreciation (24,242) (23,658)
--------- -----------
Net increase resulting from operations 94,230 158,601
========= ===========
Distributions to Shareholders:
From net investment income (25,130) (53,658)
From net realized capital gains (21,601) (96,847)
In excess of net realized capital gains (84,291) 0
--------- -----------
Total Distributions (131,022) (150,505)
========= ===========
Fund Share Transactions:
Receipts for shares sold 254,766 282,531
Issued as reinvestment of distributions 129,047 147,963
Cost of shares redeemed (574,349) (1,752,580)
Net decrease resulting from Fund share transactions (190,536) (1,322,086)
--------- -----------
Total Decrease in Net Assets $(227,328) $(1,313,990)
========= ===========
Net Assets:
Beginning of period $ 957,950 $ 2,271,940
End of period * 730,622 957,950
--------- -----------
*Including net undistributed investment income of: $ 24,481 $ 54,413
--------- -----------
</TABLE>
1998 Annual Report See accompanying notes 5
<PAGE>
Statement of Cash Flows
For the year ended March 31, 1998
Amounts in thousands
Increase (Decrease) in Cash and Foreign Currency from:
<TABLE>
<S> <C>
Financing Activities
Sales of Fund shares $ 252,266
Redemptions of Fund shares (499,349)
Cash distributions paid (1,975)
Proceeds from financing transactions (142,609)
Proceeds on short-term borrowings from custodian (net) 15,106
-----------
Net increase (decrease) from financing activities (376,561)
===========
Operating Activities
Purchases of long-term securities and foreign currency (7,385,873)
Proceeds from sales of long-term securities and foreign
currency 7,543,262
Purchases of short-term securities (net) 136,362
Net investment income 66,819
Change in other receivables/payables (net) 17,914
-----------
Net increase (decrease) from operating activities 378,484
-----------
Net Increase in Cash and Foreign Currency 1,923
===========
Cash and Foreign Currency
Beginning of period 3,591
-----------
End of period $ 5,514
===========
</TABLE>
6 PIMCO Funds See accompanying notes
<PAGE>
Schedule of Investments
International Bond Fund
March 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
<S> <C> <C>
ARGENTINA (e) 4.1%
Republic of Argentina
2.976% due 04/01/01 (d) AP 12,335 $ 11,593
3.352% due 09/01/02 (d) 22,029 18,507
--------
Total Argentina 30,100
========
(Cost $27,465)
AUSTRALIA (c)(e) 1.6%
Commonwealth of Australia
9.500% due 08/15/03 14,400 11,322
--------
Total Australia 11,322
========
(Cost $12,306)
CANADA (c)(e) 10.0%
Canadian Wheat Board
5.550% due 04/27/98 $ 19,400 19,322
Commonwealth of Canada
6.625% due 10/03/07 N$ 50,000 25,956
8.000% due 06/01/23 C$ 4,250 3,895
4.250% due 12/01/26 (g) 32,866 23,976
--------
Total Canada 73,149
========
(Cost $78,195)
COLOMBIA 0.1%
Republic of Colombia
7.125% due 05/11/98 $ 535 535
--------
Total Colombia 535
========
(Cost $536)
CROATIA 1.2%
Republic of Croatia
6.500% due 07/31/06 (d) 8,033 7,371
6.500% due 07/31/10 (d) 1,220 1,083
--------
Total Croatia 8,454
========
(Cost $9,100)
DENMARK (c)(e) 0.4%
Kingdom of Denmark
6.000% due 02/15/99 DK 20,000 2,880
--------
Total Denmark 2,880
========
(Cost $3,003)
FINLAND (c)(e) 11.0%
Merita
6.500% due 04/28/03 (d) $ 6,000 6,005
6.019% due 09/11/03 (d) 31,500 31,595
Republic of Finland
7.378% due 08/14/98 FM 142,000 24,974
7.250% due 04/18/06 41,000 8,450
6.000% due 04/25/08 50,000 9,599
--------
Total Finland 80,623
========
(Cost $81,396)
FRANCE (c)(e) 0.9%
Caisse d'Amortissement
5.460% due 04/14/98 $ 6,300 6,288
--------
Total France 6,288
========
(Cost $6,288)
GERMANY (c)(e) 6.2%
KFW International Finance, Inc.
5.520% due 04/03/98 2,100 2,099
5.510% due 04/09/98 12,800 12,784
5.500% due 05/22/98 10,800 10,716
Republic of Germany
6.500% due 07/04/27 DM 31,665 19,635
--------
Total Germany 45,234
========
(Cost $44,862)
GREECE (c)(e) 8.5%
Hellenic Republic
11.200% due 05/19/03 (d) GD 1,100,000 $ 3,419
11.100% due 06/17/03 (d) 1,611,700 5,081
11.000% due 10/23/03 (d) 710,400 2,245
8.800% due 06/19/07 15,779,000 51,469
--------
Total Greece 62,214
========
(Cost $68,038)
HUNGARY (e) 0.5%
Government of Hungary
23.500% due 05/17/98 HF 850,000 4,002
--------
Total Hungary 4,002
========
(Cost $4,508)
INDONESIA (c)(e) 0.3%
Citibank Indonesia
17.000% due 08/12/98 IR 20,000,000 2,073
--------
Total Indonesia 2,073
========
(Cost $5,151)
ITALY (c)(e) 0.0%
Republic of Italy
6.000% due 01/01/00 (d) IL 270,000 152
--------
Total Italy 152
========
(Cost $162)
JAPAN (c)(e) 8.5%
Bank of Tokyo
6.430% due 06/19/98 $ 34,000 34,000
Government of Japan
4.100% due 12/22/03 JY 1,331,000 11,484
Sanwa Bank Limited
6.160% due 05/11/98 $ 16,640 16,640
--------
Total Japan 62,124
========
(Cost $62,647)
NETHERLANDS (c)(e) 0.6%
Kingdom of Netherlands
6.250% due 07/15/98 DG 9,100 4,401
--------
Total Netherlands 4,401
========
(Cost $4,807)
NEW ZEALAND (c)(e) 17.5%
Commonwealth of New Zealand
6.500% due 02/15/00 N$ 66,900 36,080
10.000% due 03/15/02 67,900 40,635
8.000% due 04/15/04 47,350 27,028
4.500% due 02/15/16 (g) 46,150 24,317
--------
Total New Zealand 128,060
========
(Cost $156,310)
SUPRANATIONAL (e) 1.1%
European Bank for Reconstruction
& Development
9.000% due 04/22/98 PP 183,000 4,748
World Bank
10.250% due 04/11/02 155,000 3,070
--------
Total Supranational 7,818
========
(Cost $12,839)
SWEDEN (c)(e) 11.3%
Kingdom of Sweden
10.250% due 05/05/00 SK 493,800 68,054
13.000% due 06/15/01 40,000 6,153
9.000% due 04/20/09 53,300 8,649
--------
Total Sweden 82,856
========
(Cost $86,148)
</TABLE>
1998 Annual Report See accompanying notes 7
<PAGE>
<TABLE>
<S> <C> <C>
UNITED STATES 47.8%
Corporate Bonds and Notes 16.4%
Ford Motor Credit Corp.
5.500% due 03/23/99 (d) $ 12,500 $ 12,474
Heller Financial
5.765% due 04/01/99 (d) 9,000 9,025
J.P. Morgan & Co.
6.189% due 02/15/12 (g) 500 464
Lehman Brothers, Inc.
6.150% due 03/15/00 30,000 29,972
Safety Kleen Corp.
9.250% due 09/15/99 4,000 4,171
Salomon, Smith Barney Holdings
3.650% due 02/14/02 (g) 59,094 57,041
TCI Communications, Inc.
6.359% due 04/01/02 (d) 7,200 7,107
-----------
120,254
===========
U.S. Government Agencies 4.9%
Federal Home Loan Bank
4.121% due 02/15/02 (d) 31,480 30,539
Student Loan Marketing Assn.
5.089% due 02/20/00 (d) 1,750 1,724
6.010% due 10/25/07 (d) 3,500 3,500
-----------
35,763
===========
U.S. Treasury Obligations 13.3%
Treasury Inflation Protected Securities
3.625% due 07/15/02 (g) 63,886 63,287
U.S. Treasury Bonds
6.125% due 11/15/27 32,955 33,800
-----------
97,087
===========
Mortgage-Backed Securities 11.8%
Federal Home Loan Mortgage Corp.
7.858% due 06/01/22 (d) 3,287 3,405
7.919% due 08/01/22 (d) 1,690 1,742
Federal National Mortgage Assn.
7.579% due 01/01/23 (d) 2,487 2,566
7.643% due 01/01/23 (d) 3,080 3,182
7.771% due 11/01/22 (d) 2,496 2,583
7.853% due 08/01/23 (d) 2,548 2,635
8.125% due 07/01/21 (d) 1,796 1,871
Government National Mortgage Assn.
7.000% due 07/20/22-10/20/26 (d)(f) 42,181 43,227
7.375% due 04/20/25-05/20/25 (d)(f) 10,030 10,286
Resolution Trust Corp.
6.664% due 06/25/21 (d) 2,181 2,111
Structured Asset Securities Corp.
5.890% due 01/25/00 (d) 12,519 12,519
-----------
86,127
===========
Asset-Backed Securities 1.4%
Champion Home Equity Loan Trust
8.531% due 02/25/28 (d) 6,327 6,448
Pacific Southwest Bank
6.060% due 06/15/02 3,715 3,700
-----------
10,148
-----------
Total United States 349,379
===========
(Cost $351,368)
SHORT-TERM INSTRUMENTS 19.5%
Commercial Paper 13.6%
American Express Credit
5.520% due 04/15/98 12,800 12,773
Florida Power Corp.
5.470% due 04/08/98 1,900 1,898
Ford Motor Credit Corp.
5.490% due 04/02/98 2,000 2,000
5.550% due 04/02/98 9,800 9,798
5.480% due 04/22/98 1,400 1,396
General Electric Capital Corp.
5.470% due 04/08/98 4,000 3,996
5.550% due 04/16/98 2,000 1,995
General Motors Acceptance Corp.
5.540% due 04/15/98 13,100 13,072
National Rural Utilities Cooperative
5.430% due 04/09/98 $ 2,100 $ 2,097
5.510% due 06/15/98 12,600 12,455
New Center Asset Trust
5.540% due 04/09/98 3,600 3,596
5.530% due 04/22/98 12,500 12,460
5.570% due 05/13/98 7,000 6,955
Procter & Gamble Co.
5.520% due 05/13/98 11,000 10,929
Wisconsin Electric Power & Light
5.530% due 04/07/98 4,000 3,996
-----------
99,416
===========
Repurchase Agreements 5.1%
State Street Bank
5.000% due 04/01/98 9,116 9,116
(Dated 03/31/98. Collateralized by U.S.
Treasury Note 6.125% 05/15/98 valued at
$9,299,638. Repurchase proceeds
are $9,117,266.)
US Treasury Repo
5.800% due 04/01/98 28,000 28,000
(Dated 03/31/98. Collateralized by U.S.
Treasury Note 6.250% 07/31/98 valued at
$28,321,360. Repurchase proceeds
are $28,004,511.)
-----------
37,116
===========
U.S. Treasury Bills (b)(f) 0.8%
4.993% due 06/25/98-07/23/98 6,085 6,011
-----------
Total Short-Term Instruments 142,543
===========
(Cost $142,543)
Total Investments (a) 151.1% $ 1,104,207
===========
(Cost $1,157,672)
Other Assets and Liabilities (Net) (51.1%) (373,585)
-----------
Net Assets 100.0% $ 730,622
===========
</TABLE>
Notes to Schedule of Investments:
<TABLE>
<CAPTION>
<S> <C>
(a) At March 31, 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. $ 4,935
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (58,776)
----------
Unrealized depreciation-net $ (53,841)
==========
</TABLE>
(b) Securities with an aggregate market value of
$6,011 have been segregated with the custodian to cover
margin requirements for the following open future
contracts at March 31, 1998:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Type Contracts (Depreciation)
- -------------------------------------------------------------------------------
<S> <C> <C>
Canadian 10 Year Note (06/98) 200 $ 260
Commonwealth of Australia 3 Year Note (06/98) 29 20
Deutschmark 10 Year Bond (LIF) (06/98) 727 (127)
French Franc 10 Year Future (MAT) (06/98) 83 (40)
U.S. Treasury 2 Year Note (06/98) 138 20
U.S. Treasury 10 Year Note (06/98) 1,781 241
U.S. Treasury 30 Year Bond (06/98) 1,025 616
--------
$ 990
========
</TABLE>
8 PIMCO Funds See accompanying notes
<PAGE>
Principal
Amount Value
(000s) (000s)
- -------------------------------------------------------------------------------
(c) Foreign forward currency contracts outstanding at March 31, 1998:
<TABLE>
<CAPTION>
Principal
Amount Unrealized
Covered Expiration Appreciation/
Type by Contract Month (Depreciation)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy A$ 2,470 04/98 $ (29)
Sell 13,649 04/98 5
Buy BF 1,400 05/98 (1)
Sell 2,490 05/98 1
Buy BP 22,318 04/98 1,179
Sell 22,366 04/98 (956)
Buy C$ 51,374 06/98 61
Sell 27,278 04/98 51
Sell 1,963 06/98 4
Buy DG 12,152 05/98 (92)
Sell 2,450 05/98 25
Sell 9,684 06/98 38
Buy DK 5,700 04/98 (16)
Sell 5,786 04/98 14
Buy DM 68,219 04/98 (515)
Buy 24,586 05/98 (283)
Sell 5,300 04/98 95
Buy EC 10,864 04/98 8
Sell 10,864 04/98 164
Buy FF 2,741 05/98 (9)
Sell 2,741 05/98 10
Buy FM 71,000 04/98 (142)
Sell 109,547 04/98 458
Sell 12,865 05/98 21
Sell GD 3,399,933 04/98 1,114
Sell 871,320 05/98 (68)
Buy IL 11,128 04/98 0
Sell IR 20,000,000 08/98 (1,003)
Buy JY 717,817 05/98 (299)
Sell 2,150,426 06/98 382
Buy N$ 7,364 05/98 (6)
Sell 78,456 04/98 1,338
Sell 69,307 05/98 2,547
Buy NK 150,000 04/98 (330)
Buy 48,225 05/98 (73)
Buy 264,535 06/98 (314)
Buy SF 8,455 06/98 (91)
Sell 7,835 05/98 122
Sell 179,246 06/98 5,289
Buy SK 253,520 04/98 299
Sell 262,464 04/98 117
Buy SP 1,035,673 04/98 (107)
Sell 1,032,643 04/98 79
----------
$ 9,087
==========
</TABLE>
(d) Variable rate security. The rate listed is as of March 31, 1998.
(e) Principal amount denoted in indicated currency:
A$ - Australian Dollar GD - Greek Drachma
AP - Argentine Peso HF - Hungarian Forint
BF - Belgian Franc IL - Italian Lira
BP - British Pound IR - Indonesian Rupiah
C$ - Canadian Dollar JY - Japanese Yen
DG - Dutch Guilder N$ - New Zealand Dollar
DK - Danish Krone NK - Norwegian Kron
DM - German Mark PP - Philippines Peso
EC - European Currency Unit SF - Swiss Franc
FF - French Franc SK - Swedish Krona
FM - Finnish Markka 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) Swap agreements outstanding at March 31, 1998:
<TABLE>
<CAPTION>
Fixed Rate Notional Unrealized
Type (%) Amount Appreciation
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Receive the 10-year Swap Spread
and pay a fixed rate. The 10-year Swap
Spread is the difference between the 10-year
Swap Rate and the 10-year Treasury Rate.
Broker: Merrill Lynch
Exp. 04/11/02 .3625 $ 10,000 $ 57
Broker: Merrill Lynch
Exp. 04/11/02 .3650 15,000 86
Broker: Merrill Lynch
Exp. 04/18/02 .3700 3,000 16
Broker: Merrill Lynch
Exp. 04/23/02 .3700 10,000 55
Broker: Merrill Lynch
Exp. 05/02/02 .3700 7,000 38
Broker: Merrill Lynch
Exp. 05/30/02 .3700 17,000 93
Broker: Merrill Lynch
Exp. 06/05/02 .3575 14,000 83
Broker: Deutsche Bank AG New York
Exp. 06/06/02 .3650 29,000 164
--------
$ 592
========
</TABLE>
<TABLE>
<CAPTION>
Notional Unrealized
Type Amount Appreciation
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 $ 5,691
Receive floating rate on 6 month
Yen/LIBOR and pay fixed rate.
Broker: Deutsche Bank AG New York
Exp. 09/11/07 JY 12,732,500 (3,076)
Receive floating rate based on 6 month
Drachma/ATHIMID and pay fixed rate.
Broker: Merrill Lynch
Exp. 03/13/00 GD 11,543,075 (1,743)
---------
$ 872
=========
</TABLE>
1998 Annual Report See accompanying notes 9
<PAGE>
Notes to Financial Statements
March 31, 1998
1. Significant Accounting Policies
The International Bond Fund (the "Fund") is a series of the PIMCO Funds
(the "Trust"). The Trust was organized under the laws of the Commonwealth
of Massachusetts on February 19, 1987, and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The following is a summary of significant accounting
policies followed in the preparation of the Fund's financial statements.
The policies are in conformity with generally accepted accounting
principles.
Security Valuation. Portfolio securities and other financial instruments
for which market quotations are readily available are stated at market
value. Market value is determined on the basis of last reported sales
prices, or if no sales are reported, as is the case for most securities
traded over-the-counter, the mean between representative bid and asked
quotations obtained from a quotation reporting system or from established
market makers. Fixed income securities, including those to be purchased
under firm commitment agreements (other than obligations having a maturity
of sixty days or less), are normally valued on the basis of quotes obtained
from brokers and dealers or pricing services. 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. Realized gains and losses from securities
sold are recorded on the identified cost basis. Dividend income is recorded
on the ex-dividend date. Interest income is recorded on the accrual basis
commencing on the settlement date of the transaction, and includes the
accretion of discounts and amortization of premiums.
Estimates. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
Dividends and Distributions to Shareholders. The Fund declares and
distributes dividends on a quarterly basis. Any net realized capital gains
from the sale of portfolio securities will be distributed no less
frequently than once each year. The Fund records distributions to
shareholders on the ex-dividend date. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for such items as
wash sales, foreign currency transactions and capital loss carryforwards.
Federal Income Taxes. The Fund intends to qualify as a regulated investment
company and distribute all of its taxable income and net realized gains, if
applicable, to shareholders. Accordingly, no provision for federal income
taxes has been made.
10 PIMCO Funds
<PAGE>
Financing Transactions. The Fund may enter into financing transactions
consisting of the sale by the Fund of securities, together with a
commitment to repurchase similar securities at a future date. The
difference between the selling price and the future purchase price is an
adjustment to interest income. If the counterparty to whom the Fund sells
the security becomes insolvent, the Fund's right to repurchase the security
may be restricted; the value of the security may change over the term of
the financing transaction; and the return earned by the Fund with the
proceeds of a financing transaction may not exceed transaction costs.
Included in payable for investments and foreign currency purchased is
$401,080,933 related to these financing transactions.
Futures and Options. The Fund is authorized to enter into futures contracts
and options. The primary risks associated with the use of futures contracts
and options are imperfect correlation between the change in market value of
the securities held by the Fund and the prices of futures contracts and
options, the possibility of an illiquid market and the inability of the
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.
Forward Currency Contracts. The Fund is authorized to enter into forward
foreign exchange contracts for the purpose of hedging against foreign
exchange risk arising from the Fund's investment or anticipated investment
in securities denominated in foreign currencies. The Fund also may enter
into these contracts for purposes of increasing exposure to a foreign
country or to shift exposure to foreign currency fluctuations from one
country to another. The aggregate principal amounts of the contracts for
which delivery is anticipated are recorded in the Fund's accounts, while
such amounts are not recorded if the Fund intends to settle the contracts
prior to delivery. All commitments are marked to market daily at the
applicable translation rates and any resulting unrealized gains or losses
are recorded. Realized gains or losses are recorded at the time the forward
contract matures or by delivery of the currency. Risks may arise upon
entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
Swaps. Certain 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.
1998 Annual Report 11
<PAGE>
Notes to Financial Statements (Cont.)
March 31, 1998
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.
Delayed Delivery Transactions. The Fund may purchase or sell securities on
a when-issued or delayed delivery basis. These transactions involve a
commitment by the Fund to purchase or sell securities for a predetermined
price or yield, with payment and delivery taking place beyond the customary
settlement period. When delayed delivery purchases are outstanding, the
Fund will set aside and maintain until the settlement date in a segregated
account, liquid assets in an amount sufficient to meet the purchase price.
When purchasing a security on a delayed delivery basis, the Fund assumes
the rights and risks of ownership of the security, including the risk of
price and yield fluctuations, and takes such fluctuations into account when
determining its net asset value. The Fund may dispose of or renegotiate a
delayed delivery transaction after it is entered into, and may sell when-
issued securities before they are delivered, which may result in a capital
gain or loss. When the Fund has sold a security on a delayed delivery
basis, the Fund does not participate in future gains and losses with
respect to the security. Forward sales commitments are accounted for by the
Fund in the same manner as forward currency contracts discussed above.
2. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. Pacific Investment Management Company ("PIMCO")
serves as investment adviser (the "Adviser") to the Trust, pursuant to an
investment advisory contract. The Adviser receives a monthly fee from the
Fund at an annual rate of 0.25% of the Fund's average daily net assets.
Administration Fee. PIMCO also serves as administrator (the Administrator),
and provides administrative services to the Trust for which it receives a
monthly administrative fee based on the Fund's average daily net assets at
the annual rate of 0.25%.
Expenses. The Trust is responsible for the following expenses: (i) salaries
and other compensation of any of the Trust's executive officers and
employees who are not officers, directors, stockholders or employees of
PIMCO or its subsidiaries or affiliates; (ii) taxes and governmental fees;
(iii) brokerage fees and commissions and other portfolio transaction
expenses; (iv) the costs of borrowing money, including interest expenses;
(v) fees and expenses of the Trustees who are not "interested persons" of
PIMCO or the Trust, and any counsel retained exclusively for their benefit;
and (vi) extraordinary expenses, including costs of litigation and
indemnification expenses. Each unaffiliated Trustee receives an annual
retainer of $45,000, plus $3,000 for each Board of Trustees meeting
attended, plus reimbursement of related expenses. In addition, each
committee chair receives an annual retainer of $1,500. These expenses are
allocated to the Funds of the Trust according to their respective net
assets.
Distributor. PIMCO Funds Distributors LLC, ("PFD"), formerly PIMCO Funds
Distribution Company, a wholly-owned subsidiary of PIMCO Advisors L.P.,
serves as the distributor of the Fund's shares.
12 PIMCO Funds
<PAGE>
3. Purchases and Sales of Securities
Purchases and sales of investment securities (excluding short-term
instruments) for the Fund for the year ended March 31, 1998 were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
U.S. Government/Agency All Other
-------------------------------------------------------------------
Purchases Sales Purchases Sales
-------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,676,011 $ 1,599,752 $ 4,808,899 $ 5,823,054
</TABLE>
4. Transactions in Written Call and Put Options were as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Year Ended 3/31/98
------------------
<S> <C>
Balance at 03/31/97 $ 0
--------------------------------------- ------------------
Sales 37
--------------------------------------- ------------------
Closing Buys 0
--------------------------------------- ------------------
Expirations (37)
--------------------------------------- ------------------
Exercised 0
--------------------------------------- ------------------
Balanced at 03/31/98 $ 0
======================================= ==================
</TABLE>
5. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of beneficial interest
with a $.0001 par value. Changes in shares of beneficial interest were as
follows (amounts in thousands):
<TABLE>
<CAPTION>
Year Ended 3/31/98 Year Ended 3/31/97
---------------------------------------
<S> <C> <C>
Shares sold 33,657 34,437
------------------------------- ---------------------------------------
Shares issued as reinvestment
of dividends 18,333 18,752
------------------------------- ---------------------------------------
Shares redeemed (73,282) (212,584)
------------------------------- ---------------------------------------
Net decrease (21,292) (159,395)
=============================== =======================================
</TABLE>
6. Federal Income Tax Matters
As of March 31, 1998, the Fund had a Post-October Capital loss carryforward
of $1,611,744.
1998 Annual Report 13
<PAGE>
Report of Independent Accountants
To the Trustees and Shareholders of the International Bond Fund:
(a portfolio of the PIMCO Funds: Pacific Investment Management Series)
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and of cash flows and the financial
highlights present fairly, in all material respects, the financial position
of the International Bond Fund (the "Fund") at March 31, 1998, and the
results of its operations, the changes in its net assets and cash flows and
the financial highlights for each of the periods indicated, in conformity
with generally accepted accounting principles. These financial statements
and financial highlights (hereafter referred to as "financial statements")
are the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at March 31, 1998 by correspondence
with the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
May 22, 1998
14 PIMCO Funds
<PAGE>
Pacific Investment Management Company is responsible for the manangement and
administration of the PIMCO Funds. Founded in 1971, Pacific Investment
Management Company currently manages assets in excess of $118 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 $200 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 Advisor 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
Price Waterhouse LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
P I M C O
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
